Supervisory Practices to Address

Greenwashing

Final Report

The Board
OF THE
INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS

FR12/23 DECEMBER 2023

1
 Copies of publications are available from:
The International Organization of Securities Commissions website www.iosco.org
© International Organization of Securities Commissions 2023. All rights reserved. Brief
excerpts may be reproduced or translated provided the source is stated.
Contents

EXECUTIVE SUMMARY ........................................................................................................ 3

CHAPTER 1: INTRODUCTION .............................................................................................. 7
CHAPTER 2: GREENWASHING RISKS ............................................................................... 9
2.1. Growth in Sustainable Investing and Resulting Challenges .................................................. 9
2.2. Understanding Greenwashing .............................................................................................. 11
2.3. Defining Greenwashing ....................................................................................................... 12
2.4. Other Malpractices ............................................................................................................... 14
CHAPTER 3: REGULATORY INITIATIVES ADDRESSING GREENWASHING....... 16
3.1. Initiatives Regarding Asset Managers ................................................................................. 16
3.2. Initiatives Regarding ESG Ratings and Data Products Providers ....................................... 27
CHAPTER 4: SUPERVISORY PRACTICES ADDRESSING GREENWASHING ......... 34
4.1. Initiatives Regarding Asset Managers ................................................................................. 34
4.2. Initiatives Regarding ESG Ratings And Data Products Providers ...................................... 43
4.3. Challenges in Implementation ............................................................................................. 46
CHAPTER 5: INDUSTRY PRACTICES AND INITIATIVES ADDRESSING
GREENWASHING................................................................................................................... 53
CHAPTER 6: FINANCIAL EDUCATION AND CAPACITY BUILDING....................... 59
Annex 1: Members of the STF Promoting Good Practices Working Group .............................. 60
Annex 2: Compilation of Relevant IOSCO Publications ........................................................... 61
Annex 3: Details of the Regulatory Initiatives on ESG Ratings and Data Products Providers .. 62
Annex 4: Summary of Financial and Investor Education Initiatives .......................................... 75

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 EXECUTIVE SUMMARY

Amongst the various aspects of sustainable finance, IOSCO has also focused its efforts on
addressing the growing risk of greenwashing to mitigate the investor protection concerns.

The growth of Environmental, Social, and Governance (ESG) investing, and sustainability-
related products has led to several challenges, including concerns regarding the reliability,
consistency and comparability of available information, and the risk of greenwashing. These
challenges include (i) data gaps at the corporate level, (ii) concerns around the transparency,
quality, and reliability of ESG ratings and data products providers, including lack of
transparency around methodologies, (iii) lack of consistency in terminology as well as labelling
and classification of sustainability-related products, (v) gaps in skills and expertise, and (vi)
evolving regulatory approaches.

While some of these challenges are currently being addressed, greenwashing remains a
fundamental market conduct concern that poses risks to both investor protection and market
integrity. Countering these risks is not an easy task given that greenwashing can take different
forms and can vary in scope and severity. Greenwashing can also occur throughout the
investment value chain, and any market participant – from issuers to asset managers to ESG
ratings and data products providers – can engage in this behaviour.

Taken more broadly, greenwashing undermines the fundamental trust in sustainable finance.
To ensure a healthy global sustainable finance market, there is a need for reliable, consistent,
and comparable sustainability related information, while related ESG products should be
marketed and managed in a way that does not undermine investors’ trust.

In a major step towards consistent, comparable, and reliable sustainability information, IOSCO
recently endorsed the sustainability-related financial disclosures standards, recently issued by
the International Sustainability Standards Board (ISSB), IFRS S1 and IFRS S21. After a
detailed analysis, IOSCO has determined that the ISSB Standards are appropriate to serve as a
global framework for capital markets to develop the use of sustainability-related financial
information in both capital raising and trading and for the purpose of helping globally
integrated financial markets accurately assess relevant sustainability risks and opportunities.
IOSCO now calls on its 131 member jurisdictions, regulating more than 95% of the world's
financial markets, to consider ways in which they might adopt, apply or otherwise be informed
by the ISSB Standards within the context of their jurisdictional arrangements, in a way that
promotes consistent and comparable climate-related and other sustainability-related
disclosures for investors.

At the same time, asset managers’ activities and how they market their ESG products to
investors also matter, and products that identify themselves as sustainable need to comply with
several characteristics. In that regard, many jurisdictions have already taken steps in setting out
regulatory and supervisory expectations for the asset management industry reflecting the
IOSCO’s recommendations published in November 2021. Efforts to bring ESG ratings and
data products providers under the regulatory perimeter are however in the nascent stages and
remain fragmented for now. These are, nevertheless, important initial steps of many before the
entire ecosystem is ready.

1
https://www.iosco.org/news/pdf/IOSCONEWS703.pdf
3
 To bring greater visibility to the roles that regulators are playing in addressing greenwashing
this Report provides an overview of the initiatives undertaken in various jurisdictions to address
greenwashing in line with the IOSCO recommendations published in 2021 and the subsequent
Call for Action. This Report provides a mapping of the regulatory and supervisory approaches
and practices (current or planned) by regulators to address greenwashing in the areas of asset
managers and ESG ratings and data product providers, including challenges and data gaps
hindering the implementation of the 2021 IOSCO recommendations. The main findings of the
Report indicate the following:

• There is no global definition of greenwashing. The IOSCO’s 2021 Asset Management

Report2 described greenwashing as the practice of misrepresenting sustainability-related
practices or the sustainability-related features of investment products. The analysis
observed that most jurisdictions do not specifically define greenwashing in their respective
legislation, especially in legally binding provisions. However, many authorities have
provided guidance on the identification of greenwashing and the risks associated with it. In
addition to greenwashing, other malpractices such as greenhushing3 and green-bleaching4
are becoming prominent. While there are no specific frameworks to regulate these
concepts, some regulators noted ways in addressing these malpractices.

• The Report notes that most jurisdictions have in place supervisory tools and mechanisms
to address greenwashing in the area of asset managers and their products. For example, at
the asset manager level, the regulators conduct assessments or reviews of the asset
manager’s entity-level policies, procedures, practices, and disclosure (as part of the
licensing or registration process or as part of the ongoing compliance review process for
registered entities); they conduct targeted inspections on the subject matter; they gather
intelligence, monitor complaints, and supplement the gathering of relevant information
through interactions and dialogue with the industry. The regulators also conduct reviews
(thematic or targeted) of product-level disclosure materials and marketing materials, and
market-wide studies into sustainability-related disclosures. Importantly, technology can
also add to available capacity and play an important role in fostering sound and transparent
sustainable finance markets, thereby mitigating greenwashing risks.

• Educational, awareness measures and capacity building activities are also used as
proactive tools to prevent greenwashing. Some regulators provide guidance or establish
some requirements about the knowledge the staff of the asset managers is expected to have
for handling and for offering sustainable finance products to retail investors. Regulators are
also putting in place different actions to enhance the knowledge and skills of their personnel
in relation to sustainable finance and the whole supervisory cycle related to such products
(e.g., authorisation, supervision and oversight, enforcement). Moreover, addressing
greenwashing also requires financial education initiatives, both at investor and at industry
levels.

2
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD688.pdf
3
Planet Tracker: Greenhushing refers to the act of corporate management teams under-reporting or hiding
their sustainability credentials in order to evade investor scrutiny.
4
Green-bleaching is a term used for example when a provider of investment services or products that is in
practice “green” chooses not to claim that it is to avoid extra regulatory requirements and a potential
regulatory or legal risk. Source: https://www.esma.europa.eu/sites/default/files/2023-01/esma22-106-
4384_smsg_advice_on_greenwashing.pdf
4
 • The market for ESG ratings and data products is in a phase of rapid growth. This global
market is concentrated around a small number of providers with a global presence,
alongside a larger number of providers with a more regional focus or offering more
specialised services. Some of the larger market participants – notably certain credit rating
agencies, exchanges, data and index providers – have acquired and continue to acquire
smaller and more specialised ESG data and ratings providers and/or have invested
significant resources to develop their own ESG expertise/capacities. In this context, the
Report notes that the ESG ratings and data products market remains largely unregulated.
However, a few jurisdictions are currently developing mandatory or voluntary policy
frameworks for ESG ratings and data products providers. The Report sets out the key
elements of these new frameworks.

• According to the feedback provided by the AMCC5, both at international and national
levels, steps are being taken by AMCC members to improve the consistency of
terminology, which could lead to better classification of funds and labelling. This is in line
with the good practices set out in the 2022 IOSCO Call for Action6.

• Enforcement measures have also been applied to greenwashing cases, from infringement
notices to monetary fines, to revocation of license, to suspension of business, to other public
reprimands, or even to potential civil or criminal liability, depending on the severity of the
greenwashing case at hand. In fact, we are starting to see some prominent enforcement
measures being taken on a number of greenwashing cases which have also been noted in
this Report. Jurisdictions have however indicated that the introduction of specific
greenwashing-related penalties or sanctions would enable them to target greenwashing
more effectively. While authorities have made efforts to adapt their supervisory practices
and enforcement regimes to prevent and address greenwashing, it is still necessary to fully
test the adequacy and effectiveness of these mechanisms.

• Finally, the cross-border nature of sustainable finance investments requires adequate

cross-border cooperation. Such cooperation, including sharing experiences and
knowledge, as well as exchanging relevant information and data, is therefore necessary in
ensuring market integrity and investor protection. Securities regulators have put in place
different mechanisms and tools (bilateral and multilateral) to assist each other throughout
the regulatory cycle (i.e., licensing, supervision/oversight, and enforcement). IOSCO is
well-placed to continue supporting these initiatives from a global perspective to ensure
securities regulators have the necessary framework for cooperation.

While steps have been taken by both regulators and market participants, greenwashing remains
a fundamental concern that poses risks to both investor protection and market integrity.
Ensuring that the proliferation of sustainability-related products does not increase the risk of
greenwashing is also a matter of culture. Greenwashing will remain a high risk to the reputation
of global sustainable finance markets until the quality and reliability of information available
to investors improve. There is an expectation that all stakeholders foster cultures supporting
good practices aimed at preventing harm to consumers and markets. Industry engagement is
therefore crucial to this goal. The ability to address greenwashing is also a matter of capacity.
Several jurisdictions, notably from emerging markets, will require assistance for both
designing and executing their action plans towards any net zero commitment they may have
5
IOSCO Affiliate Members Consultative Committee
6
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD717.pdf
5
and more concretely, for implementing new corporate sustainability requirements and new or
enhanced supervisory practices. IOSCO is looking to assist jurisdictions in building this
capacity, in collaboration with other bodies as appropriate.

Sustainable finance is a constantly evolving space. Corporates, asset managers, ESG ratings
and data products providers, investors, information providers, regulators and policy makers
will need to act in concert to combat greenwashing and help build a more reliable ecosystem
to ensure trust in sustainable finance markets. This future remains however dependent on the
ability of all stakeholders to ensure healthy conduct and adequate capacity – all supported by
the overarching goal of fostering a culture of good practices throughout the investment value
chain and preventing harm to investors and markets.

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 CHAPTER 1: INTRODUCTION

Sustainable Finance is one of IOSCO´s key priority areas under the IOSCO workplan for 2023-
20247. In February 2020, the IOSCO Board agreed to establish a Board-level Sustainability
Taskforce (STF)8, aimed at enabling IOSCO to play a key role in the global efforts to address
sustainability risks.

In November 2021, IOSCO published two STF reports, that addressed greenwashing in two
areas of critical importance in sustainable finance: asset management and ESG ratings and data
products providers. The report on Sustainability-related Practices, Policies, Procedures, and
Disclosures in Asset Management industry9 (IOSCO’s 2021 Asset Management Report) sets
out a series of recommendations that securities regulators and/or policymakers, as applicable,
should consider in order to improve sustainability-related practices, policies, procedures and
disclosure in the asset management industry. The recommendations cover, amongst others, the
regulatory and supervisory expectations for asset managers; related disclosure both at the firm
and product levels; terminology; and financial and investor education.

The Report on ESG Ratings and Data Products Providers10 (IOSCO’s 2021 ESG Ratings
Report) explores the developments and challenges related to the use of ESG ratings and data
products and sets out recommendations for regulators, providers, users, and rated entities
considering the increasingly important role of these products. As most jurisdictions do not
currently have regulatory frameworks in place for such providers, the report highlights issues
that regulators should consider in developing their regulatory frameworks. For ESG ratings and
data products providers, the recommendations focus on the governance and internal processes
and call for transparency on the methodologies and data that underpin ratings.

On 22 February 2022, the STF set up the Promoting Good Practices workstream (PGP)11 which
aims at supporting the implementation of the 2021 IOSCO Recommendations to address
greenwashing and investor protection concerns. Based on the PGP’s work, on 07 November
2022, IOSCO published a Call for Action12 (2022 IOSCO Call for Action) addressed to 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.

Based on the 2021 IOSCO Recommendations and the Call for Action, this Report provides an
overview of the regulatory and supervisory approaches and practices (current or planned) to
address greenwashing in the areas of asset management and ESG ratings and data products
providers, including challenges and data gaps hindering the implementation of the 2021 IOSCO
Recommendations.

The Report is based on the responses received to a survey covering 22 jurisdictions and the
discussions held through various roundtables, both with industry participants and regulators.
The Report also incorporates the feedback received from AMCC about the steps taken by the
industry participants to implement the Call for Action.

7
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD731.pdf
8
Currently led by Mr. Rodrigo Buenaventura, Chairman of the Spanish CNMV.
9
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD688.pdf
10
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD690.pdf
11
The PGP workstream, which is composed of 16 members and is co-chaired by Grant Vingoe, Chief
Executive Officer of OSC Canada and Dr Mohamed Farid Saleh, Executive Chairman of FRA Egypt
12
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD717.pdf
7
 Two roundtables were held, one for industry participants in July 2022, and another dedicated
to supervisors in February 2023. The industry roundtable aimed to (i) inform the industry about
IOSCO’s call for asset managers and ESG ratings and data products providers to adopt the
good sustainability practices and to gather their feedback and support for the IOSCO’s Call for
Action; and (ii) to identify the main challenges and data gaps hindering the implementation of
the IOSCO recommendations to inform potential future work.

The virtual roundtable for supervisors aimed to (i) exchange experiences in implementing the
regulatory and supervisory practices set out in the 2021 IOSCO Recommendations, (ii) share
views on the main challenges and data gaps hindering the implementation of the 2021 IOSCO
Recommendations to inform potential future work by IOSCO, and (iii) discuss approaches to
encouraging industry adoption of the good practices in the 2022 IOSCO Call for Action.
Additionally, the PGP has facilitated the exchange of views and experiences among its
members and engaged with some jurisdictions which have taken regulatory steps around ESG
ratings and data products providers, notably regarding the development of codes of conducts
or targeted regulation.

To further substantiate preliminary discussions, a survey was sent to STF members in June
2023. The survey sought to collect information about regulatory initiatives and supervisory
practices that authorities have implemented, or are planning to implement, to address
greenwashing risks in the areas of asset management and ESG ratings and data products
providers.

The survey was divided into 8 sections namely Definition and Regulatory Framework,
Supervisory Practices for Asset Managers, Supervisory Practices for ESG Ratings and Data
Products Providers, Promoting Good Practices at Industry Level, Cross Border Cooperation,
Financial and Investor Education and Capacity Building. Members from 22 jurisdictions
responded to the survey.13

Finally, the AMCC organised a roundtable on Good Sustainability Practices for Asset
Managers on 11 September 2023 where market participants discussed the initiatives taken by
the industry to respond to the 2022 IOSCO Call for Action and the challenges encountered in
implementing the relevant good practices.

13
Responses were received from the following STF members: AFM Netherlands, AMF and OSC Canada,
AMMC Morocco, ASIC Australia, BaFin Germany, CMVM Portugal, CNBV Mexico, CNMV Spain,
CONSOB Italy, ESMA, FINANSINSPEKTIONEN Sweden, FINMA Switzerland, FRA Egypt, FSMA
Belgium, FSA Japan, MAS Singapore, SC Malaysia, FCA United Kingdom, SFC Hong Kong, US SEC,
and AMF France.
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 CHAPTER 2: GREENWASHING RISKS

In recent years, there has been a growing recognition of the significant economic and financial
impacts from climate change and ESG factors. But there is also growing concern of firms
making misleading claims about their ESG risks, opportunities, and impacts. Internationally,
industry participants, investors, regulators, and policy makers have stepped up their efforts to
t to combat such potential greenwashing.

Given that greenwashing, and similar practices, have the potential to severely undermine
investor confidence in sustainable finance and threaten efforts to combat climate change,
supervisors should continue to play a key role where relevant, by (i) monitoring greenwashing
risks and any other malpractices and ensuring appropriate risk management policies and
transparency by market participants, as well as (ii) overseeing compliance with sustainability-
related regulations, including promptly referring breaches for enforcement actions and
potential sanctions.

2.1. Growth in sustainable investing and resulting challenges

A 2023 study conducted by Aviva Investors over a pool of 500 institutional investors noted
that “the sea change in attitudes towards ESG and sustainable investment approaches, albeit
less prevalent in North America, has perhaps been the biggest structural trend in the investment
industry in the recent years. This has extended to the real assets arena. Nine out of ten (93%)
of institutions consider ESG as a factor in investment decisions involving real assets. For 17%,
ESG and sustainability matters are a critical factor.”14

Figure 1: Institutional investors’ approach to ESG/sustainability

Source: Aviva Investors

14
https://static.aviva.io/content/dam/aviva-investors/main/assets/capabilities/real-assets/real-assets-study-
2023/aviva-investors-real-assets-study-2023.pdf
9
The study raises the question of whether “the ESG walk matches the talk.” Two thirds of the
study’s respondents reported their organisation has a responsibility to invest sustainably, but
“only one half believe real asset investments can have a more direct ESG impact versus listed
equites and credit”.

The growth of ESG investing and sustainability-related products has led to several challenges
regarding the reliability, consistency and comparability of available information, and the risk
of greenwashing. These challenges include data gaps at the corporate level, issues arising from
the proliferation of ESG ratings and data products providers such as a lack of consistency and
transparency in terminologies underpinning ESG ratings and data product, lack of transparency
in methodologies, labelling and classification, different interpretations of materiality, the
management of conflicts of interest, gaps in skills and expertise, and evolving regulatory
approaches.

While some of these challenges are currently being addressed, greenwashing remains a
fundamental concern. Greenwashing can be the result of various inter-connected drivers or
causes; these can vary from challenges in implementing the necessary governance processes
and tools that support high-quality sustainability disclosures to lack of sustainability skills and
expertise faced by both supervisors and market participants.

Although greenwashing may take different forms and can vary in scope and severity, it
undermines trust in sustainable finance ecosystem. To ensure a healthy global sustainable
finance market, corporates issuers should provide reliable information and related ESG
products should be marketed and managed in a way that investors’ trust is not broken.

Many jurisdictions have already taken steps to introduce sustainability-related corporate

reporting requirements. At the same time, the new ISSB standards have been recently issued
and endorsed by IOSCO. IOSCO has concluded that the ISSB Standards are appropriate for
the purpose of helping globally integrated financial markets accurately assess relevant
sustainability risks and opportunities. It has also concluded that they form an appropriate basis
for the development of a robust assurance framework to apply to such disclosures15.

This is only the first step of many before the entire ecosystem is ready to provide consistent,
comparable, reliable disclosures. Recognising that individual jurisdictions have different
domestic arrangements regarding the consideration of international standards, IOSCO calls on
members to consider ways in which they might adopt, apply or otherwise be informed by the
ISSB Standards, within the context of their jurisdictional arrangements, in a way that promotes
consistent and comparable climate-related and other sustainability-related disclosures for
investors. IOSCO encourages jurisdictions to consider implementing the ISSB Standards for
compulsory application or to allow for companies to voluntary use the ISSB Standards in their
jurisdictions in the absence of an existing framework. In addition, the consistent and
comparable application of assurance standards is important.16

At the same time, the asset managers’ activities and how they market their ESG capabilities,
processes and products to investors matter. The products that identify themselves as sustainable
need to comply with disclosure requirements and avoid potentially misleading investors.

15
Enforcement Decision - https://www.iosco.org/library/pubdocs/pdf/IOSCOPD741-Endorsement-
Decision.pdf
16
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD729.pdf
10
 2.2. Understanding Greenwashing

The IOSCO’s 2021 Asset Management Report described greenwashing as the practice of
misrepresenting sustainability-related practices or the sustainability-related features of
investment products. To efficiently address greenwashing risks, regulators and industry need
to understand the drivers behind this practice. The IOSCO’s 2021 Asset Management Report
noted that in the race to promote their green credentials, some asset managers may
misleadingly label products as sustainable without meaningful changes in the underlying
investment strategies or shareholder practices.

In their 2023 Progress Report on Greenwashing, ESMA noted that the competitive drive for
market shares and revenue has led to both entity-level and product-level efforts at bolstering
sustainability profiles. In a context of very low levels of Taxonomy-aligned assets, investment
opportunities for which sustainability performance appears to be beyond doubt or
disagreement are still scarce. In this context, greenwashing risk appears to be driven by the
convergence of multiple factors (including market, regulatory, supervisory, data and
methodological aspects) which may be aggravating conduct issues17.

Figure 2: The multiple drivers of greenwashing risks

Source: ESMA

While the 2021 IOSCO sustainability reports focused primarily on asset management and ESG
ratings and data products providers, there is an understanding that greenwashing could happen
throughout the investment chain and any market participant (issuers, asset managers, financial
advisers, ESG rating and data products providers, etc.) could potentially engage in this

17
ESMA30-1668416927-2498 Progress Report on Greenwashing (europa.eu)
https://www.esma.europa.eu/sites/default/files/2023-06/ESMA30-1668416927-
2498_Progress_Report_ESMA_response_to_COM_RfI_on_greenwashing_risks.pdf
11
behaviour.18 IOSCO’s description of greenwashing could be broadly applied, and jurisdictions
can elaborate on the specific scope and activities covered, taking account of local
circumstances.

Based on the survey responses, most jurisdictions do not specifically define greenwashing in
their respective legislation, especially in legally binding provisions. However, many authorities
have provided guidance on the identification of greenwashing and the risks associated with it.
Recognising that greenwashing may be a misleading conduct, some survey respondents have
associated this phenomenon with an act of misleading consumers regarding the environmental
practices of firm or the environmental characteristics of a product or service. Some jurisdictions
have also noted that greenwashing is not limited to the ‘E’ component of ESG but is intended
to cover ‘S’ and ‘G’ as well.

2.3. Defining Greenwashing

For those jurisdictions that have a description for greenwashing, it is noted that the description
is generally aligned to IOSCO’s one. Other jurisdictions have built upon IOSCO’s
greenwashing description and elaborated further on the scope of application, taking account
local circumstances.

The responses to the survey indicated that in some jurisdictions greenwashing covers all market
participants throughout the investment value chain ranging from asset managers and their
products, ESG rating and data products providers, issuers, financial advisers, and benchmark
administrators, while for other regulators it only covers market participants such as issuers and
asset managers.

The following section sets out a few examples on how the concept of greenwashing is
introduced in some jurisdictions.

