Huw Jones

LONDON, (Reuters) – As ESG funds pile up trillions, global market monitors sought to expel any managers that may have been luring investors.

Morningstar data shows that regulators are trying to catch up with money managers who overstate the ESG credentials for their products. The record value of these funds was $3.9 trillion as of March 31, Morningstar data indicates.

Greenwashing has been punished with very little.

IOSCO is a group of watchdogs from across the globe. It has now published guidelines that its members must follow when examining how fund managers are selling ESG-friendly funds.

Erik Thedeen from Sweden’s Financial Market Watchdog was also the chair of the IOSCO Taskforce, which drafted these recommendations. He stated that “Setting regulatory or supervisory expectations is therefore fundamental in addressing issues relating, risk mismanagement, and greenwashing.”

These guidelines outline what regulators need to look for in asset manager’s internal policies and procedures regarding such investments and the way they market sustainable funds.

This new rule coincides with an U.N. conference that is crucial to mitigating the worst effects of climate change. The U.N. conference opened Monday with leaders from around the world, as well as environmentalists and activists calling for swift action to end global warming.

The IOSCO ‘baseline of global norms’ is intended to provide investor protection, credibility and support green finance in order to assist governments with reaching their net-zero goals.

According to regulators, the recommendations form part of a comprehensive approach. This includes an International Sustainability Standards Board which will create ‘baseline disclosures’ from companies on how climate changes affect their bottom line.

IOSCO’s members control 95% of world’s securities markets. Later this month, they will also be establishing ways for asset managers to use ESG data and ratings, which are widely used in marketing sustainable funds.

According to regulators, reforms like Tuesday’s rules regarding ESG ratings will make greenwashing easier and more consistent across jurisdictions.