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IOSCO Reviews Regulatory Role in Sustainable Finance

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

IOSCO issued a report, prepared by its Sustainable Finance Network ("SFN"), that highlighted current environmental, social and governance ("ESG") initiatives that are supported by securities regulators. The SEC is the United States member on the SFN.

In the report, "Sustainable Finance and the Role of Securities Regulators and IOSCO," the SFN identified how regulators support varying forms of sustainable finance. The SFN stated that regulators (i) provide transparency regarding sustainable investments, (ii) prevent greenwashing, (iii) define ESG-related risks as "financial risks that need to be managed and disclosed," (iv) encourage Corporate Social Responsibility ("CSR") within financial companies and (iv) redirect capital toward "sustainable investments."

In addition, the SFN recommended certain actions to improve the comparability of disclosures relating to sustainability. Based on input from regulators and market participants, the SFN urged IOSCO to facilitate global coordination and increase transparency in order to address the lack of comparability among third-party frameworks.

Commentary

One common theme that runs through the report: "Respondents have indicated that there are impediments to the development of sustainable finance, such as the lack of reliable and credible data and the lack of standards to promote comparability between sustainable investments" (at page 23). If there is some more limited, specific, and definable objective that IOSCO believes can improve disclosure standards, then IOSCO should specify and define it. Otherwise, "sustainable finance" remains too ambiguous a term (and subject to differing values and beliefs about the future) to support the imposition of another disclosure framework.

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