Authority Details
ESMA ESMA noted that there is currently no binding definition of
greenwashing in the European Union (EU) financial regulatory
framework. As part of their responses to a request for input on
greenwashing received from the European Commission (EC),
the European Supervisory Authorities (ESAs)19 referred to a
common high-level understanding of greenwashing. The ESAs
refer to greenwashing as a practice where sustainability-related
statements, declarations, actions, or communications do not
clearly and fairly reflect the underlying sustainability profile of
an entity, a financial product, or financial services. This practice
may be misleading to consumers, investors, or other market
participants. The EU’s respondents referred to this high-level
common understanding of greenwashing as set out by the ESAs,
which is completed by 8 core characteristics. According to the

18
According to the IOSCO’s Call for Action published in 2022, greenwashing is the practice of
misrepresenting sustainability-related information, practices, or features throughout the investment value
chain.
19
The ESAs: the European Banking Authority (EBA), the European Insurance and Occupational Pensions
Authority (EIOPA) and the European Securities and Markets Authority (ESMA).
12
 Authority Details
ESA’s Progress Report, Greenwashing can occur at any point
where sustainability-related statements, declarations, actions or
communications are made, including at different stages of the
business cycle of financial products or services (e.g.,
manufacturing, delivery, marketing, sales, monitoring) or of the
sustainable finance value chain. The ESAs also agreed that
sustainability-related misleading claims can occur and spread
either intentionally or unintentionally and that greenwashing
does not require investors being actually harmed.
FINMA Switzerland FINMA Switzerland describes greenwashing in its supervisory
framework as investors and clients who are consciously or
unconsciously misled about the sustainable characteristics of
financial products and services. Furthermore, in its guidance20
on Preventing and combating greenwashing, FINMA describes
a number of scenarios as being greenwashing or bearing a
potential greenwashing risk due to the lack of transparency vis-
à-vis investors. On 16 December 2022, the Federal Council of
Switzerland published its position21 on the prevention of
greenwashing in the financial sector, mentioning that
greenwashing occurs in the financial sector when, for example,
a financial instrument or service is portrayed as having
sustainable characteristics or pursuing sustainability goals, and
this portrayal does not adequately reflect reality. This definition
is not applicable yet and the Federal Department of Finance is
currently examining various options for implementing the
Federal Council's position.
ASIC Australia Greenwashing is not currently defined in legislation or
regulations in Australia. However, in June 2022, ASIC Australia
issued an Information Sheet 27122 on how to avoid
greenwashing when offering or promoting sustainability related
products which defines greenwashing as the practice of
misrepresenting the extent to which a financial product or
investment strategy is environmentally friendly, sustainable or
ethical. The document provides further guidance to issuers of
sustainability-related products about lifting disclosure standards
and avoiding contravention of existing, general misleading and
deceptive disclosure requirements under the Corporations Act
2001 (Cth).
AMF Québec and OSC The Canadian Securities Administrators (CSA) Staff Notice 81-
Canada. 33423 – ESG Related Investment Fund Disclosure, defines

20
FINMA Guidance 05/2021 "Preventing and combating greenwashing" -
https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/4dokumentation/finm
a-aufsichtsmitteilungen/20211103-finma-aufsichtsmitteilung-05-
2021.pdf?sc_lang=en&hash=7F911020E829EA5910FF903AF851B2F3
21
https://www.newsd.admin.ch/newsd/message/attachments/74580.pdf
22
https://asic.gov.au/regulatory-resources/financial-services/how-to-avoid-greenwashing-when-offering-
or promoting-sustainability-related-products/
23
https://www.osc.ca/sites/default/files/2022-01/csa_20220119_81-334_esg-related-investement-fund-
disclosure.pdf
13
 Authority Details
greenwashing in relation to investment funds, (…) whereby a
fund's disclosure or marketing intentionally or inadvertently
misleads investors about the ESG-related aspects of the fund. In
relation to corporate issuers, the CSA Staff Notice 51-36424 -
Continuous Disclosure Review Program Activities for the fiscal
years ended 31 March 2022, and 31 March 2021 defines
greenwashing for corporate issuers as (…) issuers making
potentially misleading, unsubstantiated or otherwise incomplete
claims about business operations or the sustainability of a
product or service being offered, conveying a false impression.
AMMC Morocco The AMMC Morocco views greenwashing as disinformation
disseminated by an organization so as to present an
environmentally responsible public image.
FCA UK Though the FCA UK does not have a formal definition of
greenwashing, its consultation on Sustainability Disclosure
Requirements (SDR) and investment labels (CP22/2025)
describes greenwashing as in relation to products firms making
exaggerated, misleading or unsubstantiated sustainability-
related claims about their products; claims that don’t stand up
to closer scrutiny. The FCA UK also noted that greenwashing
may also occur at corporate level (about the entity as a whole,
including who it does business with).
SFC Hong Kong Greenwashing is not legally defined under the Securities and
Futures Ordinance (SFO) in Hong Kong. However, the SFC
Hong Kong mentioned in its Strategic Framework for Green
Finance,26 issued in September 2018 that greenwashing refers to
asset managers marketing themselves as “green” or
“sustainable” but do not fully integrate these factors into the
investment process.

2.4.Other Malpractices

In addition to greenwashing, other malpractices such as greenhushing27 and green-bleaching28

becoming prominent, may come under regulators’ clear fair and not misleading rules. None of
the survey respondents has specific frameworks to regulate these concepts. However, the
following regulators have showcased ways in addressing these malpractices:

Authority Details
ASIC Australia ASIC Australia noted that although ‘greenhushing’ is not currently a
specific offence, it has recently warned entities against this practice,

24
https://www.osc.ca/sites/default/files/2022-11/csa_20221103_51-364_continuous-disclosure-review.pdf
25
https://www.fca.org.uk/publication/consultation/cp22-20.pdf
26
Strategic Framework for Green Finance, September 2018
27
Planet Tracker: Greenhushing refers to the act of corporate management teams under-reporting or hiding
their sustainability credentials in order to evade investor scrutiny.
28
Green-bleaching is a term used for example when a provider of investment services or products that is in
practice “green” chooses not to claim that it is to avoid extra regulatory requirements and a potential
regulatory or legal risk. Source: https://www.esma.europa.eu/sites/default/files/2023-01/esma22-106-
4384_smsg_advice_on_greenwashing.pdf
14
 Authority Details
given this constitutes a form of greenwashing. In addition, in a speech29
at the Australian Financial Review ESG Summit, the Chair of ASIC
noted that entities may seek to garner a ‘green halo’ effect without
having to do the work while making generic statements that represent
[they] have such a good ESG policy, but [they] can’t say anything about
it because the regulators won’t let [them].
ESMA ESMA indicated that the Securities and Markets Stakeholder Group 30
have expressed concerns about green-bleaching and referred to one
study by the consultant South Pole finding out that a quarter of 1,200
companies surveyed say they would not publicise their science-based
net zero emissions targets. It added that from the perspective of market
participants, green-bleaching may be due to the convergence of multiple
factors namely (i) a fast-moving regulatory framework that introduced
detailed disclosures requirements and concerns about liability risks; and
(ii) skills and expertise gaps. From an investor protection’s perspective,
green bleaching may undermine investors’ ability to access quality
sustainability information relevant and material to their investment
decisions and risk management. According to ESMA playing down ESG
commitments and achievements could be considered as a case of
omission of sustainability information, and therefore a practice by which
the sustainability profile of the entity/product is not “fairly and clearly”
communicated.
AMF France AMF France noted that greenhushing can already be covered by the
notion of greenwashing. It referred to ESMA indicating in its progress
report on greenwashing31 that declarations that do not exhaustively
reflect the practices of the players can represent a form of greenwashing:
omission is also seen as a source of greenwashing risk in relation to
underlying ESG data used and ESG metrics in general. Indeed, the lack
of clearly outlined data limitations and/or disclaimers in documentation
on underlying methodologies pose a high risk to investor protection and
deter comparisons across products and financial market participants.”
FSA Japan The FSA Japan pointed out that even though ESG could be emphasised
in the prospectus for a publicly offered investment trust, the asset
management company of this investment trust could claim that the
investment trust is not categorised as an ESG investment trust to avoid
disclosure requirements stipulated in the Supervisory Guidelines.

29
https://asic.gov.au/about-asic/news-centre/speeches/asic-chair-s-afr-esg-summit-speech/
30
esma22-106-4384_smsg_advice_on_greenwashing.pdf (europa.eu)
31
https://www.esma.europa.eu/sites/default/files/2023-06/ESMA30-1668416927-
2498_Progress_Report_ESMA_response_to_COM_RfI_on_greenwashing_risks.pdf
15
 CHAPTER 3: REGULATORY INITIATIVES ADDRESSING GREENWASHING

3.1. Initiatives Regarding Asset Managers

As of 30 June 2023, more than 315 asset managers, with USD59 trillion32 in assets, have
committed to achieve net zero alignment by 2050 or sooner. Indeed, increasingly more asset
managers are making sustainability related commitments and/or integrating ESG factors into
their investment process.

The growth of interest in ESG investing and the increased potential for greenwashing have led
securities regulators and international organisations to address potential greenwashing issues
related to ESG-related investment vehicles, particularly ESG-related funds.

The IOSCO’s 2021 Asset Management Report outlines several areas where regulators and
policymakers can consider developing sustainability-related rules and regulations, consistent
with their mandates and domestic regulatory frameworks.

Recommendation 1: Asset Manager Practices, Policies, Procedures and Disclosure.

Securities regulators and/or policymakers, as applicable, should consider setting regulatory
and supervisory expectations for asset managers in respect of the: (a) development and
implementation of practices, policies and procedures relating to material sustainability-
related risks and opportunities; and (b) related disclosure.

Recommendation 2: Product Disclosure. Securities regulators and/or policymakers, as

applicable, should consider clarifying and/or expanding on existing regulatory
requirements or guidance or, if necessary, creating new regulatory requirements or
guidance, to improve product-level disclosure in order to help investors better understand:
(a) sustainability-related products; and (b) material sustainability-related risks for all
products.

The survey results revealed that some jurisdictions have requirements in place that specifically
address sustainability-related practices, policies, procedures and disclosure for asset managers
or their products. It is noted that those requirements relate mostly to disclosure aspects. On the
other hand, some jurisdictions rely on existing securities rules.

For example, EU jurisdictions must comply with the directly applicable rules envisaged by
the Sustainable Finance Disclosures Regulation (SFDR) and with the rules adopted by the EU
jurisdiction implemented according to other EU Directives, covering both asset managers and
their products. Under the SFDR, all market participants, including asset managers, are required
to disclose certain corporate level sustainability information on their websites, such as policies
on due diligence and integration of sustainability risks into the investment decision-making
process/investment advice. The SFDR also imposes specific product-level disclosure
requirements including documentation via periodic reporting.

There are also other jurisdictions that have introduced new dedicated requirements or guidance
for asset managers, including four (Egypt, Hong Kong, Singapore, and the United
Kingdom) that made explicit references to the Task Force on Climate-related Financial

32
Signatories – The Net Zero Asset Managers initiative.
16
 Disclosures (TCFD) recommendations. In introducing these new requirements, two
jurisdictions (Hong Kong and United Kingdom) have adopted a phased approach. The SFC
Hong Kong adopted a proportionate two-tiered approach, with fund managers categorised
based on assets under management (under this approach, the baseline requirements are
applicable to all licensed fund managers with investment discretion of collective investment
schemes while only large fund managers are subject to additional enhanced requirements).

The FCA UK introduced a phased approach to TCFD requirements for asset managers, with
the largest firms (those with over GBP50 billion in assets under management) in scope from
01 January 2022 and required to make their first disclosures by 30 June 2023, and smaller firms
(with above GBP5 billion in assets under management) in scope one year later and required to
make their first disclosures by 30 June 2024.

In December 2020, MAS Singapore issued Guidelines on Environmental Risk Management

laying out supervisory expectations for all fund management companies and real estate
investment trust managers to manage environmental risk and disclose their approach using
international reporting frameworks such as the TCFD. MAS is studying the formulation of
mandatory requirements for S climate-related financial disclosures for larger asset managers
based on the ISSB standards.

3.1.1. Legal and regulatory frameworks addressing greenwashing

The survey results revealed that most jurisdictions have legal and regulatory frameworks in
place to address greenwashing risks. For those which have a framework to address
greenwashing, its coverage varies from focusing solely on asset managers, to covering issuers,
ESG rating and data products providers as well.

Some jurisdictions have introduced specific sustainability-related requirements to regulate

such risks, while others rely on existing securities regulations governing accurate, complete,
truthful and non-misleading disclosures. The legal and regulatory frameworks mainly apply to
asset managers and their products. As some jurisdictions rely on existing securities regulations,
such frameworks cover a wide range of financial market participants including investment
advisers and securities firms.

Authority Details
ASIC Australia Greenwashing is not explicitly described in the Australian laws, but it
is rather catered under the general misleading and deceptive laws.
There are general prohibitions under the Corporations Act and the
Australian Securities and Investments Commission Act 200133 (Cth)
(ASIC Act) against a person making statements or disseminating
information that is false or materially misleading or engaging in
dishonest, misleading or deceptive conduct in relation to a financial
product or financial service. In addition, issuers of managed fund
products (both responsible entities of managed investment schemes
and trustees of superannuation funds) have a range of conduct
obligations that would be relevant in terms of greenwashing (for
example, to act honestly) but are not specifically focused on

33
Australian Securities and Investments Commission Act 2001 (legislation.gov.au). (see sections 1021E,
1041E, 1041G, 1041H of the Corporations Act, and section 12DA of the ASIC Act).
17
 Authority Details
greenwashing risks. Similarly, others involved in investments such as
advisers have relevant obligations, but these are not directed to
greenwashing risks specifically.
FINMA In Switzerland, there is no specific regulation on greenwashing or
Switzerland sustainability more generally. However, the existing principle-based
regulation imposes obligations that can serve to prevent and combat
greenwashing and to regulate greenwashing risk. In relation to the asset
management sector, there are some non-sustainability-specific
regulations that are used to address greenwashing, for example the
prohibition of deception in the Collective Investment Scheme Act (art.
12 CISA) or various organisational requirements, including an
adequate risk management on institutional and portfolio level (art. 9
FinIA, 8, 10, 11 FinIO-FINMA).
AMMC AMMC Morocco is planning to foster the development of
Morocco sustainability-aligned practices at the level of asset management
industry, including through the publication of guidelines on socially
responsible investment. Although Greenwashing risk in not
specifically addressed in the regulatory framework, it is covered by
rules and provisions pertaining to:
• Prohibition of dissemination of false or misleading information
(law on AMMC, article 44)
• The obligation for Asset managers to establish, for each fund,
an information document that includes a description of its
investment policy (articles 16 and 22 of the law n°1-93-213 on
Collective investment funds)
• The obligation for the asset manager to act in the sole interest
of the fund investors and respect the investment policy
described in the fund’s information document (article 52 of the
law n°1-93-213 on Collective investment funds). Non-
compliance with these provisions induces sanctions on the
asset management company (article 110) and on its managers
(article 114).
FSA Japan The prevailing legal and regulatory framework, which stipulates
general requirements for asset management companies and their
products, is applicable to greenwashing risks. In addition, as soft law,
the JFSA has formulated and published in March 2023 the
Comprehensive Guidelines for Supervision of Financial Instruments
Business Operators, etc34 (Supervisory Guidelines). On 31 March
2023, the FSA Japan amended the Supervisory Guidelines to define
the scope of ESG investment trusts for asset management companies
(investment trust management companies) and to provide for
information disclosure and the establishment of frameworks for such
ESG investment trusts. In Japan, public offering investment trusts are
counted as a major financial instrument as a means of asset formation
for retail investors. Therefore, measures against the risk of
greenwashing have been focusing on public offering investment trusts,

34
https://www.fsa.go.jp/common/law/guide/kinyushohin_eng.pdf
18
Authority Details
by imposing necessary regulations on asset management companies of
those investment trusts, from both sides of hard and soft laws.
FRA Egypt There is no specific regulation on greenwashing in Egypt. However,
the FRA has started to initiate the regulatory framework by issued
decrees regarding ESG and TCFD mandatory disclosures No. 107-108
of the year 2021. The related decrees detailed the reporting process on
developed ESG and TCFD matrices and have provided a grace period
whereby companies received support and trainings from FRA to enable
them to disclose if they have environmental, social and sustainability
related governance practices.

It is worth mentioning that those decrees considered to be the First of

their kinds in Middle East and North Africa region and were
formulated in a way that consider the current status and knowledge
level of the market in regard to the sustainability issues and principles.
However, FRA has recently issued a decree no. 3045 for 2023 related
to the regulations of the ESG funds requirements and the related and
simultaneously working on identifying the greenwashing practices to
mitigate any potential misleading practices for the whole non-banking
financial sector including asset managers and capital market
companies, insurance sector, Mortgage, Factoring and Leasing,
Microfinance, and Consumer Finance sectors as well. The FRA has
recently issued a regulatory decree no. 3045 that specifies the
requirements for creating ESG funds. This decree comprises the ESG
fund definition, the investment structure of the fund, and requires
information to be included in the prospectus. This decree is considered
to be the cornerstone for creating the regulatory framework for the
ESG funds in the national context.
MAS A fund that is offered to retail investors in Singapore must be
Singapore authorised (if it is constituted in Singapore) or recognised (if it is
constituted outside of Singapore) by MAS. The offer must also be
accompanied by a prospectus registered by MAS, which complies with
relevant disclosure requirements set out under legislation, codes and/or
guidelines. Under the Securities and Futures Act 2001 of Singapore,
fund prospectuses must also not contain false or misleading statements.

In particular, to mitigate greenwashing risks, ESG funds that are

offered to retail investors must comply with the Disclosure and
Reporting Guidelines for Retail ESG Funds issued by MAS Singapore
in July 2022. Under the Guidelines, retail ESG funds must, from
January 2023, disclose in offering documents their ESG investment
objectives and approaches, as well as relevant ESG criteria and
metrics, among other things. Retail ESG funds will also have to
periodically disclose their ESG-related investments and how their ESG
objectives have been met.
SC Malaysia To mitigate greenwashing risks, SC Malaysia ensures accurate and
relevant information of the funds are made available to investors,
although explicit disclosure on the risks is not mandatory. Paragraph

19
 Authority Details
3.09 of the Sustainable and Responsible Investment (SRI) Funds
Guidelines35 states that an SRI Fund must primarily invest in securities
which are in accordance with its policies and strategies, with a
minimum asset allocation of at least two thirds (2/3) of its Net Assets
Value (NAV). The issuer of an SRI Fund may take a temporary
defensive position, provided that at least 2/3 of the SRI Fund’s NAV
is maintained by investing in instruments that are subjected to
sustainability considerations. For example, an equity SRI Fund may,
as part of its defensive strategy, reduce its holding in ESG-compliant
shares and invest in ESG-compliant instruments that are less risky e.g.,
money market instruments.
SFC Hong Asset managers. In Hong Kong, the Code of Conduct for Persons
Kong licensed by or registered with the SFC (Code of Conduct)36 is
applicable to all licensed intermediaries, while the Fund Manager Code
of Conduct37 (FMCC) is specific to licensed fund managers. The Code
of Conduct and the FMCC set out the general principle that an asset
manager should ensure representations made or information supplied
by it to any fund or investor are accurate and not misleading. This
applies to disclosures relating to the asset manager’s green and
sustainable practices. The provision of misleading or inconsistent
information with its actual practices to investors may reflect adversely
on whether an asset manager is fit and proper to be licensed. Where
there are material concerns on the asset manager’s fitness and
properness to remain licensed, the SFC may conduct an investigation
which could potentially result in license revocation and other
disciplinary actions.

In addition, SFC Hong Kong amended its FMCC and issued a circular
on 20 August 202138 setting out regulatory expectations on the
management and disclosure of climate-related risks by fund managers,
which became fully effective since 20 November 2022 (SFC climate
risk requirements). The objectives of such additional expectations are
to ensure that fund managers incorporate the assessment of climate-
related into their investment and risk management processes as well as
to promote disclosure of adequate and comparable climate-related
information (including portfolio carbon emission).

35
Revised 2021 - Guidelines on Sustainable and Responsible Investment Funds (sc.com.my) -
https://www.sc.com.my/api/documentms/download.ashx?id=82073d55-faac-43e6-b43e-45abc234baed
36
Code_of_conduct Aug 2022_Eng 4th.doc (sfc.hk) - https://www.sfc.hk/-
/media/EN/assets/components/codes/files-current/web/codes/code-of-conduct-for-persons-licensed-by-
or-registered-with-the-securities-and-futures-
commission/Code_of_conduct_05082022_Eng.pdf?rev=0fd396c657bc46feb94f3367d7f97a05
37
Fund Manager Code of Conduct_Eng (Aug 2022)_v4 (Clean) (sfc.hk) - https://www.sfc.hk/-
/media/EN/assets/components/codes/files-current/web/codes/fund-manager-code-of-conduct/Fund-
Manager-Code-of-Conduct_Eng_20082022.pdf?rev=9aae7a8541054823b7f4626749e56cf8
38
Circular to licensed corporations regarding management and disclosure of climate-related risks by fund
managers dated 20 August 2021 -
https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=21EC3
1
20
 Authority Details
ESG funds.39 In Hong Kong, investment funds that are offered to the
public are required to obtain prior authorisation from the SFC40 and to
comply with the relevant prevailing requirements issued by the SFC.
The SFC Handbook for Unit Trusts and Mutual Funds, Investment-
Linked Assurance Schemes and Unlisted Structured Investment
Products (Handbook) 41 further sets out that information provided in
the offering documents of SFC-authorised funds shall not be false or
misleading nor be presented in a deceptive or unfair manner. In
addition, SFC-authorised ESG funds that no longer meet the
requirements set out in its circular of June 2021 (SFC ESG funds
circular)42 will be removed from the SFC’s list of ESG funds and the
SFC may take appropriate regulatory action for compliance breaches
such as failure to meet the stated investment objective and/or strategy
in the offering documents.
FCA UK Greenwashing falls under the FCA UK’s rules for firms to ensure their
communications are clear, fair and not misleading. Where relevant, it
applies to UK listed companies with respect to their sustainability-
related disclosures. In its consultation on Sustainability Disclosure
Requirements (SDR) and investment labels, the FCA UK has proposed
to introduce an ‘anti-greenwashing’ rule to reinforce the existing
‘clear, fair and not misleading’ requirements. This will clarify that they
apply to sustainability claims and that those claims must be consistent
with the sustainability profile of the product or service. This would
apply to all regulated firms (in respect of all of their products and
services). The rest of the package in its consultation – labels, disclosure
requirements and naming and marketing rules – is specific to asset
managers. The proposals aim to tackle greenwashing, help consumers
navigate the market and make better informed decisions.
US SEC While the US SEC rules do not specifically reference greenwashing,
there is a framework for addressing the risk of false or misleading
statements, including those related to sustainability or ESG claims.
While the governance and disclosure requirements of the Investment
Advisers Act of 194043 (Advisers Act) do not specifically address
greenwashing, investment advisers do have a fiduciary duty to their
clients under the Advisers Act. As fiduciaries, investment advisers owe
their clients duties of care and loyalty. To meet an investment adviser’s
duty of loyalty, an investment adviser must make full and fair
disclosure to its clients of all material facts relating to the advisory
relationship, which could include information about greenwashing

39
Defined as funds which incorporate ESG factors as their key investment focus and reflect such in their
investment objective and/or strategy.
40
Sections 104 and 105 of the Securities and Futures Ordinance (SFO).
41
https://www.sfc.hk/-/media/EN/assets/components/codes/files-current/web/codes/sfc-handbook-for-
unit-trusts-and-mutual-funds/sfc-handbook-for-unit-trusts-and-mutual-
funds.pdf?rev=b28da6c69b3a43c78022b34d634460d1
42
Circular to management companies of SFC-authorized unit trusts and mutual funds – ESG Funds. This
ESG funds circular supersedes a previous version issued in April 2019 -
https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=21EC27
43
https://www.govinfo.gov/content/pkg/COMPS-1878/pdf/COMPS-1878.pdf
21
 Authority Details
risks, depending on the facts and circumstances of the investment
adviser’s relationship with its client. Similarly, for registered
investment companies (funds), the requirements under the Investment
Company Act of 194044 do not contain specific governance or
disclosure requirements related specifically to greenwashing risks.
Rather, funds are required to provide disclosures concerning material
information on investment objectives, strategies, risks, and
governance.
SEBI India SEBI introduced a regulatory framework to address greenwashing risk
in July 2023.45

Investment criteria for ESG schemes has been laid down by SEBI
wherein it is mandated that ESG schemes can invest only in such
companies which have comprehensive Business Responsibility and
Sustainability Reporting (BRSR) disclosures are made. It is also
mandated that an ESG scheme shall invest at least 65% of its AUM in
companies which are reporting on comprehensive BRSR and are also
providing assurance on BRSR Core disclosures. This is to ensure that
ESG schemes invest in companies wherein adequate disclosures are
made, which improves the quality of ESG ratings.

Further, while drafting the policy to address greenwashing risk a focus

was on disclosures. Asset Management Companies (AMCs) are
mandated to disclose security wise ESG scores, ESG scheme’s score,
name of the ESG Rating Provider, in case there is a change in ERP, the
reason for such change is also required to be disclosed in the monthly
portfolio statements of ESG schemes.

AMCs are required to disclose name of the strategy in the name of

scheme and also obtain independent reasonable assurance on an annual
basis regarding their ESG scheme’s portfolio being in compliance with
the strategy and objective of the scheme, as stated in respective
Scheme Information Documents. Further, to address the concerns of
conflict of interest with the assurance provider, AMCs need to ensure
that the assurance provider or any of its associates do not sell its
products or provide any non-audit/non-assurance related service
including consulting services, to the AMC or its group entities.

