The International Organisation of Securities Commissions (IOSCO) has underscored the importance of investors education in protecting them from possible risks in sustainable finance investments.
IOSCO – the global body of securities markets’ regulators – has published a report that identified recent developments in investor education on sustainable finance, to enhance investor education and protection and support the sound development of the growing financial market.
Chair, IOSCO Board and the Chief Executive Officer, Hong Kong Securities and Futures Commission, Ashley Alder, said financial education was key to enhancing investor protection, and it complemented the policies, regulations, oversight and enforcement actions that securities regulators might 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,” Alder said.
Chairman, IOSCO Committee on Retail Investors, Pasquale Munafò, said sustainable finance offered 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,” Munafò said.
The report on ‘Retail Investor Education in the Context of Sustainable Finance Markets and Products’ indicated 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.
The report noted that to make informed decisions, retail investors need to understand the characteristics of such products.
Accordingly, the report identified 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 described educational activities that regulators should consider, taking into account the level of sustainable finance and retail investor participation in their markets.
According to the report, these educational activities should include explaining to retail investors how to obtain sustainability-related information and to search and understand whether the offered product matches their sustainability-related preferences; and supporting initiatives of market participants to help retail investors understand environment, safety and governance (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 complemented other IOSCO efforts including the work of the Sustainable Finance Task Force (STF), which has recommended that securities regulators and policymakers should consider promoting financial and investor education initiatives relating to sustainability as well as enhance existing sustainability related education initiatives.
The report included some key messages that securities regulators should consider for their financial education programmes, to help retail investors understand how a “smart investor” would behave when faced with sustainable finance products.