IOSCO call for action on good practices for asset managers and ESG rating and data providers

By Zhuan Faraj

On 7 November, the International Organisation of Securities Commissions (“IOSCO”) published a call for action for all voluntary standard setting bodies and industry associations operating in financial markets to promote good practices among their members to counter the risk of greenwashing related to asset managers and ESG rating and data providers.

As part of the call for action, IOSCO will engage with voluntary standard setting bodies and industry associations to promote the adoption and implementation of the good practices stemming from the IOSCO recommendations amongst their members, as a baseline to address greenwashing and related investor protection concerns within the context of their domestic regulatory frameworks.

The IOSCO recommendations were published in November 2021 in two reports: the Report on Sustainability-related Practices, Policies, Procedures, and Disclosures in Asset Management; and the Report on ESG Ratings and Data Products Providers.

The good practices for asset managers are:

• Clear expectations regarding: (a) the development and implementation of practices, policies and procedures relating to material sustainability-related risks and opportunities; and (b) related disclosures.
• Clear expectations regarding product-level disclosures to help investors better understand: (a) sustainability-related products; and (b) material sustainability-related risks and opportunities for all products.
• Common sustainable finance-related terms and definitions, including those relating to ESG approaches, to ensure consistency throughout the global asset management industry and comparability among sustainability related products.
• Promoting or participating in financial and investor education initiatives relating to sustainability.
• Clear expectations regarding due diligence and/or the gathering and reviewing of information on the ESG ratings and data products that asset managers use in their internal processes.

The good practices for ESG rating and data providers are:

• Adopting and implementing written policies and procedures designed to help ensure the issuance of high quality ESG ratings and data products based on publicly disclosed data sources where possible and other information sources where necessary, using transparent and defined methodologies.
• Adopting and implementing written policies and procedures designed to help ensure that their decisions are independent, free from political or economic interference, and appropriately address potential conflicts of interest.
• Identifying, avoiding, or appropriately managing, mitigating and disclosing potential conflicts of interest.
• Making adequate levels of public disclosure and transparency a priority for their ESG ratings and data products, including their methodologies and processes.
• Adopting and implementing written policies and procedures designed to address and protect all non-public information received related to their ESG ratings and data products.
• Improving information gathering processes with entities covered by their products.
• Responding to and addressing issues flagged by entities covered by their ESG ratings and data products while maintaining the objectivity of these products.

The call for action can be read in full here.