The board of directors of AMCs, based on comprehensive internal

ESG audit, is also mandated to certify the compliance of ESG schemes
with the regulatory requirements including disclosures.

A fund manager of ESG schemes needs to provide a ‘Fund Manager

Commentary’ wherein disclosures with respect to engagements

44
https://www.govinfo.gov/content/pkg/COMPS-1879/pdf/COMPS-1879.pdf
45
https://www.sebi.gov.in/legal/circulars/jul-2023/new-category-of-mutual-fund-schemes-for-
environmental-social-and-governance-esg-investing-and-related-disclosures-by-mutual-
funds_74186.html
22
 Authority Details
undertaken by Mutual Funds for ESG schemes, how ESG strategy was
applied on the fund, how engagements were carried out, any escalation
strategy that the Fund Manager may have applied on the portfolio
companies, Case studies where Fund Managers have engaged with
portfolio companies with a clear objective of engagement and
engagements carried out for exercise of votes.

This apart, for enhanced stewardship reporting, the asset management

companies are required to disclose voting rationale along with decision
wherein AMCs need to categorically disclose whether the resolution
has or has not been supported due to any environmental, social or
governance reasons.

3.1.2. Legal and regulatory framework in the European Union

The sustainable finance regulatory framework in the EU comprises sustainability disclosures

for financial market participants and sustainability reporting requirements for companies
(Taxonomy Regulation and Corporate Sustainability Reporting Directive), and manufacturers
of financial products and financial advisers (Regulation (EU) 2019/208846 SFDR, as
supplemented by Commission Delegated Regulation (EU) 2022/1288), and level 2 measures
to integrate sustainability risks and factors into Alternative Investment Fund Managers
Directive (AIFMD), the Undertakings for the Collective Investment in Transferable Securities
(UCITS) Directive and the Directive 2014/65/EU on markets in financial instruments (MiFID
II)47).48

Under this framework, the EU has created tools to increase transparency and help end-investors
identify credible sustainable investment opportunities and potential risks. Building on
disclosures under the SFDR and the Taxonomy Regulation, these tools consist of the
benchmarks under the Benchmark Regulation and the proposal for a European green bond
standard and the recommendations to support finance for the transition to a sustainable
economy.

The various regulatory instruments mentioned above refer to greenwashing in specific

contexts:

- The Regulation (EU) 2020/852 on the establishment of a framework to facilitate

sustainable investment (or Taxonomy Regulation) states in its recital 11: In the context
of this Regulation, greenwashing refers to the practice of gaining an unfair
competitive advantage by marketing a financial product as environmentally friendly,
when in fact basic environmental standards have not been met.49

46
eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R2088&qid=1693153514598
47
The integration of sustainability aspects including sustainability preferences was implemented through
amendments of the Level 2 regulations under MiFID, UCITS Directive, AIFMD, IDD and Solvency II.
See Commission communication on the Sustainable Finance Package.
48
request_to_esas_on_greenwashing_monitoring_and_supervision.pdf (europa.eu), page 1 -
https://www.esma.europa.eu/sites/default/files/library/request_to_esas_on_greenwashing_monitoring_a
nd_supervision.pdf
49
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32020R0852
23
 - Commission Delegated Regulation (EU) 2022/1288 of 06 April 2022 supplementing
Regulation (EU) 2019/2088 (SFDR) contains the following provisions:

• explanatory memorandum: Disclosure obligations and the assessment of

sustainability preferences support the policy objective of reducing the
occurrence of greenwashing, a form of mis-selling.

• recital 16: It is therefore necessary to address concerns about ‘greenwashing’,

that is, in particular, the practice of gaining an unfair competitive advantage by
recommending a financial product as environmentally friendly or sustainable,
when in fact that financial product does not meet basic environmental or other
sustainability-related standards.50

- MiFID II clarifies the following in its recital 7: It is necessary to address concerns

about ‘greenwashing’, that is, in particular, the practice of gaining an unfair
competitive advantage by recommending a financial instrument as environmentally
friendly or sustainable, when in fact that financial instrument does not meet basic
environmental or other sustainability-related standards. In order to prevent mis-
selling and greenwashing, investment firms should not recommend or decide to trade
financial instruments as meeting individual sustainability preferences where those
financial instruments do not meet those preferences. Investment firms should explain
to their clients or potential clients the reasons for not doing so, and keep records of
those reasons.51

- Recital 2 to Directive 2022/2464/EU as regards corporate sustainability reporting

(CSRD)52 does not give a definition but makes a reference to greenwashing:
greenwashing of financial products that unduly claim to be sustainable.

In their response, ESMA provided information about the regulatory framework applicable to
key segments of the sustainable investment value chain. In their 2023 Progress Report on
Greenwashing,53 ESMA noted that greenwashing may occur not only in relation to the
application of specific disclosures required by the EU sustainable finance regulatory
framework but also in relation to general principles, as featured either in the general EU
financial legislation or, more specifically, in EU sustainable finance legislation.

The general principles concerning fairness of behaviour and clear and not misleading
disclosure to investors are of relevance in that context. Moreover, ESMA noted that in adopting
a structured approach to identify areas more exposed to greenwashing risks, ESMA assessed
greenwashing across four key dimensions: i) the role that an actor of a given sector may play
in greenwashing, namely trigger, spreader, or receiver of misleading sustainability claims; ii)
the topics on which sustainability claims are made; iii) the qualities which make them
misleading such as omission, cherry-picking, etc; and iv) the channels through which such
claims are communicated, such as regulatory information, marketing material, etc.

50
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R1288
51
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32017R0565
52
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022L2464
53
https://www.esma.europa.eu/sites/default/files/2023-06/ESMA30-1668416927-
2498_Progress_Report_ESMA_response_to_COM_RfI_on_greenwashing_risks.pdf
24
 Figure 3: Dimensions used to analyse greenwashing risks

Source: ESMA’s Progress Report on Greenwashing, page 18

The following paragraphs cover the specific approach taken with regard to investment
managers. Under the SFDR, financial market participants – in particular investment managers
- must comply with entity and product level disclosures requirements. In 2021, the
implementing rules (Regulatory Technical Standard (RTS)) were developed and became
applicable at the beginning of 2023, after adoption by the EC.

The SFDR is being reviewed based on the mandate received from the Commission in April
2022. A consultation paper with draft RTS proposals was launched in April 2023, aiming to
finalise the RTS by the end of October 2023. The review was focused on streamlining and
expanding the Principal Adverse Impact (PAI) disclosures by financial market participants and
enhancing transparency regarding carbon emissions reduction targets in financial products. Ten
new social PAI indicators (four mandatory and six “opt-in” indicators) and consulting on a
comprehensive transparency framework for greenhouse gas emissions reduction targets are
proposed. Additionally, simplifications to the financial product templates, including the
introduction of a dedicated 'dashboard' of key information for retail investors have been
suggested.

25
 Further, on 14 September 2023, the EC launched a targeted consultation document on the
implementation of the SFDR (consultation period: 14 September 2023 – 15 December 2023).54
55

Survey respondents such as AMF France, AFM Netherlands, BaFin Germany CMVM
Portugal, CONSOB Italy, Finansinspektionen Sweden, CNMV Spain, and FSMA
Belgium (Authorities) noted their compliance with the EU sustainable finance legislations
which address greenwashing risks. However, some of these Authorities have introduced some
additional measures which are described as follows:

Authority Details
AMF France The “Article 29” of the French 2019 Energy-Climate Law (which
represents a continuation of the article 173-VI of the 2015 Law on the
Energy Transition for Green Growth) requires specific ESG-related
disclosures from asset managers (both at entity and product level) and
complements the EU law in three key complementary areas:

• Climate - notably with the required disclosure of alignment strategies

with regards to the temperature objectives of the Paris Agreement56),
as well as the share of Taxonomy-aligned assets and finally the share
of fossil fuels related activities;
• Biodiversity - notably through the required disclosure of alignment
strategies with regards to international biodiversity preservation
objectives); and
• ESG factors to be fully integrated in the risk management,
governance, and transition support systems of financial actors.

In case asset managers have not yet implemented practices that need to be
disclosed, they must publish an improvement plan explaining the timing
and means they have planned to implement them. Additionally, in 2020,
the AMF France published a supervisory policy57 aimed at ensuring the
proportionality between the reality of non-financial criteria taken into
account in the fund’s asset management and the place reserved for this
criterion in investor communication. This national policy will be reviewed
by the AMF France as soon as it considers that the European framework
to offer a sufficient level of investor’s protection, to avoid “over
transposition” beyond the European rules apart from exceptional cases.
BaFin Greenwashing entails civil and regulatory liability risks, as well as
Germany criminal liability risks. Greenwashing is therefore regulated across a
variety of different legal statutes. Greenwashing falls inter alia under the
provisions against misstatements in financial reporting (sections 331 of

54
Consultation document - Targeted consultation on the implementation of the Sustainable Finance
Disclosures Regulation (SFDR) (europa.eu) - https://finance.ec.europa.eu/system/files/2023-09/2023-
sfdr-implementation-targeted-consultation-document_en.pdf
55
Noteworthy, the ESMA Consultation on Guidelines on funds' names using ESG terms closed last
February:UWGhttps://www.esma.europa.eu/press-news/consultations/consultation-guidelines-
funds%E2%80%99-names-using-esg-or-sustainability-related
56
quantitative greenhouse gas emission targets to be set every five years until 2050.
57
https://www.amf-france.org/en/regulation/policy/doc-2020-03
26
 Authority Details
the German Commercial Code58 (HGB), section 400 of the German Stock
Corporation Act59 (AktG)) and against (capital investment) fraud
(sections 263, 264a of the German Criminal Code60 (StGB)).

In addition, advertising with inaccurate information about sustainability

properties can constitute a criminal offense under Section 16 (1) of the
German Unfair Competition Act.61 Prospectus liability can be considered
pertaining to a prospectus linked to a fund or a document replacing the
prospectus. However, this framework is partially specific to companies
who have to report under the German Commercial Code and partially
applies to companies in general, e.g., the criminal offences governed by
the German Unfair Competition Act.

3.2.Initiatives Regarding ESG Ratings and Data Products Providers

3.2.1. Role and importance of ESG ratings and data products providers for sustainable
finance in capital markets

The market for ESG ratings and data products is in a phase of rapid growth. It is estimated
that there are 140 different ESG data providers62 in the market and are expected to continue
to evolve over the coming years. The global market for ESG ratings and data products is
concentrated around a small number of providers with a global presence, alongside a larger
number of providers with a more regional focus or offering more specialised services. Some
of the larger market participants – notably certain credit rating agencies, exchanges, data and
index providers – have acquired and continue to acquire smaller and more specialised ESG
data and rating providers and/or have invested significant resources to develop their own ESG
expertise/capacities.

The smaller actors tend to have a specific regional presence and/or specialisation in specific
data sets, coverage, or innovative products and services.

A wide variety of ESG ratings and data products have emerged in response to investor
demands. ESG ratings and data product offerings are constantly evolving to respond to new
topics of interest and emerging areas of attention (e.g., nature/climate/environmental,
diversity and inclusion, biodiversity), or to provide an alternative way to assess ESG
characteristics, impact, risks and/or opportunities.

According to Bloomberg,63 the ESG-related assets under management are predicted to reach
USD53 trillion by 2025. The main reasons behind this growth are two-fold:

58
https://www.gesetze-im-internet.de/englisch_hgb/englisch_hgb.pdf
59
https://www.gesetze-im-internet.de/englisch_aktg/englisch_aktg.html
60
https://www.gesetze-im-internet.de/englisch_stgb/englisch_stgb.pdf
61
https://www.gesetze-im-internet.de/englisch_uwg/englisch_uwg.pdf
62
https://www.financierworldwide.com/esg-ratings-key-considerations-for-stakeholders#.Y7f20XbMI2w
63
https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-
global-aum/
27
 i. There is increasing legislative and regulatory focus on financial market participants’
consideration of the ESG characteristics of potential investments, with some
jurisdictions imposing or considering imposing new regulatory obligations; and

ii. There is increasing demand from investors for ESG products.

Given the increasing prominence of ESG ratings and data products in the financial sector,
which is expected to be promulgated by these two drivers, stakeholders have raised concerns
about these products. A key challenge raised in relation to ESG ratings includes the lack of
transparency of methodologies and objectives, which can lead to confusion about what a rating
is aiming to assess and how. Hence, the robustness of ESG ratings methodologies and good
quality underlying raw data, are fundamental for high quality ESG ratings.

Likewise, for ESG data products, data collection, frequency and verification will impact data
quality. Lack of transparency in the process of developing ESG ratings and ESG data products
could make it difficult for users to understand and interpret providers’ outputs.

There are also concerns pertaining to whether and how an ESG rating provider interacts with
the rated entity. For example, there may be potential for conflicts of interest where an ESG
rating provider also provides advice to the rated entity on how to improve that rating; or
scenarios where the dialogue between a rating provider and rated entity could eventually lead
to improvements in the quality and reliability of a rating (e.g., by drawing attention to any
factual errors or omissions). These issues can affect market confidence and are applicable to a
wide range of complex ESG data products.

3.2.2. Scope of ESG ratings and data products providers

Formulating distinct definitions for ESG ratings, ESG data products, and ESG data is difficult
and leads to challenges in setting the scope of policy interventions – particularly mandatory
regulation.

The IOSCO’s 2021 ESG Ratings Report noted that the term “ESG ratings” can refer to the
broad spectrum of rating products in sustainable finance and include ESG scorings and ESG
rankings. ESG ratings, rankings and scorings serve the same objective, namely the assessment
of an entity, an instrument, or an issuer exposure to and management of ESG risks and/or
opportunities.

However, they differ in the resources and methodologies used. ESG scorings or scores usually
result from quantitative analysis whereas most ESG ratings are produced using both
quantitative models and qualitative analysis and are accompanied by analyst reports to explain
the ratings. On this basis, ratings often incorporate further elements of analytical judgement
or opinion. Ratings providers usually select key issues for each ESG component and assess
the exposure to these sustainability risks and the way in which they are managed. ESG ratings,
scorings, and rankings are usually made relative to a peer group rather than defined in absolute
terms (although there are some exceptions).

In a 2020 study, the OECD referred to the discrepancies between company ESG scores by
different ESG score providers.64 The analysis noted that the mixed results regarding the final

64
https://www.oecd-ilibrary.org/sites/e9ed300b-en/index.html?itemId=/content/component/e9ed300b-en
28
ESG score of different providers raise the need for more thorough assessment of how financial
materiality is captured in ESG data and ratings.

Currently, the various ESG reporting and ratings approaches generally do not sufficiently
clarify either financial materiality or non-financial materiality (e.g., social impact), so investors
are not currently able to get a clear picture of whether the measurements suggest a net positive
or negative effect on financial performance.”

Figure 4: Comparison of company ESG scores by different ESG score providers, 2019

Source: Bloomberg, MSCI, Refinitiv, OECD calculations

Common ESG data products are explained below:

• Raw data is gathered by ESG data products providers from companies’ public
disclosures or from other publicly available information or collected through
questionnaires; if raw data is not available, corresponding data points can be
approximated. Feedback suggests that all data products derive from either collected or
estimated raw data;
• Screening tools assess the exposure of companies, jurisdictions, and bonds to ESG risks
in order to define a portfolio based on ESG criteria; and
• Controversies alerts enable investors to track and monitor behaviours and practices that
could lead to reputational risks and affect the company and more broadly its
stakeholders. Controversies may be taken into account in ESG ratings or be packaged
as a standalone controversy score or rating.

Finally, when looking at other ESG products and services, the IOSCO Report notes that “in
addition to the increasing range of ESG ratings and data products, some ESG ratings and data
products providers also offer other ESG products and services. These include inter alia:
• ESG indices;
• consulting services such as portfolio analysis, advisory services to companies for ESG
strategy development;
• provision of certification and second-party opinions;
• regulatory reporting assistance for companies and financial market participants’
compliance with new sustainability regulations; and
• advisory services to companies on ESG ratings improvement techniques”.

29
 3.2.3. Regulatory approaches for ESG ratings and Data Products Providers

The survey results indicated that the ESG ratings and data products market remains largely
unregulated. However, a few jurisdictions are currently developing mandatory and voluntary
policy frameworks for ESG ratings and data products providers.

At the time of publication of this Report, there are three legislative initiatives (India, UK and
EU) and three “soft law” initiatives (i.e., Codes of Conduct - Japan, UK, and Singapore)). These
Codes of Conduct have been created in conjunction with or by industry participants and were
shaped by the 2022 IOSCO Call for Action.

While the scope of the legislative initiatives only includes ESG rating providers (albeit with
different definitions of what an ESG rating is), the Codes of Conducts apply to both ESG rating
and data products providers.

The reason for excluding ESG data and/or ESG data products and their providers from the
legislative initiatives (India, UK and EU) is that the biggest risk of harm arises from the
presence of an assessment, (both in the form of an opinion and in that of a score or ranking).
The methodologies used to create a rating tend to be more complex and opaquer than those of
most data products.

While concerns have been raised regarding the quality and robustness of certain ESG data
products and ESG data more generally, these might be best addressed through the promotion
of a strong ESG data ecosystem with globally consistent sustainability-related corporate
reporting and assurance and ethics standards – such as those of the ISSB and those being
developed by the International Auditing and Assurance Standards Board (IAASB) and the
International Ethics Standards Board for Accountants (IESBA).

Therefore, for reasons of proportionality, the legislative proposals do not cover ESG data
and/or ESG data products and their providers. In practice, it may be difficult to define the
boundary between complex ESG data products and ESG ratings. This is less important in
context of applying a voluntary Code, but crucial when setting the scope of a regulated
activity.65

For this reason, some jurisdictions are currently proposing different legislative definitions of
an ESG rating. Moreover, the UK is considering in parallel both the introduction of a regulatory
framework and a voluntary Code.

The following is a brief description of the regulatory initiatives at the date of publication of
this Report. Annex 3 encompasses a detailed description of these initiatives.

65
For instance, there is a degree of judgment involved in the creation of controversy-related products (e.g.,
data sources used, when does a piece of information become a controversy), and the output can be easily
packaged as a list of controversies (i.e., dataset) and/or a final score indicating to which extent a firm is
suffering from controversies and the severity of such controversies.
30
 Current legislative initiatives

Jurisdiction Initiatives
India (SEBI) SEBI introduced a regulatory framework for ESG rating providers
(ERPs in July 2023 66. SEBI opted for an enforceable regulatory and
supervisory framework for ESG rating providers – instead of a voluntary
code of conduct for ESG rating providers - in view of SEBI’s experience
with credit rating agencies. However, given the nascent nature of the
ERPs and to provide for scope for further innovation, SEBI has
attempted to follow a principles-based approach.

The regulatory framework establishes that no entity shall act as an ESG

rating provider in India unless it has been registered by SEBI. Particular
attention was given by the regulation to transparency, conflicts of
interest, rating process, monitoring of the ESG rating, procedure for
reviewing the ESG rating and internal procedure to be developed. The
SEBI’s approach for ESG ratings and ESG rating providers envisages a
detailed disclosures of the rationale behind the assigned ESG rating, to
enable stakeholders to assess the reasons behind an assigned ESG rating.

The SEBI’s regulatory framework provides for an annex (“seventh

schedule”) that set out a succinct code of conduct for ESG rating
providers.
UK (FCA) In March 2023, HM Treasury consulted on a potential regulatory
framework for ESG ratings providers, which closed on 30 June 2023.

HM Treasury’s intention would be to capture a wide range of ESG

ratings used in financial markets, regardless of their name or how they
are marketed. The approach intends to include any assessments,
regardless of their self-identification (i.e., whether they are called
“ratings,” “scores,” “marks,” or anything else, including where market
participants currently consider these to be data products). On the other
hand, HM Treasury’s proposed scope excludes data on ESG matters
where no assessment is present.

As for the territorial scope, HM Treasury proposes to capture the direct

provision of ESG ratings to users in the UK, by both UK and overseas
firms. The FCA has indicated that any potential future regulatory
requirements introduced for ESG ratings providers would be informed
by the 2021 IOSCO Recommendations and promote transparency, good
governance, management of conflicts of interest, and robust systems and
controls.
EU On 13 June 2023 the EC published a proposal for a regulation of the
ESG rating providers67. The EC notes that the widely agreed IOSCO
definition of ESG ratings would form the basis of the definition of ESG
ratings. Namely, for the purposes of the proposed regulation the EC

66
https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/jul-
2023/1689654833388.pdf#page=23&zoom=page-width,-16,578
67
https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52023PC0314
31
Jurisdiction Initiatives
states that “As to the scope, the definition of ESG ratings by IOSCO
would form the basis for the scope of this initiative, covering both scores
and ratings, and products which are a mixture of both”.

The EC’s proposed regulation intends to exclude from its scope the
provision of raw ESG data that do not contain an element of rating or
scoring and are not subject to any modelling or analysis resulting in the
development of an ESG rating. The EC proposed regulation envisages a
proper approach dealing with conflicts of interest, which may lead to the
establishment of an independent oversight function representing
stakeholders, including users of the ESG ratings and contributors to such
ratings.

A critical and deeply discussed matter is that of disclosure. The EC’s

proposed regulation envisages two levels of disclosures: a) a minimum
level of disclosure of the methodologies, models, and key rating
assumptions used in ESG rating activities to the public on their website
and through the European Single Access Point (ESAP); and b) an
additional level of disclosure that ESG rating providers shall make
available to users of ESG ratings and rated entities. In turn, ESMA shall
develop draft regulatory technical standards to specify further the
elements that are to be disclosed.

Voluntary Codes of Conduct

Jurisdiction Initiatives
Japan The FSA Japan’s Code of Conduct is designed to be a voluntary code
on a “comply or explain” basis, where the FSA calls for organisations
to express their support for the Code via public announcement, and the
organisations supporting the Code will either comply with the principles
and guidelines of the Code or explain the reasons why they do not
comply with a particular principle or guideline.

The Code of Conduct considers both ESG evaluation (i.e., ESG rating)
and data products providers. The Code consists of six principles: 1)
securing quality, 2) human resources development, 3) ensuring
independence and managing conflicts of interest, 4) ensuring
transparency, 5) confidentiality, 6) communication with companies.
Singapore On 28 June 2023, MAS Singapore published a consultation paper to
seek views on a proposed Code of Conduct for ESG Rating and Data
Product Providers (Code).

The Code is largely modelled on the recommended good practices set

out in 2022 IOSCO Call for Action with additional specific
requirements. The industry Code applies to both ESG rating and data
products providers. Similar to the FSA Japan’s Code, the Singapore
Code is to be applied by ESG rating and data product providers on a
“comply or explain” basis.

32
Jurisdiction Initiatives

The Code encompasses seven principles: 1) policies and procedures to

ensure issuance of high quality ESG rating and data products; 2)
ensuring independent decisions; 3) manage and disclose conflicts of
interest; 4) make adequate public disclosure and transparency; 5)
protect non-public information; 6) efficient information procurement
processes; 7) address issues raised by the covered entity. Each of them
is elaborated by a set of best practices.
UK On 05 July 2023, the ESG Data and Ratings Working Group (DRWG)
- an industry working group led by an industry secretariat appointed by
the FCA UK – published for a 3-month consultation the draft of a
voluntary Code of Conduct for ESG Ratings and Data Product
Providers.

In line with 2021 IOSCO’s recommendations, the Code is structured

around four key outcomes: 1) Good Governance; 2) Systems and
Controls; 3) Management of Conflicts of Interest; 4) Transparency.

The Code applies both to ESG ratings and to data products providers
and is based on six principles: 1) Good Governance; 2) Securing
Quality; 3) Conflicts of Interest; 4) Transparency; 5) Confidentiality; 6)
Engagement.

33
CHAPTER 4: SUPERVISORY PRACTICES ADDRESSING GREENWASHING

4.1. Initiatives Regarding Asset Managers

Recommendation 3 of the IOSCO’s 2021Asset Management Report covers the requirements

for securities regulators and/or policy makers with regard to supervision and enforcement.

Recommendation 3: Supervision and Enforcement. Securities regulators and/or

policymakers, as applicable, should have supervisory tools to monitor and assess whether
asset managers and sustainability-related products are in compliance with regulatory
requirements and enforcement tools to address any breaches of such requirements.

