Sat, Jun 22, 2024

The official Financial Regulation Journal of SAIFM

Education on sustainable finance helps protect investors against fraud and greenwashings

The Board of the International Organization of Securities Commissions (IOSCO) today published a report that identifies recent developments in investor education on sustainable finance, with a view to enhancing investor education and protection and supporting the sound development of this growing financial market.

The report on Retail Investor Education in the Context of Sustainable Finance Markets and Products indicates that securities regulators have increasingly focused on whether sustainable finance claims are accurate and if investors have the information they need to evaluate sustainable finance products. To make informed decisions, retail investors need to understand the characteristics of such products.

Accordingly, the report identifies some of the main challenges and sound practices for developing educational content on these matters, informing investors of the features and risks of sustainable investments and fostering educational activities that create the conditions for better protecting and informing retail investors on the opportunities and risks related to sustainable finance products.

The report describes educational activities that regulators should consider, taking into account the level of sustainable finance and retail investor participation in their markets. This includes, for example:

  • explaining to retail investors how to obtain sustainability-related information and to search and understand whether the offered product(s) matches their sustainability-related preferences; and
  • supporting initiatives of market participants to help retail investors understand ESG certifications, labels and scores regarding the financial products offered to individuals and encouraging and/or facilitating training that helps financial advisors better understand greenwashing and how to protect investors against unsubstantiated or misleading sustainability claims.

The report complements other IOSCO efforts in this area, including the work of the Sustainable Finance Task Force (STF), which has recommended that “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” (IOSCO Report on Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management”, November 2021).

The report includes some key messages that securities regulators should consider for their financial education programs, to help retail investors understand how a “smart investor” would behave when faced with sustainable finance products.

Ashley Alder, Chair of the IOSCO Board and the Chief Executive Officer of the Hong Kong Securities and Futures Commission, said, “Financial education is a key element to enhance investor protection, and it complements the policies, regulations, oversight and enforcement actions that securities regulators may undertake to support the sound and proper development of sustainable finance markets and products. Financial education also increases investor confidence to participate in innovative financial markets, such as sustainable finance, on a properly informed basis.”

Pasquale Munafò, Chairman of the IOSCO Committee on Retail Investors, said, “Sustainable finance offers new opportunities for retail investors, locally and globally. But it is crucial that they understand what a sustainable product is, as well as its different opportunities and risks, including the threat of greenwashing. The report intends to provide practical tools and messages to support financial education, but this is initial work as sustainable finance continues to develop and innovate worldwide.”

- Advertisement -spot_img

Latest Articles