Global securities watchdog targets greenwashing

Global organizations that set corporate reporting standards failed to keep pace with the ESG boom, opening the door to greenwashing, mispricing and bubbles, according to one such group.

Correcting the situation “will take some time,” said Erik Thedeen, chairman of the Sustainable Finance Task Force at the International Organization of Securities Commissions, whose members regulate more than 95% of the world’s securities markets.

In the absence of global standards, an “alphabet soup of standards or semi-standards” has emerged that’s not “good enough,” Thedeen said by phone. “If we get reliable, comparable information with one set of standards, rather than different ones with different definitions, that will decrease the risk of greenwashing.”

The comments follow IOSCO’s warning last month of an “urgent need” for reliable sustainability disclosure standards, as well as a decision to work with other organizations including the IFRS Foundation.

The plan now is to present a preliminary proposal that would form the basis of national requirements at the United Nations climate change conference later this year.

“Exactly how detailed we’ll be, that we need to come back to,” Thedeen said. “But I am hopeful that we will have something that is definitely a very, very good starting point.”

The effort will require national authorities to expand, according to Thedeen, who also serves as director general of Sweden’s Financial Supervisory Authority.

“We have much more expertise than we had just two, three years ago, but going down the line, with compulsory disclosure and a range of new legislation coming into force, we need to have more experts and more capacity,” he said.

[More: SEC establishes task force on ESG]

ESG-linked assets have boomed. Governments, corporations and other groups raised a record $490 billion selling green, social and sustainability bonds last year. Meanwhile, companies eager to demonstrate responsible environmental and social behavior have been able to cherry-pick reporting methods and certifications that put them in a better light, according to IOSCO.

The lack of unified disclosure requirements has made it difficult to gauge the extent to which climate risks are accurately priced into securities and has increased the potential for bubbles, Thedeen said.

“In the search for the winner in the change to a fossil fuel-free world, there will be a lot of speculation and that speculation could also turn into bubbles,” he said. “If you have more correct information, and comparable information, the risk of that will diminish.”

Only in recent years have global organizations like IOSCO begun to catch up with the historic shift, Thedeen said.

“Regulators, I would say generally speaking, have been lagging,” he said. “We are in a substantially better situation now, because so many of the different global players are working together.”

[More: The ESG space must take a hard line on greenwashing]

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