At the same time, Recommendation 1 of the IOSCO’s 2021 ESG Ratings Report calls on
regulators to examine their existing regulatory regimes and where applicable consider whether
there is sufficient oversight of ESG ratings and data products providers.

Recommendation 1: Regulators could consider focusing more attention on the use of

ESG ratings and data products and ESG ratings and data products providers that may be
subject to their jurisdiction.

This section of the report describes the supervisory and enforcements tools and measures used
by securities regulators to supervise and enforce greenwashing.

4.1.1. Supervisory measures and tools

Given the rise of sustainable finance and the associated malpractices, the survey revealed that
most jurisdictions have in place supervisory tools and mechanisms to address greenwashing in
the area of asset managers and their products. For these jurisdictions, the mechanisms cover
entity-level practices, policies, procedures and disclosure relating to material sustainability-
related risks and opportunities and product-level disclosure of sustainability-related products
(including material sustainability-related risks and opportunities of these products).

Measures at Product Level

Areas Details
Reviews (thematic or • In Canada, the OSC Ontario and AMF Québec review
targeted) of product- prospectuses before a receipt is issued for the prospectus
level disclosure that would permit securities offered under the prospectus to
materials and be offered to the public. The OSC Ontario has conducted
marketing materials thematic reviews focused on ESG-related investment funds
as part of its continuous disclosure review program. If
greenwashing is identified in these reviews, staff of the
OSC Ontario and AMF Québec work with the investment
fund manager to correct the disclosure in question.
depending on the severity of the greenwashing, the
investment fund manager and its funds may be referred for
enforcement action. In addition, depending on the severity
of the issue, the OSC Ontario and AMF Québec have the

34
 Areas Details
ability to take enforcement action against the investment
fund manager and its funds.
• The FCA UK plans to conduct reviews of the
characteristics of labelled products once their new labelling
rules are in force. The proposed criteria for labelling
requires firms to carry out due diligence on any research
and analytical resources it relies upon, including third party
ESG ratings and data providers. This is consistent with the
expectations in our Guiding Principles on the design,
delivery and disclosure of ESG/sustainability funds
published in July 2021.
• MAS Singapore collects information from asset managers
and uses data from Morningstar to monitor asset managers’
sustainability products and practices.
Market-wide studies • AFM Netherlands has also conducted market-wide studies
into sustainability- into sustainability-related disclosures at the product level,
related disclosures which have led to actions such as letters to individual asset
managers informing about applicable standards. It has also
recently closed its public consultation of the Guidelines on
sustainability claims.68 In these Guidelines, financial
institutions and pension providers will find tools to help
them comply with the existing information requirements. In
addition, the AFM Netherlands has published an
exploratory study69 into the sustainability risk management
of management companies of Dutch collective investment
companies.

Measures at Asset-Manager Level

Areas Details
Assessments or review of • At CONSOB Italy the analysis is conducted in the context
the asset manager’s of the licensing procedure of Management Companies. The
entity-level policies, analysis is focused, inter alia, on the decision-making
procedures, practices, process taking also into account the funds categories under
and disclosure. the SFDR’s classification the manager intends to manage.
This is conducted as part In this context, parameters such as allocation of roles and
of the licensing or responsibilities, resources and tools and potential
registration process or as investment strategies are deeply scrutinised to assess the
part of the ongoing manager’s preparedness and to detect potential weaknesses.
compliance review • The AMF France has conducted in 2022 a study and a
process for registered SPOT inspection campaign (Supervision des Pratiques
entities. Such assessments Opérationnelle et Thématique - operational and thematic
or reviews may include a supervision of practices) on compliance with non-financial
focus on sustainability- contractual commitments by funds (UCITS and AIFs)
related issues depending
68
https://www.afm.nl/~/profmedia/files/consultaties/2023/consultation-guidelines-sustainability-
claims.pdf
69
https://www.afm.nl/nl-nl/sector/actueel/2023/augustus/verkenning-duurzaamheid-risico-management
35
 Areas Details
on whether the asset managed by portfolio asset management companies
manager offers any (AMCs). In practice, the AMF reviewed the systems for
sustainability-related defining, managing, and controlling these commitments, in
products. a representative sample of AMCs. The AMF also assessed
the level of compliance of these practices with the AMCs’
regulatory obligations and identified good and poor
practices in this field and published a summary of the result
of those inspections in July 2023.70
• The SFC Hong Kong has been conducting reviews on fund
managers’ compliance with its climate risk management
requirements and their sustainability-related disclosures as
part of the supervision of licensed corporations since the
FMCC requirements came into effect in 2022.
• The OSC Canada conducts regular compliance reviews of
asset managers.
• In addition to conducting desk reviews/fund analyses with
regard to possible cases of sustainability issue, FINMA
Switzerland uses onsite reviews and supervisory dialogue
to monitor and assess whether asset managers and
sustainability-related products comply with regulatory
requirements.
• MAS Singapore conducted a review of the environmental
risk management practices of thirty asset managers in 2021
and published an information paper highlighting the good
practices observed and the recommendations for
improvements.
Inspections • The US SEC’s Division of Examinations (EXAMS) carries
out examinations and inspections of securities firms under
its purview. EXAMS publishes its priorities each fiscal
year. For the fiscal years 2021, 2022, and 2023, the
consideration of certain ESG and climate-related risks was
included. It has also issued a Risk Alert71 to highlight
observations from recent exams of investment advisers,
registered investment companies, and private funds
offering ESG products and services. While not specifically
referenced in its 2024 priorities, EXAMS will continue to
examine firms to evaluate whether they are accurately
disclosing their ESG investing approaches and have
adopted and implemented policies, procedures, and
practices that accord with their ESG-related disclosures.
• In addition to monitoring disclosure requirements of asset
managers and the product by the FSA Japan, the Securities
and Exchange Surveillance Commission also conducts
onsite monitoring of asset management companies and

70
https://www.amf-france.org/sites/institutionnel/files/private/2023-
06/Synth%C3%A8se%20SPOT%20Finance%20durable%20VA.pdf
71
https://www.sec.gov/files/esg-risk-alert.pdf
36
 Areas Details
cooperates with the FSA's supervisory departments on the
results of such monitoring.
Risk-based approach • Risk assessments are conducted by SC Malaysia. ESG
risks/concerns, if any, would be considered, subject to SC
Malaysia’s risk assessment and prioritisation. Generally,
the asset managers themselves are expected to undertake a
compliance approach, that is, internally have policies and
processes to ensure they are in compliance with their
"mandate" and to have the necessary governance, risk
management and controls to achieve their
objectives/mandate.
• The risk-based in CONSOB Italy covers a sample72 of
Management Companies representative of domestic asset
management sector and classified as riskier in terms of
compliance for the sample. A deep scrutiny of ESG policies
published by these sampled companies on their website is
carried out together with the analysis of their official
documents. Strategies, parameters, and informational data
sources adopted by the companies to assess potential
ESG/sustainable investments represent the focus of the
analysis, with the objective to identify potential weaknesses
in terms of ESG risk and portfolio management.
Reviews (thematic or • In the EU, ESG disclosures are included in the new Union
targeted) Strategic Supervisory Priorities (USSPs):73 As noted in the
ESMA Progress Report, the USSP will also foster an
integrated approach to supervision across the sustainable
investment value chain (SIVC) by considering the most
relevant sectors (issuers, investment managers and
investment service providers) and the interlinkages among
them. In that context, ESMA and the EU’s financial
markets regulators and supervisors have launched a
Common Supervisory Action (CSA) with National
Competent Authorities (NCAs) on sustainability-related
disclosures and the integration of sustainability risks. The
goal is to assess the compliance of supervised asset
managers with the relevant provisions in the SFDR, the
Taxonomy Regulation and relevant implementing
measures, including the relevant provision in the UCITS
and AIFMD implementing acts on the integration of
sustainability risks, using a common methodology
developed by ESMA.
• At domestic level, some EU NCAs (such as FSMA
Belgium, AFM Netherlands, CNMV Spain and
CONSOB Italy) perform disclosure supervision. The

72
The identification of Management Companies falling in the sample is based on criteria, including, inter
alia, product’s innovation, marketing activity, complaints and costs charged on funds.
73
https://www.esma.europa.eu/press-news/esma-news/esma-work-esg-disclosures-new-union-strategic-
supervisory-priority.
37
 Areas Details
disclosure supervision is focused on the ex-ante templates
envisaged by the SFDR for art. 8 and art. 9 products.74 The
regulators review regulatory documents (for example
prospectus, offering document and Key Information
Document) together with overseeing marketing
communication such verifying content of the websites of all
fund managers managing funds with ESG characteristics
and marketing materials of funds with a specific attention
to any ESG-related claims.
• The OSC Ontario conducted a marketing desk review with
the objective of ensuring that registrants have an adequate
compliance system in place to support claims relating to
ESG products and services. This involved reviewing the
asset manager’s policies and procedures relating to its
investment framework, and its internal oversight regime,
including oversight of the investment process and the use
of external service providers providing ESG analysis.
• MAS Singapore plans to conduct thematic inspections,
which will include reviewing the sustainability frameworks
and practices of asset managers against their public claims.
Information/Intelligence • The FSA Japan uses information collected to issue orders
Gathering to asset management companies to provide certain reports.
Some jurisdictions rely on • MAS Singapore also collects information from asset
the collection of data and managers and uses data from Morningstar to monitor asset
information as a managers’ sustainability products and practices.
supervisory tool. • The FCA UK utilises intelligence gathered on the quality
of fund authorisation applications as part of its supervisory
approach to greenwashing.
• FINMA Switzerland also conducts surveys of asset
managers to assess greenwashing.
• The SFC Hong Kong uses intelligence from different
sources, including self-reported breaches.
• The CMVM Portugal conducts its supervision in the ESG
area primarily by using the regular information provided on
a periodic basis to the CMVM by asset managers, which are
then subject to comprehensive analysis.
Complaints monitoring • The FCA UK and the SFC Hong Kong adopt such
approach.
Interactions with • The CNMV Spain monitors and dialogues with the
Industry industry regarding disclosure relating to taxonomy
information of listed entities which started in 2023. These
disclosures are specifically monitored in relation to both

74
A so-called art. 8 product is a product that – according to the EU SFDR art. 8 - promotes, among other
characteristics, environmental or social characteristics, or a combination of those characteristics, provided
that the companies in which the investments are made follow good governance practices. A so-called art.
9 product is a product that – according to the EU SFDR art. 9 - has sustainable investment as its objective
and an index has been designated as a reference benchmark.
38
 Areas Details
eligible and aligned activities. Since it is the first year of
application, a continuous dialogue is being maintained with
issuers in order to channel any doubts that may arise,
facilitating consistent criteria for the Spanish market.
• In addition to conducting deep dives on sustainability issue,
FINMA Switzerland also conducts desk reviews/fund
analyses regarding possible cases of deception, conducts
supervisory dialogue to monitor and assess whether asset
managers and sustainability-related products comply with
regulatory requirements.
• The SFC Hong Kong maintains regular interactions with
the asset managers that it regulates with a view to
identifying and assessing the risks arising from their
business activities.
Others • Finansinspektionen (FI) Sweden has a number of tools at
its disposal as a supervisory authority namely granting
authorisations, conducting supervision, and issuing rules
and intervening to address this phenomenon. It also uses
more informal or indirect tools, such as preparing
guidelines for the industry, offering financial education,
communicating about sustainability and cooperating
internationally on sustainability.
• AMMC Morocco, FRA Egypt, and CNBV Mexico are in
the process of developing/implementing guidelines or
requirements/supervisory tools in the area of sustainability-
related practices and disclosure for asset managers and their
products.

4.1.2. Technological tools

Some jurisdictions are currently developing, or intend to develop, technological tools and
mechanisms to support their general supervisory initiatives. These will extend to supervision
around greenwashing, or technological tools and mechanisms that are specific to sustainability,
including using ESG data from a third-party provider, public information, and information
requested directly from the asset managers, as well as tools to automatically identify funds with
potential greenwashing issues.

Technological tools, such as machine learning or Artificial Intelligence, may help regulators in
supervising ESG practices, including in terms of monitoring and comparing ESG and climate
related risks disclosures of listed companies and funds. Various regulators are seeking to use
these technological tools to address greenwashing problems. However, these processes remain
putative or experimental and lack concrete feedback after day-to-day use.

Authorities Examples of Technological Tools in place

ASIC Technology is being trialled in reviewing prospectuses, in a way
that allows for frequent key terms (like ESG, green, net zero,
carbon neutral) to be extracted for further supervisory analysis.

39
 Authorities Examples of Technological Tools in place
MAS Singapore MAS Singapore is also exploring the use of technological tools,
such as the use of a social media listening tool to scrape through
social media sites and news websites to search for data and online
opinions on asset managers and/or funds that are marketed to be
green. The data collected from the tool may be used together with
the information collected from other sources (such as from asset
managers and Morningstar as indicated above) to identify asset
managers that could be engaging in greenwashing.
CONSOB Italy While CONSOB Italy does not currently use AI tools, it pointed
out that the tools adopted in the perspective of supervisory activity
even on ESG/sustainable profiles are substantially represented by
internal and external databases. The internal databases are
integrated with external databases (for example Morningstar and
Sustainalytics) to get insights on sustainability’s profile of
companies invested by funds.
CONSOB Italy have internal databases among others (i) for filing
of funds prospectus and offering documentation and collects the
key information of each fund on structured format (ii) concerning
the funds’ portfolio composition which includes granular data on
financial instruments invested by funds and updated on monthly
basis, and (iii) concerning documentation on manager such as
annual report, internal audit, website information to keep the
sustainability information provided by the managers. CONSOB
Italy is exploring further analyses and tools to perform its
supervisory activities, including on ESG matters with the aim of
detecting greenwashing practices.
FSMA Belgium The FSMA Belgium performs systematic reviews of the legal
documentation and the marketing materials of funds with a
specific attention to any ESG related claims, in addition to the
SFDR requirements. The FSMA Belgium has developed an
automatic tool to identify potential greenwashing funds (portfolio
screening with exclusions lists), which will complement the
regular controls it performs on the legal documentation and
marketing documents.
SFC Hong Kong SFC Hong Kong is exploring the potential use of ESG fintech,
including Suptech and Regtech, to assist with supervising the
compliance of regulatory requirements and detecting potential
greenwashing by asset managers.
FCA UK On 20 September 2023, the FCA UK led the Global Financial
Innovation Network’s (GFIN) first ever virtual Greenwashing
TechSprint.75 The TechSprint was hosted on the FCA’s Digital
Sandbox and brought together international regulators, firms, and
innovators to address sustainable finance as a collective priority.
The objective of the TechSprint was to develop a tool or solution
that could help regulators, or the market, more effectively tackle
or mitigate the risks of greenwashing in financial services.
75
https://www.fca.org.uk/firms/innovation/global-financial-innovation-network/gfin-greenwashing-
techsprint
40
 4.1.3. Sanctions and other measures taken

Most jurisdictions do not have an approach to sanctions that is specific to greenwashing cases
and instead apply the same approach as for cases involving false or misleading claims. This
broader, more general approach often involves different levels of sanctions depending on the
severity of the issue. Some jurisdictions, such as Ontario and Québec (Canada) and
Malaysia, do not tailor sanction approaches to specific types of offences, as their statutes are
sufficiently broad to address different types of offences. CMVM Portugal noted that industry
awareness of greenwashing is still in the development phase and therefore considers it more
appropriate at this stage to focus on an educational approach to address greenwashing rather
than take a formal sanctions approach. Similarly, CNVM Spain indicated that implementation
of ESG rules is in an early stage and therefore it is considered more important to clarify doubts
and make financial market participants aware of the new obligation.

The FCA UK continues to monitor the market for signs of potential greenwashing and will
continue to apply its usual supervisory and enforcement approaches. Any greenwashing
concerns prior to its SDR and labelling rules coming into force will be treated under its rules
at the time. Its enforcement department could consider opening an investigation against
greenwashing or other breaches of serious misconduct where there is consequential or potential
for harm.

The survey revealed the following sanctions/enforcement actions in greenwashing instances:

• Infringement notice (which involves the payment of a penalty without the

acknowledgment that an offence was committed) or litigation for potentially more
egregious instances of greenwashing (ASIC Australia). Between 01 July 2022 and 31
March 2023, ASIC achieved 23 total corrective disclosure outcomes, 11 infringement
notices issued, and 1 civil penalty proceeding commenced. Measures against the asset
managers included (i) negotiating the replacement of sustainability-related references
in the product name with references that accurately supported by the product’s
investment strategy and processes, (ii) infringement notices issued on a number of asset
managers and financial penalties paid, and (iii) in one instance to date, the initiation of
court action76 against the asset manager.
• Revocation of registration, suspension of business, and order for business
improvement (FSA Japan)
• Supervisory actions, including administrative investigation and sanctions (FSMA
Belgium).
• Financial penalty (US SEC).77

Some jurisdictions such as Egypt and Singapore are in the process of introducing sanctions
for breaches in relation to sustainable related issues. MAS Singapore is studying the
formulation of mandatory requirements for climate-related disclosures by larger asset
managers. For ESG funds, MAS has the power to take legal actions against persons making

76
https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-043mr-asic-launches-
first-court-proceedings-alleging-greenwashing/
77
In November 2022, the SEC charged Goldman Sachs Asset Management, L.P. (GSAM) for policies and
procedures failures involving two mutual funds and one separately managed account strategy marketed
as ESG investments. To settle the charges, GSAM agreed to pay a USD4 million penalty.
41
false or misleading statements in offering documents in relation to offers of funds. Similarly,
the FRA Egypt is in the process of identifying the greenwashing as a main risk within the non-
banking financial services (NBFS) and may in the long run consider identifying the fines and
sanctions' schemes related to the greenwashing practices within the NBFS. FINMA
Switzerland is considering whether its existing enforcement tools can, and should be, used to
address greenwashing and whether it needs to define a formal approach to sanctions for
greenwashing cases, while CNBV Mexico, is in the process of setting out ESG or
sustainability-specific requirements for asset managers and products, which will result in more
tools to impose sanctions in this area.

Cases of greenwashing

While instances of greenwashing were not identified in all jurisdictions, some have conducted
analyses and reviews of the market participants and have published reports sharing their
findings including both good and poor practices. For example, the FCA UK has conducted
reviews of how asset managers are implementing the Guiding Principles on the design,
delivery, and disclosure of ESG and sustainability-related funds. In France, the AMF is
monitoring commercial communications (advertisements) from funds to address unbalanced
and distorted statements.

However, a few jurisdictions have identified cases of greenwashing in their jurisdictions. For
example, FINMA Switzerland identified several types of greenwashing that involve a
disconnect between the fund’s marketing or disclosure and the actual investments or activities
of the fund. Some common types of greenwashing identified by FINMA Switzerland were:

(i) product fact sheets that referenced active engagement or dialogue as part of the
product’s sustainable investment approach, despite the absence of such
engagement;
(ii) products that referred to sustainability, but their investment policy allowed for a
significant portion of the portfolio to hold non-sustainable investments, and
(iii) misleading fund names, such as a “Zero Carbon Fund” that held some investments
that were not in fact carbon free.

FINMA Switzerland has identified product documentation that referred to sustainability even
though a sustainable investment strategy or policy was not used by the product.

In Italy, CONSOB identified the following types of potential greenwashing:

➢ A lack of coherence between the main asset class of fund’s investment policy and fund’s
classification under SFDR as represented in the offering documentation and in
marketing communications. In this area, it was considered not appropriate for funds
whose investment policy is focused on generalist government bonds to be classified
under art. 9 category (i.e., category having the highest level of sustainability’s ambition).
This is because it is unanimously recognised that a shared metric to assess the
sustainable contribution of generalist government bonds is not available yet.
Consequently, the managers were requested to review the funds’ classification; and

➢ Inadequacy in the process adopted by management companies to assess the sustainable

investment. Indeed, sometimes such process has turned out to be not robust enough (for
instance, in terms of available data or in terms of adopted indicators) to explain the
assessment of level of sustainability of potential investments. The managers were
42
 required to review the fund’ classification to improve coherence with the adopted
process.

Both FINMA Switzerland and CONSOB Italy have corrected these instances of
greenwashing by requesting asset managers to adapt their funds to accurately reflect the
sustainable features of the products, changing the name of the fund, and removing certain
sustainability-related references in disclosure and marketing materials.

In May 2023, ASIC Australia published a report78 of recent greenwashing interventions,

including in relation to greenwashing by asset managers of financial products (Report 763).
Common types of greenwashing by asset managers included (i) overstatements79 by asset
managers or promoters of the extent that an investment screen applied to underlying holdings,
and (ii) the lack of disclosure or support for the use of a specific sustainability-related product
label.

The US SEC has filed several enforcement actions against asset managers for disclosure and
compliance failures in connection with ESG-related investments. For example, in May 2022,
the SEC charged BNY Mellon Investment Adviser, Inc. for material misstatements and
omissions about ESG considerations in making investment decisions for certain mutual funds
that it managed. To settle the charges, BNY Mellon Investment Adviser agreed to pay a USD1.5
million penalty. The US SEC also publishes information about specific enforcement actions
related to ESG issues or statements on its website.

4.2.Initiatives Regarding ESG Ratings and Data Products Providers

As far as supervision on information spread to the market is concerned, CONSOB Italy is

currently developing ad hoc supervisory tools, methodologies, and procedures to address
greenwashing in the area of ESG ratings and data providers and their products, as well as in
the area of issuers". In fact, even if CONSOB Italy is already monitoring the dissemination
of the ESG ratings and their impact on the market, comparing the content of the ratings related
to an issuer with the information disseminated by the issuer itself, they are currently analysing
and considering the best supervisory tools, methodologies, and procedures to address
greenwashing in the above areas. These activities should therefore be finalised.

Namely, CONSOB Italy monitors the dissemination of ESG ratings and its impact on the
financial markets. It compares the content of ESG ratings related to an issuer with the
information disseminated by the issuer itself (in prospectuses, financial statements, non-
financial statements, press releases, etc.), to assess the existence of possible greenwashing
phenomena either on the issuers' side or on the side of ESG rating providers. To perform this
activity, CONSOB Italy checks the set of information disclosed by issuers, the content of press
agencies (both for issuers and ESG rating providers) and the websites of ESG rating providers.

The supervisory activity is conducted in coordination with that on the use of ESG ratings and
data products by asset managers/management companies. The findings of CONSOB’s
supervisory activity show that broadly ESG ratings are used by asset managers as raw
information that is then integrated into the internal approaches to assess the sustainability

78
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79
This has been the most common type of potential greenwashing identified by ASIC to date - Product
disclosure statement, website, or other promotional material.
43
profile of target companies. That said, as for the adequacy of the supervisory tools to address
greenwashing around ESG ratings and data products providers, in responding to the IOSCO’s
survey, CONSOB Italy highlighted the importance of a uniform legislation on the matter. In
the absence of a legislative framework, CONSOB Italy has very limited power towards the
ESG ratings and data products providers.

Specifically, CONSOB Italy can address request of information or start investigation only in
the context of preliminary investigations of market abuse. It also highlighted that, in the event
of future legislation on rating providers by the EU, according to the proposal of the EC the
supervision on those providers will be attributed to ESMA but there will be some forms of
collaboration with the NCAs, which can enable them to receive information helpful for their
remit.

Moreover, CONSOB Italy noted that ESG information (including ESG ratings and data) on
issuers is an important supervisory tool for detecting and preventing greenwashing. In the
absence of a regulatory framework, the availability of this kind of ESG information will not be
complete and exhaustive since there are no binding disclosure obligations for providers at
present. Thus, the introduction of a EU’s Regulation on ESG ratings and rating providers could
improve the level of transparency of ESG information produced by ESG rating providers and,
as a result, enhance the effectiveness of the supervisory action by NCAs.

In addition to the above and depending on the content of the future EU regulatory framework
on ESG ratings, CONSOB Italy is planning to carry out an integrated supervisory system on
ESG issues, which envisages, among others, the exchange of non-financial information among
its Departments (Intermediaries, Markets, Issuers, Corporate Governance) dealing with ESG
aspects from different perspectives, with the aim to improve and reinforce the contrast to
greenwashing.

All the other respondents do not have supervisory tools in place to address greenwashing
around ESG ratings and data product providers and their products. Among them, a few
jurisdictions indicated they have plans to implement such tools, while other jurisdictions are
undertaking further initiatives.

In the absence of a legislative framework on ESG ratings and data products and providers, the
FSA Japan bases its supervisory activity on its Supervisory Guidelines. The Guidelines
adopted by the FSA have been recently revised to clarify points to be noted for ESG investment
trusts, which are generally established based on ESG ratings.

