A recent webinar hosted by Consob (the Italian authority for the supervision of financial markets) in the context of the 2021 IOSCO World Investor Week offers the opportunity to briefly recall the initiatives undertaken by the Italian authority in respect of ESG matters.
As a starting point, in its annual review published in March 2021, Consob acknowledged the increase of demand and supply of investment products that benefit from a green or ESG label and that international developments on this matter – despite accelerating – have not yet produced a consistent and complete framework. Therefore, with a view to prevent greenwashing and provide enhanced protection to investors, Consob has stated that it will be undertaking a comparative analysis of the methodologies and criteria used to issue ESG ratings by entities providing sustainability ratings, credit rating agencies, data providers and benchmark administrators.
From publicly available information (i.e. sectoral newspapers), it appears that following a monitoring exercise on sustainability ratings and how they are used (based essentially on fact-gathering from market participants) Consob will be launching a second phase which will involve direct consultation with stakeholders including rating providers as well as rated companies.
Back in 2020, Consob had published a formal warning regarding ESG issues in the provision of investment services. More specifically, since Consob was witnessing the increasing use by intermediaries of ‘sustainability’ matters in commercial initiatives, including marketing campaigns, the risk of unfair practices became a major concern. As such, pending the adoption of sectoral regulation, Consob reminded intermediaries of existing guidance which assumes specific relevance in this context. In particular, with regard to the suitability assessment, reference was made to ESMA’s indication to consider non-financial elements when gathering information on the client’s investment objectives, and collect information on the client’s preferences on ESG factors. In addition, Consob underlined ESMA’s remarks – under the Product and Oversight Governance framework – that a product may be designed with special product features to achieve specific investment objectives such as “green investment” and “ethical investment”.
Consob’s attention on these issues, also confirmed by recent publications (such as a paper that the authority issued in June 2021 providing a systematic review of the evolution of sustainable finance), should be read in the context of a global response to the strong shift in both retail and institutional investors’ appetite for sustainable products and their willingness to contribute to the transition towards sustainability.
Given the sensitivities and the need for a consistent response, it is important that when issuing proposals to further their key objectives in this area (i.e. investor protection, prevention of greenwashing and fostering global ESG capital flow) the regulators’ conduct a wide-ranging dialogue with market participants,. One particular issue – already being experienced by market participants – is that different pieces of legislation (e.g. SFDR and the taxonomy regulation) end up overlapping, with a negative impact on costs (also in terms of compliance) for intermediaries and on transparency for investors.
Therefore, engaging in discussions with authorities (also by participating in local and European consultation procedures) will help promote consistency and ensure convergence in the regulation and application of legislation referencing ESG matters (from the taxonomy, to disclosure and ratings).