EFAMA welcomes IOSCO's enhanced attention to transparency efforts supporting informed and qualified investment decisions in sustainability-related products. We support the adoption of such recommendations at the international level and believe IOSCO should leverage the experience with SFDR and Taxonomy in Europe to help establish consistent international standards, definitions and best practices.
In this response, we would like to highlight three pressing challenges deserving greater attention in the report from asset managers' perspective.
First, the industry faces dozens of new ESG compliance requirements in the form of new disclosure regimes, taxonomies and voluntary labels. As a result, the uncoordinated proliferation of such frameworks, rules and standards in different jurisdictions can inhibit the cross-border distribution of funds that match investors' sustainability preferences. In such an unduly complex regulatory environment with heightened risk of market fragmentation, the goal must be to drive global consistency. For example, whereas the recently adopted SFDR provides an-EU wide disclosure framework, some jurisdictions consider adopting additional disclosure requirements or minimum standards when applying SFDR or ESG amendments to MiFID II on clients' sustainability preferences. Moreover, while the EU is opting for a comprehensive approach covering aspects beyond climate change, other jurisdictions are considering a more restricted scope of disclosures targeted primarily at climate change.
To address this challenge, EFAMA recommends that IOSCO and its members should proactively support initiatives aimed at ensuring greater international consistency between disclosure regimes, definitions and taxonomies and thereby prevent fragmentation. EFAMA also endorses initiatives resulting from the recommendation no. 4 for common sustainable finance-related terms at the international level to ensure that key concepts are applied in the same way and therefore contribute to avoiding greenwashing and mi-selling to end-investors.
Second, the lack of high-quality ESG data on investee companies hinders robust and clear information provision to investors, and hence global ESG capital flows. Therefore, to answer investors' growing expectations, EFAMA would support mandatory sustainability reporting standards by non-financial undertakings. These should also incorporate information requirements on companies' ESG factors that are material for their business decisions and which are being increasingly integrated into asset managers' disclosure requirements (e.g. SFDR, Taxonomy, EU Ecolabel).
Nonetheless, until the ISSB of the IFRS makes headway in improving the global availability of disclosures, the use of proxies by asset managers should be permitted when relevant data is not available. In such cases, it needs to be clarified that the reporting for asset managers should take place on a best effort basis as any further requirement will entail liability issues that go beyond a portfolio manager's capacity to demonstrate the reliability of the disclosures.
In this context, EFAMA also recommends that regulators work in parallel on harmonised methodologies for calculating and aggregating such proxies. We also recommend that due attention is given to the growing dependency on third party ESG data providers of which there are a limited number, leading to costs implications that are ultimately borne by the investors.
Third, we are concerned by the approach suggested in question 6 of the consultation report. Labelling schemes with specific sustainability parameters should remain strictly voluntary for sustainability products. While we see an added value in adopting transparency regimes for ESG products, mandatory labels in different jurisdictions would hinder the cross-border selling of funds and fragment the ESG market with diverging minimum standards for such products.
Finally, we express our strong support for the recommendation no. 5. We strongly support efforts targeted at the promotion of financial and investor education initiatives by regulators and policymakers. We highlight that financial advisory should be supported in its explanation of different ESG integration approaches to investors. In Europe, such support should be targeted at the operationalisation of the recently introduced clients´ sustainability preferences under the MiFID II.