The revised guidelines stipulate that when an ESG rating provided by a third party is used in
the investment process of publicly offered investment trusts, or when data provided by a third
party is used in own ESG assessment by an investment trust management company’s own ESG
assessment, supervisors will check whether the management company conducts appropriate
due diligence, which could include an understanding of the organisational resources of the third
party, what is being rated or assessed by its product, the rating or assessment methodology
used, and limitations and purposes for which its product is being used.

Furthermore, as discussed above, the FSA Japan published in December 2022 a Code of
Conduct for ESG rating and data providers, which encourages many operational improvements,
in terms of prevention and management of potential conflict of interest and disclosure of the
methodologies used by providers. While the Code of Conduct is designed on a “comply or
44
explain” basis, the FSA Japan expects the code will play as an important role in improving the
transparency of ratings providers’ assessments and methodologies. The FSA Japan will watch
the relevant status of each ratings provider, including the level of compliance or explanation
regarding the code.

FRA Egypt is planning to establish a comprehensive regulatory framework that sets clear
guidelines and standards for ESG ratings and data products providers. FRA intends to
collaborate with other regulatory bodies, industry associations, and international organisations
to share information, best practices, and experiences in addressing greenwashing. They plan to
conduct risk assessments and examinations to identify potential cases of greenwashing or
misleading claims by ESG ratings and data products providers. This step is considered to be a
longer-term step after appropriately conducting the previous ones. Moreover, FRA intends to
prioritise investor education and awareness programs to enhance the understanding of ESG
ratings and data products, thus empowering investors to make informed decisions and
differentiate between reliable ESG information and potential greenwashing.

In relation to the 2021 IOSCO’s recommendations and the 2022 IOSCO Call for Action, the
SFC Hong Kong has been taking steps to understand the industry dynamics as well as the
practices of asset managers when engaging these providers. As part of this effort, a fact-finding
exercise was conducted in 2022 with representatives from the asset management industry and
ESG ratings and data product providers.

Based on the fact-finding exercise and further discussions conducted since 2022, the SFC noted
the following key concerns raised by market participants:

• Given the emerging and evolving nature of ESG ratings and data products, any
expansion of the regulatory remit to cover these providers may have unintended
consequences, such as hindering the development of such market or creating further
market fragmentation. For example, compliance cost is one of the key concerns,
especially for smaller ESG ratings and data products providers or start-up firms, which
may not have the same amount of resources to comply with the new regulations as large
market players.

• Concerns were also raised that the definitions proposed by jurisdictions, while built
upon IOSCO’s definitions, do not converge. The scope of regulation may be stricter or
broader in different jurisdictions. The nuances observed across jurisdictions pose
significant challenges to market players, as the term ESG ratings may bear different
meaning in different geographies. This regulatory divergence can lead to market
confusion, increase compliance complexities for providers and users of these services,
and create fragmentation in the regulatory architecture of ESG ratings and data
products.

Given the above, the SFC announced in October 2023 its support and sponsorship of the
development of a voluntary code of conduct (VCoC) for ESG ratings and data providers in
Hong Kong. The proposed VCoC is expected to provide a streamlined and consistent basis
for asset managers to conduct due diligence or ongoing assessment of ESG service providers.
The VCoC will align with international best practices as recommended by the IOSCO and
relevant expectations introduced in other major jurisdictions.

45
The FCA UK’s “Guiding Principles on design, delivery and disclosure of ESG and sustainable
investment funds” clarify its expectations that an asset manager should consider due diligence
on any data, research and analytical resources it relies upon (including when third-party ESG
ratings, data and research providers are used) to be confident that it can validate the
ESG/sustainability claims that it makes.

The AFM Netherlands is currently conducting an explorative study into the risk management
practices around ESG data by asset managers and ESG data providers.

As for the AMF Québec and OSC Ontario CSA Staff Notice 81-334 explains how their
regulatory requirements apply to ESG-related investment fund disclosure, including how their
investment fund sales communication rules (which prohibit sales communications from being
misleading) apply to investment fund sales communications that include ESG ratings. This
guidance is not directly applicable to the ESG ratings provider itself and is instead applicable
to the fund(s) covered by a sales communication.

As regards to FINMA Switzerland, it has some expectations towards asset managers referring
to their use of ESG data, tools and ratings. For example, when selecting and using external
sustainability-related data and analyses, tools and ratings, the asset manager needs to have an
adequate understanding of the products and use them appropriately, considering the pursued
(investment) objective.

4.3. Challenges in Implementation

The survey results revealed that regulators have undertaken initiatives to meet the IOSCO 2021
Recommendations, both at regulatory and supervisory level. However, challenges remain in
implementing these recommendations, both in areas of asset management and ESG ratings and
data products providers. Capacity building and investor education remain important activities
to support such implementation. This chapter explores the challenges faced in these areas and
emphasises 2021 IOSCO Recommendations and 2022 IOSCO Call for Action as applicable.

The survey respondents identified the following challenges while using their supervisory tools
to address greenwashing. Some of these challenges were already highlighted in the IOSCO
2021 sustainability reports.

4.3.1. Data gaps at the corporate level

The survey results revealed that based on regulatory interactions with asset managers, the most
common difficulty faced in complying with the legal and regulatory requirements in their
jurisdiction are data gaps and limitations, both from corporate issuers and third party ESG
ratings and data products providers. Incomplete and inconsistent sustainability-related
disclosures at the corporate level may have implications at the product level for product design,
delivery, and disclosure, as well as ongoing performance reporting, which could lead to
investor harm. The lack of reliability and consistency in ESG ratings and data products may be
due to lack of transparency in the methodologies behind such products and the need for
providers to rely on estimates when relevant data and information are not disclosed by
corporate issuers.

46
 The IOSCO’s 2021 Sustainability-related Issuer Disclosures Report80 pointed out that in the
absence of a mandatory common international standard, asset managers see value in investee
companies reporting systematically against established framework. As such, asset managers
considered that common international standards, covering the breadth of sustainability topics
and leveraging existing principles, frameworks, and guidance, would (i) help to fill important
data gaps, (ii) better inform pricing and capital allocation decisions, (iii) address selective
disclosures, and (iv) support time series analysis and digitisation and storage of sustainability-
related information.

Through the STF, IOSCO has actively engaged with the ISSB over the last two years to
promote a global framework for sustainability disclosures. The STF completed a
comprehensive and independent review of the General Requirements for Disclosures of
Sustainability-related Financial Information (IFRS S1)811 and Climate-Related Disclosures
(IFRS S2)822 (ISSB Standards) using the set of criteria published in July 2021.83

Based on this review, IOSCO has concluded that the ISSB Standards are appropriate for the
purpose of helping globally integrated financial markets accurately assess relevant
sustainability risks and opportunities. It has also concluded that they form an appropriate basis
for the development of a robust assurance framework to apply to such disclosures.

The IOSCO Board has endorsed84 the ISSB’s final standards on 25 July 2023. The endorsement
decision noted that “\recognising that individual jurisdictions have different domestic
arrangements regarding the consideration of international standards, IOSCO calls on its
members to consider ways in which they might adopt, apply or otherwise be informed by the
ISSB Standards, within the context of their jurisdictional arrangements, in a way that promotes
consistent and comparable climate-related and other sustainability-related disclosures for
investors. IOSCO encourages jurisdictions to consider implementing the ISSB Standards for
compulsory application or to allow for companies to voluntary use the ISSB Standards in their
jurisdictions in the absence of an existing framework. Where relevant, IOSCO encourages
jurisdictions to consider how existing climate-related, or other sustainability-related,
disclosure requirements or practices in their jurisdictions will relate to the ISSB Standards so
as to support global markets in having access to comparable sustainability information.”

IOSCO also welcomes the IFRS Foundation’s The jurisdictional journey to implementing IFRS
S1 and IFRS S2—Adoption Guide overview85 which provides an outline of a forthcoming
Adoption Guide that will set out pathways for implementation of the ISSB Standards. IOSCO
is committed to working closely with the ISSB, other relevant bodies, and IOSCO members to
help build capacity to promote consistent and comparable climate-related and other
sustainability-related disclosures for investors.

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2023-a-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information.pdf
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85
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standards/cover-note-adoption-guide-overview/
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 In relation to assurance, IOSCO builds on its support for the ongoing work of the international
standard setters – the International Auditing and Assurance Standards Board (IAASB) and the
International Ethics Standards Board for Accountants (IESBA) – to develop profession-
agnostic assurance and ethics (including independence) standards over sustainability-related
information. IOSCO has observed growing demand among investors for high-quality assurance
and ethics standards for sustainability-related information. In this vein, IOSCO has published
its International Work to Develop a Global Assurance Framework for Sustainability-related
Corporate Reporting86 in March 2023, which welcomes the development of a global assurance
framework for sustainability-related corporate reporting and sets out key considerations for
stakeholders across the ecosystem.

4.3.2. Determining whether a product is sustainable

Another challenge is difficulty in determining whether a product is sustainable, as it is generally

asset managers who define the criteria and methodology used in the investment process of their
funds, leading to issues of comparability across funds. Some jurisdictions indicated that more
specific sustainability-related disclosure requirements would help prevent greenwashing, with
one pointing out that the addition of a requirement for external assurance would help reduce
the risk of greenwashing. In EU member jurisdictions, there have been challenges with regard
to determining whether a product is a sustainable investment under the SFDR, with some asset
managers struggling to classify their products as Article 8 or Article 9 product.

IOSCO would like to re-emphasise Recommendation 2: Product Disclosure of the 2021

IOSCO’s Asset Management Report which states that Securities regulators and/or
policymakers, as applicable, should consider clarifying and/or expanding on existing
regulatory requirements or guidance or, if necessary, creating new regulatory requirements
or guidance, to improve product-level disclosure in order to help investors better understand:
(a) sustainability-related products; and (b) material sustainability-related risks for all
products.

Regulatory requirements or guidance relating to product-level disclosure for sustainability-

related products are intended to promote consistency, comparability, and reliability in
disclosure to help prevent greenwashing at the product level. The requirements for product-
level disclosure covering nine areas namely Naming, Labelling and classification, Investment
objectives disclosure, Investment strategies disclosure, Proxy voting and shareholder
engagement disclosure, Risk disclosure, Marketing materials and website disclosure,
Monitoring of compliance and sustainability-related performance, and Periodic sustainability-
related reporting were also elaborated.

Additionally, IOSCO previously noted in connection with the Good Practice 3 of the 2022
IOSCO Call for Action, market participants should consider coalescing around a set of
globally consistent sustainability-related terms. The issue of terminology is distinct from the
issue of labelling and classification, as terminology covers broader concepts beyond product
types, such as ESG approaches (e.g., ESG integration, negative screening, best-in-class) and
definitions of commonly used sustainability-related terms such as “green”. While there are
existing initiatives in different jurisdictions addressing the issue of what is “sustainable” or

86
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related Corporate Reporting (iosco.org) - https://www.iosco.org/library/pubdocs/pdf/IOSCOPD729.pdf
48
“green”, for example, there is a particular need for the development of common terms and
definitions for ESG approaches.

4.3.3. The extent to which ESG Factors are considered in investment processes

The survey pointed out that another challenge faced by asset managers is the need to determine
the extent to which ESG factors are considered by their funds and thus in providing accurate
disclosure about the extent to which ESG factors are considered. Some asset managers have
indicated that the importance of ESG factors in the investment process may change on a case-
by-case basis, making it difficult to accurately describe the weight given to ESG factors in
disclosure documents and marketing materials.

As such, the Call for Action (Good Practice 5) states that there are 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 and Recommendation
7 of the IOSCO’s 2021 ESG Ratings Report points out that Market participants could consider
conducting due diligence, or gathering and reviewing information on the ESG ratings and data
products that they use in their internal processes. This due diligence or information gathering
and review could include an understanding of what is being rated or assessed by the product,
how it is being rated or assessed and, limitations and the purposes for which the product is
being used.

Hence, market participants could consider evaluating the published methodologies of any ESG
ratings or data products that they refer to in their internal processes. This evaluation should
cover:

• the sources of information used in the product, the timeliness of this information,
whether any gaps in information are filled using estimates, and if so, the methods used
for arriving at these estimates;
• an evaluation of the criteria utilised in the ESG assessment process, including if they
are science-based, quantitative, verifiable, and aligned with existing standards and
taxonomies, the relative weighting of these criteria in the process, the extent of
qualitative judgement and whether the covered entity was involved in the assessment
process; and
• a determination as to the internal processes of the financial market participant for which
the product is suitable.

4.3.4. Regulatory Approaches

Some jurisdictions noted that a major challenge is the lack of legislative or regulatory
requirements or prohibitions relating to greenwashing specifically and therefore, the need to
adapt traditional supervisory and enforcement tools that are used to address generally
misleading and deceptive conduct or claims in this context. Some of these jurisdictions
indicated that the introduction of specific greenwashing-related penalties or sanctions would
enable them to target greenwashing more effectively, as it would create clearer standards on
what constitutes greenwashing.

Some survey respondents noted that the lack of cohesive ESG regulations across jurisdictions
and the need to stay updated on guidance and regulations both domestically and regionally or

49
internationally add complexity and create further difficulty for asset managers. For asset
managers operating in the EU, there is a further challenge in navigating and understanding the
SFDR, which is made up of multiple complex legal documents that have been implemented in
multiple phases.

4.3.5. Supervisory Approaches

Most of the survey respondents consider their supervisory tools to be adequate in addressing
greenwashing around asset managers and their products. In some cases, the supervisory tools
are considered to be sufficiently broad, such that they can be used to address different types of
issues, including greenwashing. One jurisdiction mentioned that while its current ESG-related
requirements were set out as an initial supervisory step and included clear expectations and
requirements for asset managers, those requirements do not address all the key issues relating
to greenwashing risks, such as relying heavily on ESG ratings, whose quality and reliability
can be uneven.

One challenge is taking corrective action using current supervisory tools where the instance of
greenwashing is more subtle and not obviously egregious. Some jurisdictions indicated the
need for easier and more comprehensive access to sustainability-related information through
data providers, which would help the regulator better understand how asset managers take
sustainable factors into consideration in their investment decisions and how they monitor
sustainability-related performance. Some regulators also indicated the need for technology that
would help process data and identify greenwashing in a timely manner. A number of
jurisdictions indicated that they are exploring the use of other tools, including advanced
technology, to optimise their work in this area, as well as expanding supervisory work to
include more risk assessments and compliance monitoring.

One regulator indicated support for collaboration with other regulators to share issues and
supervisory approaches in order to help improve supervisory tools in this area, with another
regulator already embarked on collaborative work in this area of greenwashing. It is thus
important to foster an integrated approach to supervision across the whole sustainable
investment value chain.

4.3.6. Necessary Skillsets and Financial Education

Some regulators cited a lack of the necessary sustainability or ESG-related expertise and skills
within their organisations to comply with complex and detailed disclosure requirements,
especially for jurisdictions that are still in the early stages of development in the field of
sustainable finance.

Based on information collected through the survey, most of the financial education initiatives
from regulators have been focused on asset managers rather than on ESG ratings and data
product providers. This is a relevant gap that would merit further attention, considering that
greenwashing can occur throughout the investment value chain and any market participant
(e.g., issuers, asset managers, financial advisers, ESG rating and data products providers, etc.)
can engage in this behaviour, as explicitly highlighted by the Call for Action.

A small number of authorities have indicated that they are not planning to conduct any capacity
building initiatives beyond their own staff. Although financial education initiatives are to be
undertaken subject to the mandate of the respective authority, the 2021 IOSCO
50
Recommendations and the 2022 IOSCO Call for Action clearly signal the expectation for
regulators to promote financial education initiatives for staff, industry, and investors.

Some of the challenges observed with financial education initiatives included:

1. Lack of universal and consistent definition/certification of green and sustainable

investments and financial products;
2. Difficulty for retail investors to assess a green or sustainable financial product’s positive
impact on the environment and climate, and to understand disclosures at product level;
3. General investors giving more weight to financial performance than to ESG performance;
and
4. Difficulty to explain the sustainability related topics in a clear and simple manner to
potential retail investors and to companies.

Promoting financial and investor education initiatives relating to sustainability or, where
applicable, enhancing existing sustainability-related education initiatives remains a priority for
securities regulators in preventing and addressing greenwashing.

4.3.7. Lack of regulatory frameworks for ESG Ratings and Data Products Providers

The main challenge that both industry and regulators face for preventing greenwashing around
ESG rating and data products providers is the absence of clear legislative or regulatory
frameworks. Some of the challenges raised by users of ESG ratings as well as the rated entities
include the lack of transparency of methodologies and objectives, which could lead to
confusion about what a rating is aiming to assess and how. There are also concerns about
whether and how an ESG rating provider interacts with the rated entity.

According to some of the survey respondents, the absence of regulations establishing

supervisory powers vis-à-vis ESG ratings and data products providers makes it difficult to take
supervisory actions in general towards these providers, including actions focused on
identifying, preventing, monitoring, and eliminating greenwashing in this area.

Some survey respondents highlighted that any potential legislation should consider the
following:

1. The fact that most ESG ratings and data products providers are based and operate cross-
border;
2. The fact that the market for ESG ratings and data products is nascent, and innovation
can ensure that the increased, diverse, and ever-changing investor demands are met as
the sustainable finance market continues to evolve; and
3. Resources constraints in light of the actual and potential expansions of regulatory remit
in various jurisdictions to cover ESG ratings and data products providers. In addition,
the nuanced differences on the definition of ESG ratings and ESG data products and in
the scope of regulation may cause additional challenges to the providers and users of
these products.

Given the above, some survey respondents said that interoperability among the various
regulatory framework is important in order to avoid material disruptions in the development of
the ESG ratings and data products industry, which is still at an infancy stage. While legal and
regulatory requirements have yet to be introduced for ESG rating and data product providers
51
in most jurisdictions, some providers have shared their concerns on potential fragmentation of
global approaches to regulations, as well as the need for global interoperability of standards
and regulatory requirements that they would be subject to across different jurisdictions.

Some survey respondents pointed out that when introducing new legislation, one of the
difficulties that ESG rating providers have highlighted is the ability to reach a good balance
between fulfilling the requirements of the proposed regulatory framework in terms of
transparency of ESG ratings, their methodologies and criteria, and preserving the economic
value of their assessments on the sustainability of an issuer or a financial instrument.

The survey revealed that the availability and quality of data was also considered to be a critical
issue. ESG ratings and data products heavily rely on data availability and quality. Providers
may face challenges in accessing reliable and consistent ESG data, especially for smaller or
non-publicly traded companies. Respondents noted that ensuring the accuracy and reliability
of data can be a significant hurdle, highlighting that the ESG data sets provided, and the
underlying data sources are numerous, and it is not always easy to gain a comprehensive
understanding of specific methods used to ensure data quality.

Consequently, this Report emphasises the recommendations set out the IOSCO’s 2021 ESG
Ratings Report. Regulators are encouraged to consider focusing more attention on the use of
ESG ratings and data products as well as the providers that may be subject to regulation in their
jurisdiction. Regulators could also examine their existing regulatory regimes and where
applicable consider whether there is sufficient oversight of ESG ratings and data products
providers, such as through a regulatory regime or voluntary code of conduct.

52
 CHAPTER 5: INDUSTRY PRACTICES AND INITIATIVES ADDRESSING
GREENWASHING

Asset managers have also taken steps to respond to the demand of investors by incorporating
ESG considerations in their investment decisions. This has potentially led to a greenwashing
practice whereby a fund’s disclosure or marketing intentionally or inadvertently misleads
investors about its ESG-related aspects. These malpractices are misleading investors to invest
in funds that do not necessarily meet their objectives or needs, resulting in investor confusion
and negatively impacting investor confidence in ESG investing.

To contribute to this Report, the AMCC sustainability taskforce87 gathered a roundtable in

September 2023 to assess the ongoing or planned initiatives by asset managers to implement
the 2022 IOSCO Call for Action; other initiatives carried out (or planned) by the asset managers
to combat greenwashing; and current challenges that the asset management industry face in
implementing the 2022 IOSCO Call for Action.

The responses received identified significant action being taken at national, regional and global
level to respond to the Call for Action regarding IOSCO’s five Good Practices. Particularly,
initiatives to improve consistency in terminology have been launched as evidenced by the work
conducted by Chartered Financial Analyst Institute (CFA Institute)) in collaboration with the
UN Principles for Responsible Investment (UN PRI) and Global Sustainable Investment
Alliance (GSIA) to categorise fund strategies; or ANBIMA88 particularly in establishing terms
in use through surveys and subsequently in introducing rules around fund registration and
naming, etc.

In some cases, these efforts have then transitioned from self-regulatory initiatives to
implementing regulation as evidenced by ANBIMA. In Europe, as described by European Fund
and Asset Management Association (EFAMA), regulation left less room for efforts by industry.
However, the need to address improvements in terminology has led to a review of the
legislation with the consultation launched by the EC in September.

All respondents described significant efforts to adapt professional training for market
participants and additional webinars or seminars and training sessions etc. to support market
participants. Some have also developed guides (such as ANBIMA, Japan Securities Dealers
Association (JSDA) and more recently EFAMA and CFA Institute).

Through the Call for Action, IOSCO asked 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 products
providers.

In particular, the 2022 IOSCO Call for Action covered five good practices for asset managers
regarding:

87
https://www.iosco.org/members_area/about/?subsection=display_committee&cmtid=2&subSection1=
task_forces_documentation
88
Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais - Brazilian Financial and
Capital Markets Association
53
 i. Clear expectations for asset managers regarding: (a) the development and
implementation of practices, policies and procedures relating to material sustainability-
related risks and opportunities; and (b) related disclosure.
ii. 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.
iii. Common sustainable finance-related terms and definitions, including those related to
ESG approaches, to ensure consistency throughout the global asset management
industry and comparability among sustainability related products.
iv. Promoting or participating in financial and investor education initiatives relating to
sustainability.
v. 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.

5.1. Responding to IOSCO’s Call for Action

At both an international and national level, steps are being taken by AMCC members to
improve the consistency of terminology, which could lead to better classification of funds and
labelling. Further work has also been done on both investor and asset manager education.

For example, seminars and webinars have also been used to supplement training or to increase
understanding amongst market practitioners about the risks and opportunities in this area. In
some regions, such as Europe, where regulations in this area have been proposed or
implemented, there has been greater focus on educational initiatives.

Challenges faced by asset management industry in implementing the call for action have been
summarised as follows:
i. The reliability and scarcity of ESG data;
ii. The fragmentation of terminology;
iii. Frequency of regulatory change and divergence, making it challenging for asset
managers to keep pace with regulatory standards and requirements; and
iv. The proliferation of ESG ratings and lack of confidence in the ratings.

Finally, the AMCC sustainability taskforce members noted that IOSCO had already made
valuable contributions in this area. However, further actions from regulators or industry as
appropriate to build momentum on this progress could include:

i. Recognising good practice from industry and regulators;

ii. Exploring further work on labelling and classification; and
iii. Expanding on IOSCO Good Practice 1 [Clear expectations for asset managers
regarding the: (a) development and implementation of practices, policies and
procedures relating to material sustainability-related risks and opportunities; and (b)
related disclosure] and Good Practice 3 [Common sustainable finance-related terms
and definitions, including those related to ESG approaches, to ensure consistency
throughout the global asset management industry and comparability among
sustainability related products].

54
 5.2. Examples of international and regional initiatives

Chartered Financial Analyst Institute (CFA Institute). The CFA Institute has taken
different initiatives that are related to the recommendations of the IOSCO Call for Action,
including:

Producing the Global ESG Disclosure Standards for Investment Products89: these aim to
facilitate fair representation and full disclosure of an investment product’s consideration of
ESG issues in its objectives, investment process, or stewardship activities. The Standards focus
narrowly on disclosure of the ESG approaches used in an investment product.

The second initiative is a collaboration with UN PRI and GSIA90, which addresses terminology
for five different ESG/responsible investment approaches. This did not include unnamed
approaches such as tilt, overlay, active ownership, and engagement.

CFA Institute, GSIA, and UN PRI came together to harmonise definitions for responsible
investment terms such as screening, ESG integration, thematic investing, stewardship, and
impact investing. This culminated into a report91 on definitions for responsible investment
approaches was published in November 2023.

