A Brief Summary

As investors seek investment opportunities that are sustainable increasingly these days, it is essential to have a regulatory body to control investments and to stop businesses from deceiving investors into thinking that their products are environmentally friendly and best for investment. A regulatory research body in Britain is on a mission to clamp down on corporate greenwashing.

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Increasing investments into environment, social and governance (ESG) funds have triggered concerns among regulators that some businesses are exaggerating sustainability to attract inflows to their business in the form of cash.

The International Regulatory Strategy Group (IRSG) has now called for a rating tool that standardises ESG practices and reaffirms to investors that such claims by businesses around sustainability are genuine.

“While ESG ratings provide just one interpretation of the many sources of ESG data available to portfolio managers, the growing significance of ESG rating products across both equity and fixed-income markets cannot be understated,” the IRSG said.

A set of standardised rules will provide more transparency regarding ESG data to potential investors.

“The IRSG believes that regulation of ESG ratings is now desirable, to provide more transparency around the basis for ESG ratings and mitigate against potential conduct risk,” it said.