Huw Jones

LONDON (Reuters – Tuesday’s global market regulators established a framework for policing investment ratings (ESG) and fighting ‘greenwashing in this multi-trillion dollar, fast-growing industry.

The regulators are cracking down upon many aspects ESG investment with simple rules to help make it more difficult to punish greenwashing in cross-border sectors where investment is “exploding”.

International Organization of Securities Commissions, which is a group of securities watchdogs in the United States and Europe, Asia, Latin America, and Asia, has published 10 recommendations that its members can use for their day-today work.

Erik Thedeen is chair of IOSCO’s sustainability task force and director-general of Sweden’s markets watchdog. He stated, “What are we trying to do now? We want to set this foundation so that we have some chance to pursue greenwashing instead of just talking about it.”

Asset managers use ratings from about 160 raters such as MSCI, S&P Global (NYSE:) and Morningstar to pick stocks and bonds for “green” products now popular with ethical investors, but there are no regulatory checks on how those ratings were put together.

IOSCO stated that its recommendations would begin to shine a spotlight on the way ratings are compiled, conflicts of interest dealt with in a largely unregulated industry worth approximately $1 billion. It is growing at 20% per year.

It suggests that ESG data providers and ESG ratings consider writing procedures to ensure high quality ratings.

Some regulators may go even further. IOSCO member countries Britain and EU have already voiced concern over the absence of ESG rater rules.

An official from a major ESG rating agency stated that the recommendations would raise the standards for entry to the ratings sector.

A new international body was established earlier this month to ensure that ESG-related disclosures are made with rigour. Asset managers have relied heavily upon ratings until now because they lack high quality disclosures from companies.

IOSCO established a system for checking how green fund managers are selling assets. Now, IOSCO is going to focus on the independent check of ESG disclosures by companies.