CFA Institute has also been working on a new report on greenwashing in investment fund
disclosures in the United States and Europe. This research identifies forms of misrepresentation
that frequently lead to allegations of greenwashing —e.g., exaggeration, omission,
unsubstantiated claims, inconsistency; gains a directional understanding about which are most
prevalent and in which kinds of communications; and illustrates with examples.

European Fund and Asset Management Association (EFAMA). In Europe, several of the
IOSCO Good Practices for Asset Managers are already largely reflected in regulation, often in
a great level of detail, leaving little room for additional guidance to be developed by the
industry. The key EU initiative aimed at tackling green washing is the SFDR.

In so far as the IOSCO Good Practices for ESG ratings and data products providers are
concerned, the EU Commission published a proposal for the Regulation on the transparency
and integrity of ESG rating activities in June 2023. The proposal does not cover ESG data
providers (unlike IOSCO’s Good Practices), as well as raw data, so EFAMA plans to advocate
for broadening the scope of the proposal. Also excluded are private ESG ratings not intended
for public disclosure or distribution, ESG ratings produced by regulated financial undertakings
in the EU for internal use, ESG ratings produced by Union or Member States' public authorities,
ESG ratings provided by authorised ESG rating providers and made available to users by third
parties, and ESG ratings issued by certain central banks.

The Regulation applies to both EU providers and third-country providers operating in the EU.
Third-country providers must comply with an equivalence decision or obtain endorsement from
ESMA. Non-EU ESG rating providers need a legal representative in the EU, or endorsement
89
https://rpc.cfainstitute.org/-/media/documents/ESG-standards/Global-ESG-Disclosure-Standards-for-
Investment-Products.pdf
90
https://www.cfainstitute.org/-/media/documents/support/ethics/exposure-draft-cfa-institute-esg-
disclosure-standards-for-investment-products.ashx
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https://rpc.cfainstitute.org/-/media/documents/article/industry-research/definitions-for-responsible-
investment-approaches.pdf
55
 by an ESMA-authorised EU-based provider within the same corporate group, subject to
ESMA's approval. EFAMA’s lobbying action around this proposal has just begun (September
2023).

As training for financial service professionals, EFAMA has hosted on 04 October 2023 a
webinar on SFDR together with Simmons & Simmons LLP and will conduct on 08 November
2023 a webinar on ESG preferences explored the introduction of ESG preferences tests in
Europe and the implications in terms of investor education.

Furthermore, for investors, a brochure on sustainable finance will be published in October that
will outline the key concepts that investors should be acquainted with when factoring ESG
considerations in their investment strategies. The brochure will be distributed through our
national associations, and we expect that it will be of particular use in smaller Member States
where the industry has less resources to provide such financial education.

5.3.Examples of national initiatives

The Brazilian Financial and Capital Markets Association (ANBIMA). Work had begun as
early as 2015 with the organisation of local market surveys in 2016 and 2018 and following
the formation of a consultative working group initiatives were launched in three areas
information, education, and regulation (self-regulation).

On information: ANBIMA’s enhanced survey edition expanded on previous surveys carried

out in 2016 and 2018 and included quantitative and qualitative aspects of the evolution of the
ESG agenda in the local funds’ industry. The data and related information drove further work
by the Brazilian Asset Management sector and provided a map with the different definitions,
methodologies, and disclosure practices in place. The findings92 guided ANBIMA’s action to
foster common terminology and with regards to greenwashing risks described under self-
regulation measures.

On education: Drawing on the experience of dedicated experts, the Association developed

contents which were integrated into the existing course materials required for Certifications
from the end of 2021. The contents of these are regularly updated. Initially, introductory
contents were included, such as definitions, features, strategies, among other basic concepts;
further standards and (local) rules were aggregated in a second step. These leveraged on
international recommendations such as those from the TCFD and IOSCO.

On regulation: rules were approved under ANBIMA’s self-regulation for the identification of
Sustainable Investment Funds, that are funds that can be named as such, but also to Investment
Funds that inform in their marketing materials that they are integrating ESG issues in its
policies and risk management. The self-regulatory rules were developed to establish the
necessary documented commitments regarding naming or marketing, the ongoing policies and
procedures, and disclosure requirements.

Regarding self-regulation of Sustainable Funds: the first rules were approved at the end of 2021
and applied to multimarket funds and fund of funds for private equity and real estate fund. In
developing these, ANBIMA leveraged the 2021 IOSCO recommendations to enhance its rules

92
https://www.anbima.com.br/data/files/9D/11/CC/94/B1A8F710F62888F76B2BA2A8/A_landscape_of_
sustainability_in_the_brazilian_capital_market.pdf
56
 and to orient market professionals in the best procedures and practices. Rules from the
securities regulator (CVM) were enacted in 2022 and will come into force in October 2023.
The self-regulatory measures adopted were then re-aligned to support this regulatory initiative.
An ESG Guide93 was launched in 2022, with several references to the practices and procedures
recommended by IOSCO.

ANBIMA’s is developing supervision tools and standard procedures to support the registration
and monitoring of such funds and correspondent documentation. A dedicated page and
templates orient this process and contribute to the disclosure of the adequate policies and
marketing information to investors. ANBIMA has identified that further work was necessary
to address challenges in four key areas: climate change and biodiversity, fair transition and
human rights and governance and leadership and was moving forward in these areas.

Japan Securities Dealers Association (JSDA). Whilst the JSDA is a Self-Regulatory

Organisation (SRO) and trade association for broker dealers in Japan, not for asset managers,
it has conducted some activities related to the Call for Action issued by IOSCO, in particular
addressing implementation of IOSCO’s Good Practice related to training for financial
professionals and investors.

The first measure has included the creation (and update) of the Guidebook on Financial
Instruments Contributing to the SDGs and launch of a website for individual investors on
sustainable investments. The Guidebook94 describes financial products that contribute to the
SDGs, such as Green Bonds, Social Bonds, Sustainability Bonds, and Sustainability-linked
Bonds, with the aim of educating investors as well as other stakeholders on these products.

In addition, the JSDA has launched a dedicated website for individual investors which provides
explanations on the SDGs and ESG investments. With these measures, the JSDA seeks to
further promote proper understanding of these sustainable investments and products. The JSDA
has also hosted various seminars and training sessions on Green Bonds, Social Bonds, and
Transition Finance. In collaboration with the International Capital Market Association
(ICMA), which serves as Secretariat to important standards such as the Green Bond Good
Practice Principles, etc., the JSDA co-hosts seminars on Green Bonds, Social Bonds, and
Transition Finance, etc.

The JSDA has also conducted more specialised training sessions on products (described above)
for market participants. The JSDA has also held study sessions on the sector-specific roadmaps
presented by the Japanese government regarding Transition Finance. Through these seminars
and training sessions, the JSDA works toward further promotion of proper understanding of
these products and sustainable finance, in line with global Good Practice Principles and
national government guidelines.

Sustainable finance has also been added to the qualification examination for sales
representatives of securities companies. The topics covered in the sales representatives’
examination were expanded to require examinees to demonstrate an understanding of
sustainable finance, including ESG investments and related sustainable financial products,
from the perspective of investor protection. In the same vein, the scope of the qualification

93
https://www.anbima.com.br/data/files/08/E7/AC/BC/8B54181056C3B2186B2BA2A8/
ESG_Guide_II.pdf
94
Original guidebook (April 2019) - https://www.jsda.or.jp/en/activities/SDGs/files/SDGGuidebook.pdf
57
renewal training sessions also has been expanded to include topics related to sustainable
finance.

58
 CHAPTER 6: FINANCIAL EDUCATION AND CAPACITY BUILDING

Financial and investor education are essential tools to support sustainable finance and protect
investors against greenwashing and sustainability-related risks. Securities regulators have an
important role to play in this regard.95 Asset managers and financial advisors have a key role
in educating investors regarding sustainable products.

Investors of all sizes are increasingly seeking out sustainable investments for a variety of
reasons (and there is also a growing number of sustainable finance products available to
retail). While regulations may require the disclosure of information and the observance of
suitability requirements for the protection of retail investors, this should be complemented
with investor education and financial literacy initiatives. Such initiatives can enhance the
ability of retail investors to understand the disclosed information and help them ask
intermediaries or providers of information the appropriate questions that would allow them to
make better financial choices.96

The IOSCO’s 2021 Asset Management Report sets out one recommendation targeting the
promotion of financial and investor education initiatives relating to sustainability.

Recommendation 5: Financial and Investor Education. Securities regulators and/or

policymakers, as applicable, should consider promoting financial and investor education
initiatives relating to sustainability, or, where applicable, enhance existing sustainability-
related education initiatives.

The explanatory text of the recommendations notes that financial education is not limited to
retail investors. The recommendation takes a more holistic approach by indicating that financial
education initiatives may also address the professional and licensing obligations of industry
participants.

95
IOSCO “Methodology for Assessing Implementation of the IOSCO Objectives and Principles of
Securities Regulation” in relation to Principle 3 of the IOSCO Objectives and Principles of Securities
Regulation: “The regulator should play an active role in the education of investors. Investor education
may enhance investors’ understanding of the role of the regulator and provide investors with the tools to
assess the risks associated with particular investments and to protect themselves against fraud (and other
abuses). Investor education and financial literacy programs can also be useful tools for the securities
regulators in supporting their regulation and supervision. For example, investor education programs can
complement regulations that enforce conduct standards, require financial institutions to provide clients
with appropriate information, strengthen legal protections for consumers, or provide for redress. IOSCO
recognizes that there is no one-size fits-all model for investor education and financial literacy programs.”
See the last paragraph on page 30 of the IOSCO Methodology at:
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD562.pdf. Interestingly, the Key Issue 6 under
Principle 3 expands the statement by saying: “6. Regulators should play an active role in promoting the
education of investors and other market participants.”
96
According to the OECD, informed and financially literate individuals are better equipped to deal with the
growing complexity of the financial market, which may improve not only their own well-being, but also
market efficiency, as well as contributing to financial inclusion and protecting against fraudulent
practices. See OECD (2017), OECD/INFE Policy Framework for Investor Education, available at:
http://www.oecd.org/daf/fin/financial-education/OECD-INFE-policy-framework-investor-edu.pdf
(accessed on 26 February, 2021) and OECD (2013), Advancing National Strategies for Financial
Education, available at https://www.oecd.org/finance/financial-
education/G20_OECD_NSFinancialEducation.pdf (accessed on 26 February, 2021).
59
 Along this line, the Good Practice 4 of the 2022 IOSCO Call for Action97 states that voluntary
standard setting bodies and industry associations should develop and promote guidance among
their members for “Promoting or participating in financial and investor education initiatives
relating to sustainability.” The explanatory guidance under the Good Practice 4 indicates the
following:

• Financial and investor education initiatives may include promoting sustainability-

related risk awareness and improving investor comprehension about, and enhancing
transparency of sustainability-related products, which would improve comparability
and informed decision-making as well as prevent greenwashing. In emerging markets,
such initiatives may also promote the importance of sustainable finance and expand the
market for sustainability-related products.

• Financial education initiatives may also address the professional and licensing
obligations of industry participants, including financial advisors, to ensure that
industry participants have the necessary knowledge and skills to provide advice and
services relating to sustainable finance.

• Financial and investor education initiatives could include tools, methodologies,

guidelines and orientations that focus on retail investors as well as the larger public.
These initiatives should seek to overcome barriers to access, mainly using the internet
and, where applicable, could include partnerships with other institutions.

Likewise, the IOSCO’s Report on “Retail Investor Education in the Context of Sustainable
Finance Markets and Products” (August 2022) indicates that regulators should consider
encouraging and/or facilitating training that would provide financial advisors with a greater
understanding of greenwashing and how to guide investors to protect them against
unsubstantiated or misleading sustainability claims.98

The increasing emphasis on combating greenwashing demonstrates the evolving awareness and
accountability among financial institutions and stakeholders concerning sustainable and
responsible investment practices. The fact that a vast majority of jurisdictions are either already
implementing measures to address greenwashing or contemplating doing so indicates a
collective effort to promote transparency and authenticity in sustainable finance.

The fact that more jurisdictions are taking concrete steps to address greenwashing, signals a
positive shift towards a more responsible and sustainable financial landscape. By addressing
this concern head-on, the financial sector is taking an active role in promoting genuine
sustainability, making informed investment decisions, and contributing to a greener and more
resilient and sustainable global economy. The survey results emphasised the importance of
continued vigilance and collaboration among stakeholders to ensure that sustainable finance
truly aligns with its intended goals of promoting positive environmental and social impact.

Securities regulators have recognised the importance of financial education in building a strong
and sound ecosystem for sustainable finance and have been working on financial and investor

97
See “IOSCO Good Sustainable Finance Practices for Financial Markets Voluntary Standard Setting
Bodies and Industry Associations”, 7 November 2022, available at
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD717.pdf
98
See report available on https://www.iosco.org/library/pubdocs/pdf/IOSCOPD711.pdf, page 16.
60
 education initiatives around sustainable finance. Most supervisors99 have developed
sustainability-related financial education initiatives devoted to retail investors with the aim of
enhancing awareness and understanding of sustainable finance related topics.

Some supervisors have integrated sustainable finance within their financial education
programs; have made available for investor different resources at their webpages; and have
carried out seminars, public appearances, or talks to disseminate knowledge among the public.
Additionally, some jurisdictions are cooperating at regional and international levels to develop
educational materials for retail investors and consumers.

Some regulators100 are encouraging financial education initiatives for market participants in
order to help them understand and implement the regulatory framework, as well as encouraging
skill-mapping exercises for developing skilled industry professionals in sustainable finance.
Capacity building programmes for their own staff are also undertaken by regulators.

Overall, regulators acknowledge that they need capacity building to address greenwashing.
Therefore, they are taking different steps to develop and share knowledge among their staff
across the different divisions or units of the regulator, as well as externally with fellow
regulators. Regulators have launched different investor education initiatives around sustainable
finance, including in relation to greenwashing.

In line with Recommendation 5 (Financial and Investor Education) of the IOSCO’s 2021 Asset
Management Report and the Good Practice 4 of the 2022 IOSCO Call for Action, several
regulators have undertaken activities to support or enhance sustainability related education
initiatives for intermediaries and other market participants. A summary of the initiatives taken
by various regulators is presented in Annex 4.

99
ASIC-AU, FSMA-BE, OSC-Ontario, AMF-Québec, SFC-HK, Consob-IT, MAS-SG, FSA-JP, AMMC-
MA, CNMV-ES, and FRA-Egypt.
100
ASIC-AU, AMMC-MA, FRA-EG, CMVM-PT, FINMA-CH, SC-MY, CNMV-ES.
61
Annex 1: Members of the STF Promoting Good Practices Working Group

1. Comissão de Valores Mobiliários (BRAZIL)

2. Financial Regulatory Authority (EGYPT)
3. European Securities and Markets Authority (EUROPEAN UNION)
4. Autorité des marchés financiers (FRANCE)
5. Bundesanstalt für Finanzdienstleistungsaufsicht (GERMANY)
6. Securities and Futures Commission (HONG KONG)
7. International Organization of Securities Commissions (INTERNATIONAL)
8. Commissione Nazionale per le Società e la Borsa (ITALY)
9. Financial Services Agency (JAPAN)
10. Autorité Marocaine du Marché des Capitaux (MOROCCO)
11. Ontario Securities Commission (ONTARIO)
12. Monetary Authority of Singapore (SINGAPORE)
13. Comisión Nacional del Mercado de Valores (SPAIN)
14. Finansinspektionen (SWEDEN)
15. The Dutch Authority for the Financial Markets (THE NETHERLANDS)
16. Financial Conduct Authority (UNITED KINGDOM)
17. Securities and Exchange Commission (UNITED STATES OF AMERICA)

62
Annex 2: Compilation of Relevant IOSCO Publications

• IOSCO endorses the ISSB’s Sustainability-related Financial Disclosures Standards

(25 July 2023)
• IOSCO sets out key considerations to promote an effective global assurance
framework for sustainability-related corporate reporting (28 March 2023)
• Monitoring Group Welcomes Important Step in Implementing its Recommendations
with the Establishment of the International Foundation for Ethics and Audit (27
March 2023)
• IOSCO welcomes the ISSB decision to enter into the finalisation phase of its
inaugural corporate sustainability reporting standards (17 February 2023)
• IOSCO encourages standard-setters’ work on assurance of sustainability-related
corporate reporting (15 September 2022)
• Report on Retail Investor Education in the Context of Sustainable Finance Markets
and Products (31 August 2022)
• IOSCO welcomes the strong stakeholder engagement on proposals for a
comprehensive global baseline of sustainability disclosures for capital markets (27
July 2022)
• IFRS Foundation Monitoring Board welcomes strong momentum towards
establishing IFRS Sustainability Disclosure standards (01 July 2022)
• IOSCO welcomes ISSB’s publication of sustainability standards exposure drafts (31
March 2022). A separate press release was published by the IFRS Foundation
Monitoring Board (31 March 2022)
• Environmental, Social and Governance (ESG) Ratings and Data Products Providers
(23 November 2021)
• Recommendations on Sustainability-Related Practices, Policies, Procedures and
Disclosure in Asset Management (2 November 2021)
• Report on Sustainability-related Issuer Disclosures (28 June 2021)
• Report on Sustainable Finance and the Role of Securities Regulators and IOSCO (14
April 2020)
• Report on Sustainable Finance in Emerging Markets and the Role of Securities
Regulators (05 June 2019)

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 Annex 3: Regulatory Initiatives on ESG Ratings and Data Products Providers

Current legislative initiatives

SEBI India: Regulatory Framework for ESG rating Providers (ERPs) in Securities Market

On January 24, 2022, SEBI published a Consultation Paper on ESG rating providers (ERPs)
for Securities Market, which contained proposals on regulation/accreditation of ERPs and
sought public comments on the various issues, including scope of regulations, entities eligible
to act as ERPs, conditions for accreditation, ESG rating products, standardisation of ESG rating
scales, transparency, governance, and business models of ERPs.

Based on the responses received on the aforesaid consultation paper, discussions held with
various stakeholders, and global regulatory developments, SEBI proposed to introduce a
regulatory framework for “ESG Rating Providers” or “ERPs” in a subsequent paper published
for consultation in February 2023.101

The SEBI’s consultation paper draws reference to 2022 IOSCO call for action for financial
markets voluntary standard setting bodies and industry associations to promote good practices
to counter the risk of greenwashing in ESG ratings. In this context, SEBI recommended that
ESG rating providers, who wish to operate in the Indian securities market, to form an industry
association and play an active role in the development of a regulatory framework for ERPs in
the Indian securities market and engage with SEBI at its ESG advisory committee.

Finally, in July 2023 102 SEBI introduced a regulatory framework for ESG rating providers.

SEBI opted for an enforceable regulatory and supervisory framework for ERPs – instead of a
voluntary code of conduct for ERPs - in view of SEBI’s experience with credit rating agencies.
However, given the nascent nature of the ERPs and to provide scope for further innovation,
SEBI has attempted to follow a principles-based approach.

The SEBI’s approach for ESG ratings and ESG rating providers envisages a detailed
disclosures of the rationale behind the assigned ESG rating, to enable stakeholders to assess
the reasons behind an assigned ESG rating.

Therefore, it is mandated that the ESG report drafted by the ESG rating provider shall contain
the current ESG rating/score; any changes in rating/score from the previous evaluation; the last
review date; a summary of key drivers (both qualitative and quantitative) considered for
arriving at the overall ESG rating; pillar wise E, S and G scores key drivers (both qualitative
and quantitative being considered for carrying out such assessment); weights of E, S and G
scores in the assigned ESG rating; a brief explanation of rating intent to clarify if it represents
unmanaged risks/ performance against risks/ impact; summary or link to methodology used.

As for the transition scores, rating providers are advised to provide two additional ratings: 1)
ESG transition score, to reflect the incremental changes that the company has made in its

101
https://www.sebi.gov.in/reports-and-statistics/reports/feb-2023/consultation-paper-on-regulatory-
framework-for-esg-rating-providers-erps-in-securities-market_68337.html
102
https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/jul-
2023/1689654833388.pdf#page=23&zoom=page-width,-16,578
64
transition plan and transition ambition over recent years; and 2) a combined score, combining
ESG rating and transition rating, i.e., measuring both the status and the ability to transition.

With regards to business models, it is mandated that either an issuer-pays or a subscriber-pays

business model be allowed for ERPs in India. However, hybrid business models shall not be
allowed for ERPs, to mitigate potential conflict of interests.

The regulatory framework establishes that no entity shall act as an ESG rating provider in India
unless it has been registered by SEBI. The framework envisages two kinds of registered ESG
rating providers, with specific and adequate capital and organisational requirements and
knowledge and experience of the personnel employed.

Particular attention was given by the legislative initiative to transparency,103 conflicts of

interest,104 rating process,105 monitoring of the ESG rating, procedure for reviewing the ESG
rating and internal procedure to be developed.

103
Accordingly, every ESG rating provider shall: 1) make adequate levels of public disclosure and
transparency a priority for its ESG ratings products; 2) disclose its rating methodology for all ESG ratings
on its websites, while maintaining a balance with respect to proprietary or confidential aspects of the
methodologies and include category-wise weightages of environmental, social, and governance factors
in ESG ratings; 3) use relevant terminologies for the ESG rating products offered and, if an associate or
subsidiary of a credit rating agency, prominently display that ESG ratings are different from credit ratings
through website and ESG rating reports; 4) disclose any change in ESG rating methodology and
consequential change in ESG ratings in its website; 5) disclose the extent to which a change in ESG
rating is due to a change in the provider’s ESG rating methodology; (6) maintain and disclose archives
of earlier ESG rating methodologies and ESG ratings on its website; (7) disclose ESG rating, type of
ESG rating (whether risk-based or impact-based or otherwise), and scores on environmental, social and
governance parameters, and any other parameter forming a part of overall ESG rating, on their websites
for public access and provide a hyperlink to the methodology placed on website; 8) publish their average
one-year ESG rating transition rate on their respective websites; 9) disclose, on their website, the general
nature of compensation arrangements with clients and whether the ESG ratings assigned were solicited
or unsolicited; 10) take any other measure that the SEBI may consider material for a true and fair
understanding of the ESG rating.
104
An ESG rating provider shall: 1) identify, disclose, and to the extent possible avoid, or appropriately
manage, mitigate, and disclose potential conflicts of interest; 2) formulate policies and internal codes for
dealing with the conflicts of interest, which shall also be prominently disclosed on its website; 3) identify,
disclose and to the extent possible, mitigate potential conflict of interest that may arise between ESG
rating provider and its clients or client groups, or among multiple clients, or between the rated entity and
clients or client groups, or between the provider and any other sources; 4) ensure the ESG ratings would
not be affected by the existence of, or potential for, a business relationship between the ESG rating
provider or their affiliates and any entity for which it provides ESG ratings, or associates of such entity;
5) structure reporting lines for their staff and their compensation arrangements to eliminate or
appropriately mitigate actual and potential conflicts of interest related to their ESG ratings; 6) not provide
consulting or advisory on ESG ratings or areas related to ESG; 7) adopt and implement written policies
and procedures designed to ensure that its decisions are independent and appropriately address potential
conflicts of interest.
105
An ESG rating provider shall 1) have appropriate resources to assign an ESG rating; 2) ensure that the
ESG rating suitably incorporates the environmental, social and governance aspects that are contextual to
the Indian market; however, the provider can also offer additional ESG rating products that may not
incorporate such contextual aspects; 3) disclose to the stock exchange(s) where the rated entity is listed,
as well as through press release and websites for general investors, the ESG rating assigned to such entity
or its securities, after periodic review; 4) have written policies, procedures and internal controls designed
to ensure the processes and methodologies are rigorous, systematic, and applied consistently and
periodically reviewed and updated; 5) have efficient systems to keep track of material ESG-related
developments to ensure timely and accurate ESG ratings; 6) attempt to continually improve information

65
The SEBI’s regulatory framework provides for an annex (“seventh schedule”) that set out a
succinct code of conduct for ESG rating providers.

FCA UK: UK consultation on future regulatory regime for ESG ratings providers

In March 2023, HM Treasury consulted on a potential regulatory framework for ESG ratings
providers, which closed on 30 June 2023.

In its Roadmap to Sustainable Investing,106 the UK Government recognised the growing use of
ESG ratings and data in the UK and noted that they would consider bringing these products
within the scope of the FCA’s regulatory perimeter.

That decision was moreover fostered by the responses to an FCA consultation paper’s
discussion chapter107 - with market participants agreeing with the areas of potential harm
identified by the FCA and largely supporting regulatory intervention.108 Recognising the
benefits to be gained from improving the transparency of ESG ratings’ methodologies,
governance, and processes, and the role regulation could play in fostering such improvements,
HM Treasury decided to consult on bringing ESG ratings providers within the FCA’s
regulatory perimeter.

HM Treasury’s intention would be to capture a wide range of ESG ratings used in financial
markets, regardless of their name or how they are marketed. As such, HM Treasury proposes
that an ESG rating in the context of a new regulated activity would cover an assessment
regarding one or more environmental, social, and governance factors, whether it is labelled as
such.

The proposed approach is deliberately broad and includes any environmental, social, or
governance characteristics. The approach intends to include any assessments, regardless of
their self-identification (i.e., whether they are called “ratings,” “scores,” “marks,” or anything
else, including where market participants currently consider these to be data products). The
scope intends to include ESG assessments which are directly produced by analysts, as well as
assessments which are generated through an algorithm. A broad scope would help ensure the
regulatory framework applies to new products which may be developed in the future.

HM Treasury’s proposed scope excludes data on ESG matters where no assessment is present.
As such, raw data that is unprocessed is not included. This scope should not include data which
is only minimally processed, for example by formatting or summarising, so long as there is no
separate assessment provided.

gathering process with entities / securities covered by its products; 7) respond to, and address issues
flagged by entities covered by its ESG rating products while maintaining the objectivity of these
products; 8) share a draft of the ESG rating report with the rated entity before publication of the same.
The provider shall also grant such entity an opportunity of appeal and representation before the provider,
if so requested.
106
See the UK Government’s Greening Finance: A Roadmap to Sustainable Investing (October 2021) -
https://assets.publishing.service.gov.uk/media/61890e64d3bf7f56077ce865/CCS0821102722-
006_Green_Finance_Paper_2021_v6_Web_Accessible.pdf
107
See the FCA’s consultation paper CP21/18 - https://www.fca.org.uk/publication/consultation/cp21-
18.pdf
108
See the FCA’s feedback statement FS22/4 - https://www.fca.org.uk/publication/feedback/fs22-4.pdf
66
 According to HM Treasury’s proposal, the new regulated activity would cover providing an
ESG rating to be used by persons in the UK in relation to a specified investment. This proposal
requires ESG ratings providers to understand how the ESG rating they are providing is being
used.

HM Treasury’s proposal would not involve: a) the provision of ESG ratings by not-for-profit
entities; b) ratings created by an entity solely for use by that entity (as it may be, for example,
for asset managers who may create their own ratings for internal use only); c) credit ratings
which consider the impact of ESG factors on creditworthiness, as these are already regulated;
d) investment research products; e) external reviews, including second-party opinions,
verifications, and certifications of ESG-labelled bonds; f) proxy advisor services, such as
voting or recommendations to shareholders of firms; g) consulting services, even where these
relate to ESG matters; h) academic research or journalism, even where that relates to ESG
matters. HM Treasury has also indicated that the future regulatory regime for ESG ratings
providers should be proportionate for smaller providers, and the consultation sets out a couple
examples of how this could be ensured.

As for the territorial scope, HM Treasury proposes to capture the direct provision of ESG
ratings to users in the UK, by both UK and overseas firms. This includes direct provision to
both institutional and retail users in the UK. This would not capture the provision of ESG
ratings by any UK or overseas firm to any user outside the UK. HM Treasury has indicated it
will consider recognising overseas regimes for ESG ratings providers, if other jurisdictions
introduce similar regulation.

According to HM Treasury’s proposal, “direct provision” intends to capture where an ESG

rating is provided to a UK user who has paid for that rating. It does not intend to capture
scenarios where a UK user accesses a free rating.

The FCA has indicated that any potential future regulatory requirements introduced for ESG
ratings providers would be informed by the 2021 IOSCO Recommendations and promote
transparency, good governance, management of conflicts of interest, and robust systems and
controls109.

EU: EC’s proposal for a Regulation of the European Parliament and of the Council on the
transparency and integrity of ESG rating activities

On 13 June 2023 the EC published a proposal for a regulation of the ESG rating providers. The
EC’s legislative initiative is one of the measures proposed by the EC to contribute to the
objectives of the European Green Deal by improving the flow and quality of information on
which investors, businesses and other stakeholders’ base decisions.
To that end, the EC highlights how the ESG ratings play an important role in the proper
functioning of the EU sustainable finance market, by providing sources of assessments that can
be used by investors and financial institutions for investment strategies, risk management and
internal analysis. Companies use these ratings to better understand sustainability risks and
opportunities linked to their activities.

109
HM Treasury expects that any requirements would be developed considering international developments,
in particular the recommendations provided by IOSCO.
67
The EC recognises that users’ and rated companies’ needs regarding ESG ratings are not being
met and confidence in ratings is being undermined, due to lack of transparency as to the
methodologies and objectives of ESG ratings and lack of clarity on the operations of ESG
rating providers, how they manage potential conflicts of interest.

Consequently, ESG ratings do not serve their purpose and do not sufficiently enable users,
investors and rated companies to make informed decisions about ESG-related risks, impacts
and opportunities.

For the ESG rating products and providers to contribute to market integrity and investor
protection, the EC notes that it is necessary to increase clarity around: (1) objectives,
characteristics, methodologies and data sources used to obtain them; and (2) operations of ESG
rating providers including prevention and mitigation of risks arising from conflicts of interest
within providers.

As to the scope of the legislative initiative, the EC notes that the widely agreed IOSCO
definition of ESG ratings would form the basis of the definition of ESG ratings.

The EC initiative would target entities providing ESG ratings or scores to the public or to
subscribers and would not cover financial institutions or other market participants developing
ESG ratings for their own purposes.

The EC proposal envisages rules both for ESG rating providers (including rules on
authorisation, organisational requirements and supervision) and ESG rating products
(including minimum transparency disclosures on methodologies and objectives of ratings to
the general public and more comprehensive disclosures to users of ESG rating providers and
rated companies).

The following elements of the EC’s legislative “package” are of relevance:

1. A general recognition of the different types of ESG ratings currently developed by the
market;
2. The definition of rating at legislative level and the legislative recognition of 2 types of
ESG ratings (i.e., a] scores and b] ratings strictu sensu);
3. To consider in scope of the legislative proposal only the ESG rating products and
providers, with ESG data products and providers being out of scope, in line with the
above-mentioned UK legislative initiative;
4. The indication of the matters and entities out of scope;
5. A thorough regulation of the conflicts of interest; and
6. The regulation of specific different levels of disclosure, depending to the recipient of
the disclosure.

As for the recognition of the different types of ESG ratings currently developed by the market,
the impact assessment report accompanying the document proposal recognises that ESG ratings
and scores can be grouped into several categories based on what they are measuring.

The assessment report noted that the most common and widely used form is ESG risk ratings,
which measure a company’s exposure to ESG risks and management practices. There are also
ESG ratings considering impact from companies on the environment and society (so-called
‘double materiality principle’): these measure the impact of an entity on the environment in
general, on society and/or on some given metrics.
68
Beyond those two groups there are several other ESG ratings that measure aspects like
disclosure or assess compliance with international principles and guidelines or a specific issue,
for example supply chain. The most prevalent issue-focused ESG ratings are climate-related
ratings.

The EC’s impact assessment report highlights that diversity in offerings of ESG ratings is not
a problem and is welcomed by users of ratings, but users need clarity and certainty as to the
objective of ratings they buy, since they may mistakenly believe that they are buying ESG
ratings that assess impacts on the environment or society, while in reality, such ratings only
analyse the financial risks to a company.

As regards the definition of ESG rating for the purposes of the proposed regulation, in the
impact assessment part of the explanatory memorandum the EC states that “As to the scope,
the definition of ESG ratings by IOSCO would form the basis for the scope of this initiative,
covering both scores and ratings, and products which are a mixture of both”.

The EC’s establishes that ‘ESG rating’ means an opinion, a score or a combination of both,
regarding an entity, a financial instrument, a financial product, or an undertaking’s ESG profile
or characteristics or exposure to ESG risks or the impact on people, society and the
environment, that are based on an established methodology and defined ranking system of
rating categories and that are provided to third parties, irrespective of whether such ESG rating
is explicitly labelled as ‘rating’ or ‘ESG score’110

In turn, the EC’s establishes that “opinion” means an assessment that is based on a rules-based
methodology and defined ranking system of rating categories, directly involving a rating
analyst in the rating process or systems process; “score” means a measure derived from data,
using a rule-based methodology, and based only on a pre-established statistical or algorithmic
system or model, without any additional substantial analytical input from an analyst.

The EC’s proposed regulation intends to exclude from its scope the provision of raw ESG data
that do not contain an element of rating or scoring and are not subject to any modelling or
analysis resulting in the development of an ESG rating. The proposed regulation does not apply
to any of the following: (a) private ESG ratings which are not intended for public disclosure or
for distribution; (b) ESG ratings produced by regulated financial undertakings in the Union that
are used for internal purposes or for providing in-house financial services and products; (c)
credit ratings issued by credit rating agencies subject to Regulation (EC) No 1060/2009; (d)
ESG ratings produced by Union or Member States’ public authorities; and (e) ESG ratings
produced by central banks that fulfil specific conditions.

The EC proposed regulation envisages a proper approach dealing with conflicts of interest,
which may lead to the establishment of an independent oversight function representing

110
The EC’s definition sticks on the IOSCO’s Report notion, which defines the ESG ratings as referring “to
the broad spectrum of ratings products that are marketed as providing an opinion regarding an entity,
a financial instrument or product, a company’s ESG profile or characteristics or exposure to ESG,
climatic or environmental risks or impact on society and the environment, that are issued using a defined
ranking system of rating categories, whether or not these are explicitly labelled as “ESG ratings”.
Explicit and specific reference to the IOSCO recommendations published in November 2021 is made for
the proposed regime for the equivalence decision, the endorsement, and the recognition of the third
country ESG rating providers.
69
stakeholders, including users of the ESG ratings and contributors to such ratings. Where a
conflict of interest cannot be adequately managed, ESMA111 may require the ESG rating
provider to cease the activities or relationships that create the conflict of interest or may require
the ESG rating provider to cease providing the ESG ratings.

Moreover, rules are established for the management of potential conflicts of interests from
employees.

A critical and deeply discussed matter is that of disclosure. The EC’s proposed regulation
envisages two levels of disclosures: a) a minimum level of disclosure of the methodologies,
models, and key rating assumptions used in ESG rating activities to the public on their website
and through the ESAP112; and b) an additional level of disclosure that ESG rating providers
shall make available to users of ESG ratings and rated entities.113 In turn, ESMA shall develop
draft regulatory technical standards to specify further the elements that are to be disclosed.

Voluntary Codes of Conduct

In the absence of a uniform and mandatory legislation or regulation on ESG ratings and data
products and providers, the main initiatives set up for and/or by the industry are voluntary
111
According to the EC’s proposed regulation, ESMA is entitled of the supervisory remit on ESG rating
providers.
112
The concerned information and data should comprise, at the minimum, (a) high level overview of the
rating methodologies used (and changes thereto), including whether analysis is backward-looking or
forward-looking; (b) high level overview of data processes (data sources, including if they are public or
non–public, and if they are sourced from sustainability statements required by Directive (EU) 2022/2464,
estimation of input data in case of unavailability, frequency of data updates); (c) information on whether
and how the methodologies are based on scientific evidence; (d) information on the ratings’ objective,
clearly marking whether the rating is assessing risks, impacts or some other dimensions; (e) the rating’s
scope – i.e., is it an aggregated rating (aggregating E and S and G factor), or a rating of individual factors
or specific issues (e.g., transition risks); (f) in the case of an aggregated ESG rating, weighting of the
three overarching ESG factors categories (e.g., 33% Environment, 33% Social, 33% Governance), and
the explanation of the weighting method, including weight per individual E, S and G factors; (g) within
the E, S or G factors, specification of the topics covered by the ESG rating/score, and whether they
correspond to the topics from the sustainability reporting standards developed pursuant to Article 29b of
Directive 2013/34/EU; (h) information on whether the rating is expressed in absolute or relative values,
(i) where applicable, reference to the use of Artificial Intelligence (AI) in the data collection or
rating/scoring process; (j) general information on criteria used for establishing fees to clients, specifying
the various elements taken into consideration, such as the involvement of data analysts, IT equipment,
purchasing data; (k) any limitation in data sources used for the construction of ESG ratings.
113
The concerned additional information should include (a) a more granular overview of the rating
methodologies used (and changes thereto), including: (1) where applicable, scientific evidence and
assumptions on which the ratings are based, (2) whether the analysis is backward-looking or forward-
looking, (3) which metrics have been selected as relevant, (4) the relevant KPIs per E, S and G factor,
and weighting method, (5) any potential shortcomings of methodologies, (6) policies for the revision of
methodologies, (7) last date of the revision; (b) a more granular overview of data processes, including:
(1) more detailed explanation of data sources used – including whether public or non-public, mentioning
whether derived from the sustainability reporting standards developed pursuant to Article 29b of
Directive 2013/34/EU /Taxonomy/SFDR], (2) where applicable the use of estimation and industry
average and explanation of the underlying methodology, (3) the policies for updating data and revising
historical data, date of last updates of data, (4) data quality controls, (5) any steps taken to address
limitations in data sources, where applicable; (c) where applicable, information about engagement with
rated entities; (d) where applicable, an explanation of any AI methodology used in the data collection or
rating process; (e) in case of a major new information on a rated entity that has the possibility to affect
the result of an ESG rating, ESG rating providers shall inform how they have taken that information into
account and whether they have amended the corresponding ESG rating.
70
Codes of Conduct shaped by the 2021 IOSCO Recommendations and 2022 IOSCO Call for
Action.

FSA Japan: Code of Conduct for ESG Evaluation and Data Providers

After the public consultation of the IOSCO 2021 ESG Ratings Sustainability Report, the FSA
Japan published the finalised version of a Code of Conduct for ESG Evaluation and Data
Providers.

The FSA Code of Conduct is principles-based, encouraging further improvements in ESG

evaluation and data provision services based on their own initiatives and ensuring flexibility in
response to future business model changes.

The Code of Conduct is designed to be a voluntary code on a “comply or explain” basis, where
the FSA calls for organisations to express their support for the Code via public announcement,
and the organisations supporting the Code will either comply with the principles and guidelines
of the Code or explain the reasons why they do not comply with a particular principle or
guideline.

The Code of Conduct considers both ESG evaluation (i.e., ESG rating) and data products
providers and applies to both potential business model set up by providers i.e., the “subscriber
pay model” and the “issuer pay model.” It stipulates that any differences between each business
model should be specified, and that each institution should be able to consider its application
based on differences in business models.

The Code consists of six principles: 1) securing quality, 2) human resources development, 3)
ensuring independence and managing conflicts of interest, 4) ensuring transparency, 5)
confidentiality, 6) communication with companies.

As for the “quality” principle, the Code establishes that it would be useful for each institution
to define quality according to its own service as necessary.

As regards the human resources development, the Code states that providers should secure
necessary professional human resources to ensure the quality of the evaluation and data
provision services they provide.

On the matter of conflicts of interest, the Code envisages that ESG evaluation and data
providers should establish effective policies so that they can independently make decisions and
appropriately address conflicts of interest that may arise from their organisation and ownership,
business, investment and funding, and compensation for their officers and employees. The
specific nature of potential conflicts of interest may vary depending on the evaluation
methodology and business model. In the subscriber pay model, the Code identifies a typical
example of conflicts of interest when an ESG evaluation and data provider provides paid
consulting services to the company subject to the evaluation, since it could incentivize the
provider to give a relatively good evaluation to such company.

On the other hand, since the issuer pay model basically receives compensation from the
company subject to evaluation, it has a structure in which conflicts of interest may occur due
to the nature of business. For this reason, it is important to implement detailed procedures such

71
as strict ethical walls (for example, separation of persons in charge of evaluation and sales) or
require inspections by expert or upper committee in individual evaluations.

As for the “transparency” principle, the Code states that - while considering intellectual
property - ensuring transparency leads to improving the reliability and understanding of data
and evaluation among market participants and ensures the quality of ESG evaluation and data.

To ensure transparency, in addition to evaluation methodologies and processes, it is important

to publicly clarify the basic approach, including the methodologies used for the evaluations
and to disclose the details of any major updates of the methodologies. In the case of improving
evaluation methodologies, it would be useful to disclose the reasons for the revisions so that
the relevant parties can easily understand the evaluation issues and points for improvement.

The Code differentiates between two types of information to be disclosed: information that
should be disclosed to the public and information that should be disclosed or explained only to
customers or companies subject to evaluation. General matters, such as evaluation objectives,
basic methodology, and evaluation procedures, may be made generally transparent to a wide
range of stakeholders, while specific matters, such as details of data used for evaluation, may
be disclosed only to the parties concerned.

The principle of confidentiality ensures data protection: providers “should establish policies
and procedures to appropriately protect non-public information obtained in the course of
business.”

According to the principle relating to communication with companies, the Code recommends
establishing a dedicated contact point through which companies can send inquiries and raise
issues regarding ESG evaluation and data, and which would allow companies to assess the
accuracy of the underlying data when companies subject to evaluation ask questions or raise
important or reasonable issues regarding the basis of evaluation and data.

MAS Singapore: Singapore voluntary draft Code of Conduct for ESG Rating and Data
Product Providers

On 28 June 2023, MAS Singapore published a consultation paper114 to seek views on a

proposed Code of Conduct for ESG Rating and Data Product Providers (Code). The Code was
jointly developed with ESG rating and data product providers including key global players and
MAS through a soft consultation exercise.

It was also set out in the consultation paper that MAS will monitor the implementation of the
Code and observe global developments before taking further steps to formalise a regulatory
framework for ESG rating providers.

The Code115 is largely modelled on the recommended good practices set out in the IOSCO’s
Call for Action with additional Singapore specific requirements. The industry Code applies to
both ESG rating and data products providers.

114
https://www.mas.gov.sg/-/media/mas/news-and-publications/consultation-papers/consultation-paper-
on-proposed-code-of-conduct-for-esg-rating-and-data-product-providers.pdf
115
annex-i-draft-code-of-conduct-for-esg-rating-and-data-product-providers.pdf (mas.gov.sg)
72
A key thrust of the Code is to require disclosures on how transition risks and opportunities have
been factored into ESG rating and data products. This is to allow users of the products to better
consider transition risks and opportunities when making decisions on capital allocations.

Similar to the FSA’s Code, the Singapore Code is to be applied by ESG rating and data product
providers on a “Comply or Explain” basis. Providers will comply with the principles and best
practices set out in the Code or explain why they do not comply with the Code (or specific
principles/best practices). MAS encouraged ESG rating and data product providers to publish
their assessment of compliance.

The Code also provides exclusions from the scope of ESG data products, ESG data products
providers, and ESG rating products116.

The Code encompasses seven principles, and each of them is elaborated by a set of best
practices.

Principle 1: The ESG Rating and Data Product Provider should adopt and implement written
policies and procedures designed to ensure the issuance of high quality ESG rating and data
products based on publicly disclosed data sources where possible, and other information
sources where necessary, using transparent and defined methodologies.

Principle 2: The ESG Rating and Data Product Provider should adopt and implement written
policies and procedures designed to ensure its decisions are independent, free from political
or economic interference, and appropriately address potential conflicts of interest that may
arise from, among other things, its organisational structure, business or financial activities,
financial interests, and personnel.

Principle 3: The ESG Rating and Data Product Provider should identify, avoid or
appropriately manage, mitigate and disclose potential conflicts of interest that may
compromise the independence and objectivity of its operations.

Principle 4: The ESG Rating and Data Product Provider should make adequate levels of
public disclosure and transparency a priority for its ESG rating and data products, including
their methodologies and processes to enable the users of the ESG rating and data products to
understand what the product entails and how it is produced, while maintaining a balance with
respect to proprietary or confidential information, data and methodologies.

116
Namely, “ESG data product" does not include (and, therefore, the Code does not apply to) 1) raw data
or aggregated raw data which does not entail added estimations, calculations or analysis; 2) an ESG
rating; 3) a credit rating that takes into account any environmental, social or governance profile or
characteristics of a rating target in the assessment of the credit worthiness of the rating target; 4) research
analyses or research reports concerning any investment product that is issued or promulgated by a
licensed or exempt financial adviser under the Financial Advisers Act 2001; or 5) financial benchmarks,
as defined by the IOSCO. “ESG Data Product Provider” does not include 1) academic or research
institutions solely providing specialised knowledge and data on ESG for academic purposes; 2) an entity
solely providing consulting services to companies on improvements from an ESG perspective; 3) an
entity solely providing information aggregation that compiles ESG data on a general website or
subscription-based model; 4) an entity solely providing data in respect of general surveys on ESG factors;
or 5) an entity solely providing news reporting services. Lastly, “ESG rating” does not include 1) a credit
rating that takes into account any ESG profile or characteristic of a rating target in the assessment of the
credit worthiness of the rating target; or 2) research analyses or research reports concerning any
investment product that is issued or promulgated.
73
 Principle 5: The ESG Rating and Data Product Provider should adopt and implement written
policies and procedures designed to address and protect all non-public information received
from or communicated to it by any entity, or its agents, related to its ESG rating and data
products, where appropriate in the circumstances.

Principle 6: The ESG Rating and Data Product Provider should ensure that information
gathering processes with the covered entity, where relevant, is done in a manner that leads
to efficient information procurement for it and these entities.

Principle 7: Where feasible and appropriate, the ESG Rating and Data Product Provider
should respond to and address issues raised by the covered entity while maintaining the
objectivity of these products.

FCA UK: UK voluntary draft Code of Conduct for ESG Ratings and Data Product Providers

On 05 July 2023, the ESG Data and Ratings Working Group (DRWG) - an industry working
group led by an industry secretariat appointed by the FCA UK – published for a 3-month
consultation the draft of a voluntary Code of Conduct for ESG Ratings and Data Product
Providers. The Code of Conduct aims to foster a trusted, efficient and transparent market, by
introducing clear standards for ESG ratings and data products providers and clarifying how
such providers can interact with wider market participants.

The Code is based on IOSCO’s recommendations and aims to (i) improve the availability and
quality of information provided to investors at product and entity levels; (ii) enhance market
integrity through increased transparency, good governance and sound systems and controls,
and (iii) improve competition through better comparability of products and providers.

In line with IOSCO’s recommendations, the Code is structured around four key outcomes: 1)
Good Governance; 2) Systems and Controls; 3) Management of Conflicts of Interest; 4)
Transparency. By basing the Code heavily on the IOSCO recommendations for ESG ratings
and data products providers, the Code is intended to be internationally interoperable, with the
hope of promoting a globally consistent regulatory framework.

The Code applies both to ESG rating and to data products providers. It is not primarily intended
to be applied to 1) Credit Rating Agencies in respect of their offering of credit ratings (including
those credit ratings that include consideration of ESG factors). Where Credit Rating Agency
groups own entities that offer ESG rating/scores or ESG data products, those entities would
fall within the intended scope; 2) entities who produce ESG ratings/scores or ESG data
products that are used or consumed only within the same corporate group of affiliated
companies and are therefore not provided or marketed to third parties; and 3) entities whose
commercial activities involve ESG consulting services, but that do not involve the provision
of any ESG rating/score or ESG data product.

The Code is based on six principles: 1) Good Governance; 2) Securing Quality; 3) Conflicts of
Interest; 4) Transparency; 5) Confidentiality; 6) Engagement.

74
Principle 1 on Good Governance: ESG ratings and data products providers should ensure
appropriate governance arrangements are in place that enable them to promote and uphold
the Principles and overall objectives of the Code of Conduct.

Principle 2 on Securing Quality: ESG ratings and data products providers should adopt and
implement written policies and procedures designed to help ensure the issuance of high
quality ESG ratings and data products.

Principle 3 on Conflicts of Interest:

1) ESG ratings and data products providers should adopt and implement written policies
and procedures designed to help ensure their decisions are independent, free from
political or economic interference, and appropriately address actual or potential conflicts
of interest that may arise from, among other things, the ESG ratings and data products
providers’ organisational structure, business or financial activities, or the financial
interests of the ESG ratings and data products providers and their officers and employees.
2) ESG ratings and data products providers should identify, avoid or appropriately manage,
mitigate and disclose actual or potential conflicts of interest that may compromise the
independence and integrity of the ESG ratings and data products providers’ operations.

Principle 4 on Transparency: ESG ratings and data products providers should make
adequate levels of public disclosure and transparency a priority for their ESG ratings and
data products, including their methodologies and processes to enable the users of the product
to understand what the product is and how it is produced, including any potential conflicts
of interest and while maintaining a balance with respect to proprietary or confidential
information, data and methodologies.

Principle 5 on Confidentiality: ESG ratings and data products providers should adopt and
implement written policies and procedures designed to address and protect all non-public
information received from or communicated to them by any entity, or its agents, related to
their ESG ratings and data products, in a manner appropriate in the circumstances.

Principle 6 on Engagement:
1) ESG ratings and data products providers should regularly consider whether their
information gathering processes with entities covered by their products leads to efficient
information procurement for both the providers and these entities. Where potential
improvements to information gathering processes are identified, ESG ratings and data
products providers should consider what measures can be taken to implement them.
2) Where feasible and appropriate, ESG ratings and data products providers should respond
to and address issues flagged by entities covered by their ESG ratings and data products
while maintaining the independence and integrity of these products.

75
 Annex 4: Summary of Financial and Investor Education Initiatives

Authority Initiatives for Regulators Initiatives for Initiatives for

Investors Industry
ASIC • Taking advantage of both its • Published guidance • Provided direct
Australia pipeline of greenwashing to investors on ESG feedback to
surveillance work and its investing on ASIC’s industry (for
staff with existing investor-focused example the
experience and knowledge ‘Moneysmart’ Financial Services
to provide training and website.117 Council) and asset
guidance to newer staff managers and
members. product issuers
• Established a Sustainable about disclosures
Finance Hub to coordinate for sustainability-
its sustainable finance related products
activities across different and highlighted the
teams, has allocated (and guidance provided
plans to increase) specific in ASIC’s
resourcing to target information sheet
greenwashing (for example, 271.
there are enforcement teams • Presented at several
at ASIC with a conferences,
greenwashing focus) and including but not
regularly holds knowledge limited to, the
sharing training about annual conference
greenwashing/sustainable of the Australian
finance for staff. This Council of
capacity building is assisted Superannuation
by a grant of USD4.3 Investors and the
million by the Australian Australian
Government to continue Financial Report
greenwashing surveillance ESG Summit.
and enforcement work for
the financial year ended
2024.
FSMA • Developed an
Belgium interactive financial
education centre
(Wikifin lab) which is
focused on financial
education of
secondary school
students.
• Developed a website
focused on financial
literacy information
for consumers that
includes sustainable
finance topics.
• Member of the Joint
Committee

117
https://moneysmart.gov.au/
76
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
workstream for
developing
educational material
aimed towards
consumers and is a
member of IOSCO’s
Committee on Retail
Investors (C8) which
has worked on
sustainable finance
ESMA • Planning to conduct
trainings on greenwashing
for both the NCAs and
ESMA’s own staff.
• Conducted a survey in 2022
and identified the specific
training needs of NCAs’ in
sustainable finance.
• In the process of
implementing its
Sustainable Finance training
plan. The aim is to build
capacity among the NCAs
and ESMA’s own staff to
prevent, detect and address
greenwashing in financial
markets better.
• launched another survey in
September 2023 to identify
further training needs and
create a list of training
initiatives to take place in
2024.118
AMF France • set up a Sustainable Finance • Implemented a • In 2021, the AMF
Task Force119 (January number of initiatives France revamped
2019) which is backed by a which ranges from the certification in
multidisciplinary team. the objective of sustainable
• Members of the task force informing a wide finance for
contribute actively to the audience of the professionals. The
work of the AMF’s Climate existence of AMF decided on
and Sustainable Finance sustainable finance the proposal of the
Committee. products to content Financial Skills
• A training program for this for more advanced Certification
Task Force was also set up. investors who can be Board (HCCP), to
Since 2022, this program has critical about create a new
been extended to all the staff sustainable finance module to test the

118
https://www.esma.europa.eu/sites/default/files/2023-06/ESMA30-1668416927-
2498_Progress_Report_ESMA_response_to_COM_RfI_on_greenwashing_risks.pdf
119
One of the duties of this taskforce is to work on the operational implementation of the AMF’s sustainable
finance action plan, share knowledge and exchange views about future trends and issues. It enables better
coordination and the consistency of the AMF’s messages on this issue.
77
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
of the AMF, on a voluntary and need to know knowledge of
basis and with different how to find relevant professionals on
modules based on the information before green and
respective roles of the staff investing.120 This responsible
members. includes social media finance, and to
materials, such as give greater
videos on Facebook, weight to these
YouTube and questions in the
Instagram.121 general exam for
AMF certification.
The first training
organisations have
been certified to
organise the
sustainable
finance exam in
September 2021
and the first exams
were held in early
2022. This
module, which is
open to all, is
particularly aimed
at professionals
working as
salespeople, who
are required to
collect their
clients'
preferences in
terms of
sustainable
investment from
August 2022 for
Investment
Service Providers
(ISP) and January
2023 for Financial
Investment
Advisers (FIA).122
CVM Brazil • Prepared content on
general sustainable
finance concepts,
providing an overall
view of the

120
The main point of access to this content is the website https://www.amf-france.org/fr/espace-
epargnants/lamf-et-vous.
121
For example: https://www.youtube.com/watch?v=87a04orOgNo and
https://www.instagram.com/tv/CUxkbblgtX5/?hl=fr
122
https://www.amf-france.org/en/news-publications/news-releases/amf-news-releases/amf-tightens-
professional-certification-requirements-sustainable-finance
78
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
importance in
considering ESG
risks into investment
analysis, and the
awareness of impact
investments and its
positive socio-
environmental results
(beyond financial
returns).123
FRA Egypt • Planning to provide • Planning to issue
investors with the necessary guidelines on ESG
knowledge and tools to associated risks,
empower them to make including
informed decisions and greenwashing.
differentiate between • Aiming on
reliable ESG information designing a
and potential greenwashing. sectoral-based
capacity building
program for all the
sectors under its
regulatory scope
(i.e., insurance,
capital market,
mortgage, factoring
and leasing,
microfinance, and
consumer finance)
to be provided by
its Regional Centre
for Sustainable
Finance
BaFin • Set up a Centre for
Germany Sustainable Finance (ZSF)
which provides for an
internal cross-sectoral
coordination (banking,
securities, Insurance)
networking and policy
function. The ZSF develops
and coordinates strategic
Sustainable Finance (SF)
issues within BaFin as well
as with the participation of
the sectors. In addition, the
ZSF supports the sectors or
the supervision in specific
SF issues as well as in the
implementation or
application of (European)

123
The main point of access to this content is the website https://www.investidor.gov.br/
79
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
legal acts, if required. The
ZSF supports
communication with market
participants and participates
in testing suitable training
activities regarding SF
issues (for BaFin staff) and
plans to analyse together
with the BaFin education
centre a training plan on SF
issues for BaFin staff.
EU • There is currently a
workstream under the Joint
Committee of the ESAs that
will develop a factsheet for
consumers providing
information on investing
sustainably, including key
tips to keep in mind before
investing in products with
sustainability features.
CONSOB • Established in 2019 a • Member of the • Has promoted
Italy Steering Committee on Subgroup on meetings,
Sustainable Finance to Financial Education seminars and
coordinate ESG matters, as established at the workshops with
well as to encourage the ESAs JC SG CPFI market operators,
exchange of knowledge and which has agreed to including ESG
information among different deliver a task on the ratings and data
CONSOB Departments and development of products
Offices. interactive factsheets providers, aimed
• Organised “internal on sustainability. at learning about
seminars”, among others, • CONSOB and the their ESG
around ESG ratings and data Bank of Italy have valuation models
products providers and asset organised a webinar and criteria and
management, with the aim on “Sustainable collecting their
of improving the knowledge finance: be aware of views on the
of ESG issues while risks!”. This mini possible
promoting the exchange of course (organised introduction of a
information on the activities with the collaboration regulatory
carried out by different of the Associations of framework, its
CONSOB departments. consumers within the benefits and
• Interacting with other framework of the challenges.
European Authorities to Financial Education
promote exchanges of views Month and of the
on the regulatory and IOSCO World
supervisory framework in Investor Week
progress and on the (WIW)) is aimed at
greenwashing phenomena disseminating basic
observed. knowledge on the
topics of sustainable
finance. The
initiative is part of
80
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
those of the
Sustainable
Development
Festival promoted by
the Italian Alliance
for Sustainable
Development.
FSA Japan • uses the capacity building • Supporting private • Developed "The
programs offered by initiatives, such as the JFSA Strategic
international organisations development of a Priorities July
such as Network for sustainability-related 2022-June 2023",
Greening the Financial qualification in which it
System and the International examination and of identifies the
Monetary Fund. courses and teaching development of
• exchanges opinions and materials on skilled
information on ESG sustainable finance professionals in
investment trusts, ESG for finance-related sustainable
ratings, and greenwashing, courses at finance as a whole,
with industry associations universities. not only in the
and authorities of other areas of
countries on an ad-hoc basis. greenwashing of
asset management
and/or ESG
ratings and data
products
providers, as one
of the priorities of
sustainable
finance policies.
To this end, the
FSA will
collaborate with
related parties
(such as finance-
related
associations) to
support the
development of a
sustainability-
related
qualification
examination in the
private sector. For
example, industry
associations have
developed various
training programs
and qualification
tests on
knowledge of
sustainable

81
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
finance, including
ESG ratings.
• Published a skill
map for
developing skilled
professionals in
sustainable
finance and
conducted survey
on financial
industries to
ascertain the
actual situation in
areas where
human resources
are particularly in
short supply and
the methods used
to train them.
CNBV • Partnered with some
Mexico institutions to train
supervisors to evaluate good
practices and to identify
greenwashing in mutual
funds.
• Currently working with
Global Green Growth
Institute for staff training, as
well as working on a
roadmap for issuer and
mutual fund supervisors that
seeks to develop the
formation124 of an ESG
regulation and supervision
working group with
members of the CNBV.
• Developed an e-learning
platform that seeks to
develop ESG capabilities
among its staff and other key
stakeholders. The platform
includes an introduction to
the ESG financial ecosystem
and general training on ESG
frameworks and standards
elaborated by FSB TCFD,
Sustainability Accounting

124
(i) training on sustainable taxonomy, (ii) the preparation of a technological tool that systematizes
ESG information disclosed by investment funds and issuers and facilitates their supervision (based
on issued regulation), and (iii) the training on IFRS, to be issued by the IFRS Foundation in 2023
and subject to review by the CNBV.
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Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
Standards Board, Global
Reporting Initiative and
Science Based Targets.
CNBV’s staff will receive a
certification to acknowledge
completion of the training.
AFM • Providing internal
Netherlands education, specifically
aimed at supervisors, to
increase knowledge to
address greenwashing.
SC Malaysia • Introduced InvestSmart® in • Launched the
2014, its flagship education NaviGate: Capital
program where it Market Green
incorporates sustainable Financing Series
investment topics as part of to create greater
its agenda. Through awareness and
InvestSmart®, SC Malaysia connectivity
has been actively carrying between
out various initiatives to companies and
reach a wide spectrum of the capital market
public throughout the financing for
nation, educating them on a green and
range of investment-related sustainability
topics. Initiatives include the purposes. The
annual flagship investor target audience for
education event NaviGate includes
InvestSmart® Fest, Bersama corporate entities,
InvestSmart®@Borneo, and financial
SC-in-the-Community, institutions, as
talks, as well as the well as
InvestSmart® website, partnerships and
mobile application and collaboration with
online educational game industry players,
Jump2Invest. InvestSmart® e.g. fund
has a notable presence in managers,
social media platforms investment banks,
including Facebook and rating agencies,
Instagram. issuers.
CMVM • Delivering internal training • Carried out, and will
Portugal sessions on the EU continue to carry out,
Sustainable Finance legal a campaign dedicated
framework and discussing to sustainable finance
supervision cases to enhance to enhance financial
their capacity building. literacy of retail
investors, comprising
a brochure and
animation on the
concepts of ESG and
greenwashing, videos
for TV, webinars and
a conference.
83
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
• Has an area of its
website dedicated to
sustainable finance
Depending on the
type of initiative, the
target audience
covers retail
investors, teachers,
trainers, business
owners, and members
of Small and Medium
Enterprise’s Boards
AMMC • Finalising SRI guidelines to • Planning to
Morocco be published. In addition to conduct capacity
guidance and requirements building
for asset managers on the initiatives to
creation, management and address
disclosure of ESG funds, the greenwashing
guidelines include around asset
recommendations for management. The
investors on what to look main audience
for, verify, and require would be asset
before investing in ESG managers, but
labelled-funds. other stakeholders
• Planning to conduct would also be
conferences and awareness targeted (e.g.,
raising events around the investors,
guidelines. financial
advisors). More
broadly, the
AMMC has
organised several
trainings,
conferences and
awareness raising
events, and added
sustainable
finance
components to the
professional
licensing
curricula. The
target audiences of
these financial
and investor
education
initiatives relating
to sustainability
are asset
managers,
investors, general
public,
84
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
professionals,
students, etc. For
the best
implementation of
these initiatives,
AMMC partners
with various
entities such as
professional
associations (asset
managers
association,
brokers
association,
issuers
association…),
international
organisations and
universities.
MAS • Conducted a course for its • Planning for an in- • Developed
Singapore staff in 2021 comprising live person public together with the
training session and multiple seminar in October Institute of
video recordings125 and in 2023 in which Banking and
2022 on the fundamentals of sustainable finance Finance Singapore
ESG investing126 and greenwashing (IBF) a set of 12
will be covered. The Sustainable
target audience Finance Technical
covers working Skills and
adults between 36 Competencies (SF
and 54 years old. The TSCs)127 required
seminar is part of a for sustainable
joint retirement finance
planning campaign professionals in
between MAS and the financial sector
the Central Provident of Singapore.
Fund Board (which • Worked to anchor
oversees Singapore’s sustainable
retirement savings finance centres of
programme). excellence (CoE)
to spearhead
research and

125
Topics included: Environmental risks – risks and dependencies for businesses and the wider economy;
Best practices for banks in managing climate related financial risks; Understanding the uses and
limitations of ESG ratings and data; and Key design parameters and methodological approaches to
consider in developing stress tests.
126
Topics covered place of ESG investing in the investment landscape, ESG issues, Opportunities, benefits,
and challenges of ESG investing; The principles of integration into the investment process; and The ESG
market and developing trends.
127
The SF TSCs are part of the IBF Skills Framework for Financial Services, which provides information
on occupations, job roles, career pathways and training programmes for skills upgrading and mastery.
The SF TSCs set out robust common standards of proficiency, knowledge and abilities needed to perform
various job roles in sustainable finance and cover a range of thematic and functional knowledge topics.
85
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
training, tailored
for Asia. A
relevant CoE to
highlight is the
Sustainable and
Green Finance
Institute (SGFIN),
established by the
National
University of
Singapore, which
shapes
sustainability
outcomes and
policy making
across the real
economy and
financial sectors,
in collaboration
with NUS
faculties,
corporates and
financial
institutions.
SGFIN will be
launching a course
on sustainability
reporting, either
by end 2023 or
early 2024. Their
Masters in
Sustainable and
Green Finance
will cover the
corporate
governance aspect
of sustainability.
Ontario and • In Ontario, the Investor • The OSC Ontario’s
Québec Office Education and Investor Office
Outreach Team has created Research and
an ESG hub128 to help Behavioural
educate retail investors Insights Team
about ESG investing and the (IORBIT) has
risks to watch out for. conducted a
• In Québec, the Financial behavioural science
Education Programs Team study on ESG,
has developed specific which sought to
content on better understand
responsible/sustainable ESGs factors within
investing on the general retail investing and

128
https://www.getsmarteraboutmoney.ca/invest/investment-products/esg-investing/
86
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
public section of the AMF its influence on
website.129 retail investing
• The educational materials behaviours. The
are delivered through online report will be
articles on published in the
getsmarteraboutmoney.ca second half of 2023.
and on Further research is
lautorite.qc.ca/en/general- planned for the
public, as well as through 2023-2024 fiscal
news releases and website year by IORBIT
publications. including (i) a retail
investor qualitative
and quantitative
survey on ESG and
(ii) a second BI
experiment in Q3
and Q4. The target
audience includes
retail investors, the
asset management
industry, issuers,
and other
stakeholders.

CNMV • Organised in 2022 a course • Started developing • Organised several

Spain intended to all staff on the resources around seminars and
regulatory framework of sustainability in 2021, webinars. In 2020
sustainability so that they and since then has CNMV carried out
can understand the promoted information an online
implications of the new campaigns for Conference on
legislation and market investors in ESG Sustainable
practices. products in order to Finance.
• Internal training provided by train and facilitate the Managers and
departments with expertise understanding of these technical staff of
in the supervision of non- products and the new the CNMV
financial information, while regulation. CNMV explained the new
staff working directly in the organised the course regulations on
area of sustainability have "Towards more sustainable
access to trainings programs sustainable finance: finance, their
organized by ESMA and challenges and impacts on the
other institutions. opportunities" in market and the
• quarterly sustainable finance collaboration with the supervisor’s
newsletter directed to the Menéndez Pelayo activities in the
staff. International field of sustainable
• set up an Internal University (UIMP), finance. In 2022
Sustainability Committee, which took place on CNMV carried out
which aims to facilitate the 26-28 June 2023 at the the conference
necessary coordination of UIMP's headquarters “Towards more
matters related to in Santander. The sustainable
sustainable finance between course was aimed at finance” where

129
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Authority Initiatives for Regulators Initiatives for Initiatives for
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the different General anyone with an interest experts from the
Directorates and in developing their sector discussed
Departments of the CNMV. knowledge in this area, recent
Among other functions this including developments in
Committee is responsible for undergraduate or the field of
identifying and analysing master's degree sustainable
possible internal initiatives students with basic finance.
of the CNMV on matters financial knowledge, • Promoted
related to sustainable working professionals dialogue in the
finance. in the financial world, area of sustainable
auditors, consultants, finance. In doing
academics, and staff of so, CNMV has
public bodies. organised
Furthermore, CNMV meetings with the
took part in the ESG asset management
Investment and sector, as well as
Finance - Summer with interest
Program of Deusto groups such as
University. investors,
• CNMV actively auditors,
collaborates at the consultants, rating
European and agencies and
international levels in representative
the promotion of association of the
investor education, sector, among
including in the area of others.
sustainable investing. • Actively engages
Two factsheets will be with the industry
published in the last through public
quarter of the year communications
(“What do you need to on sustainable
know if you want to finance and its
make an investment, legal framework in
take out a loan or get industry forums.
an insurance policy
with a sustainable
focus?” and “key tips
to keep in mind before
choosing financial
products with
sustainability
features”). The
resources are available
at CNMV website and
at “Finanzas para todos
website.”130
Furthermore, the
resources have been
disseminated through
social media and

130
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Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
targeted at general
public/retail investors
FI Sweden • prioritising general capacity
building on sustainable
finance among retail
investors and financial
advisors (including
greenwashing).
FINMA • has continuously built • Conducting public • Communicated its
Switzerland capacity in its authorisation appearances expectations to the
and supervision teams over (including industry the
the past years in the area of presentations, asset FINMA Guidance
asset management in order management 05/2021131 and
to address greenwashing. symposium, media through various
relations, channels (such as
publications, and presentations,
interviews) as well as asset management
publishing guidance, symposium, media
thus raising relations,
awareness, and publications,
enhancing interviews). The
understanding or target audience
greenwashing. The includes market
target audience participants (such
includes investors as issuers, market
associations, asset
managers,
investors)

FCA UK • Established an ESG internal • Will support • Will carry out

online training programme, implementation of engagement on the
covering various topics the SDR and final SDR and
including climate-related labelling rules. This labelling rules in
disclosures, transition to net includes developing different forms,
zero, and ESG ratings, web-based materials e.g., webinars,
supporting regulatory staff for consumers to roundtables, etc. to
to build their ESG understand what the support industry’s
knowledge. labels and wider implementation of
• Live workshops are being regime are. the regime.
co-designed and co- • Will continue to • Will support
delivered with local teams to engage with industry-led
support staff with more consumer groups to guidance and tools.
bespoke ESG training and support their • Training and
knowledge needs. External consumer education competence on
subject matter experts have initiatives. sustainability in
also attended internal ESG regulated firms has
awareness sessions. also been a key
topic in the FCA’s

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finma-aufsichtsmitteilungen/20211103-finma-aufsichtsmitteilung-05-2021.pdf?sc_lang=en&
hash=7F911020E829EA5910FF903AF851B2F3
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Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
Discussion Paper
23/1132 published
on 10 February
2023. The paper
sought to encourage
an industry-wide
dialogue on firms’
sustainability-
related governance,
incentives, and
competence. It has
gathered useful
insights from
respondents on
including
knowledge gaps,
whether further
regulatory measures
are necessary to
help deal with them,
and whether
misrepresentation
of ESG credentials
among ESG
professionals
occurs.
• Engaging with the
UK’s Sustainable
Finance Education
Charter and other
stakeholders to
discuss
developments in
sustainable
finance and joined
sector-specific
roundtables to
discuss
sustainable
finance skills and
training with the
industry.
SFC Hong • Organised over 10 hours of • The Investor and • Has been
Kong live training courses Financial Education conducting several
featuring practitioners from Council133, a different multiple
the sustainable finance subsidiary of the SFC capacity building
industry in 2022-2023 for Hong Kong, has initiatives to

132
DP23/1: Finance for positive sustainable change: governance, incentives, and competence in regulated
firms (fca.org.uk)
133
The IFEC is a public organisation dedicated to improving investor and financial education.
https://www.ifec.org.hk/web/en/index.page
90
Authority Initiatives for Regulators Initiatives for Initiatives for
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internal staff, aiming to raise published address
their awareness of the ESG educational online greenwashing. For
investment landscape, content134 and social example, the
current ESG risk trends, and media posts135 to Green and
the latest policy address Sustainable
developments on sustainable greenwashing. The Finance Cross-
finance. materials’ target Agency Steering
audience is the public Group, which is
and general investors. co-chaired by the
SFC and the Hong
Kong Monetary
Authority,
administers the
Hong Kong
Special
Administrative
Region (HKSAR)
Government’s
Pilot Green and
Sustainable
Finance Capacity
Building Support
Scheme which
provide subsidies
for ESG-related
training courses.
• Participates in
various industry
events to share its
regulatory
expectations.
Following the
publication of the
SFC climate risk
requirements and
the SFC ESG
funds Circular, the
SFC organised
webinars136 as well
as industry
workshops on
137
ESG Funds to
provide an
overview of the
regulatory
framework, some
illustrative

134
Webpage articles: All about green; The label of green bond
135
IFEC’s Facebook and Instagram
136
Webinars on SFC climate risk requirements were conducted on 7 and 12 October 2021.
137
Industry Workshops on ESG funds were conducted in March 2022 and January 2023.
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Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
examples as well
as Q&A sessions.
• Released in June
2021 its
consultation
conclusions138 on
proposals to
update its ongoing
competency
standards for
corporations and
individual
practitioners,
where ESG would
be included as a
relevant topic for
training under the
Guidelines for
Continuous
Professional
Training. The
amended
guidelines became
effective in
January 2022.139
US SEC • Conducting financial
and investor
education initiatives
to address
greenwashing. In its
regular role of
informing and
educating investors
regarding
developments in the
investment space, the
SEC’s Office of
Investor Education
and Advocacy
(OIEA) published on
February 26, 2021 an
Investor Bulletin
titled
“Environmental,
Social and

138
Consultation Conclusions on Proposed Enhancements to the Competency Framework for Intermediaries
and Individual Practitioners, June 2021.
(https://apps.sfc.hk/edistributionWeb/api/consultation/conclusion?lang=EN&refNo=20CP8)
139
Guidelines on Continuous Professional Training, January 2022. (https://www.sfc.hk/-
/media/EN/assets/components/codes/files-current/web/guidelines/guidelines-on-continuous-
professional-training/Guidelines-on-Continuous-Professional-Training.pdf)
92
Authority Initiatives for Regulators Initiatives for Initiatives for
Investors Industry
Governance (ESG)
Funds.” The bulletin
provides a general
overview about ESG
funds and what to
consider when
investing. In addition,
OIEA maintains a
glossary section on
its Investor.gov
website that provides
definitions for
various terms that a
retail investor may
come across when
investing. OIEA has
included an entry for
“greenwashing.140”

140
Both the bulletin and the glossary are targeted to retail investors and are available on
https://www.investor.gov/
93