Green finance regulation is a good thing, but it also necessitates a thorough investigation of the industry.
The International Monetary Fund called for ‘proper regulatory oversight’ of climate-related funds earlier this month.
Greenwashing is finally getting some attention.
This month, the International Monetary Fund called for “proper regulatory oversight” of climate-oriented funds and said governments must do more to protect investors from being duped.
The Competition and Markets Authority already published a Green Claims Code this summer, and has committed to a root-and-branch review of misleading green claims by 2022.
Following COP26, there will be even more scrutiny, and the Taskforce on Climate-related Financial Disclosures will go into effect next year.
To some extent, this should be good news for both investors and consumers.
It’s obviously a good thing that businesses are required to back up any environmental, social, or governance claims.
For years, many of us in the social, sustainable, and green finance space have been clamoring for some kind of regulation to support ESG metrics.
Greenwashing and its cousin rainbow-washing, without a doubt, have the potential to undermine trust and distort markets.
More scrutiny is desirable, but the key is to strike a balance.
Because the ultimate goal of ESG products is to contribute to the global ecosystem’s balance, whether it’s environmental or social, any regulatory ecosystem must be equally finely weighted.
Misleading claims will persist if regulatory oversight is too light.
If it becomes too heavy, it may stifle the growth of some businesses.
The size of the investment required to become more sustainable will be a barrier for some.
Others are simply unlucky in terms of their business’s location in the economic chain; upstream industries are typically the ones who bear the brunt of environmental impact.
Moreover, many people are fighting for their lives as they recover from the pandemic.
These distinctions must be considered.
In other words, nuance is required to achieve our objectives.
In some areas, many consumers, funders, and investors appear to be capable of applying this nuance, but not in others.
Renewable energy companies, for example, frequently have outstanding eco-metrics.
However, wind turbines and solar panels cannot be made without steel or rare earths and critical metals, and the extractive industries that supply these materials can appear unsustainable.
News summary from Infosurhoy in the United Kingdom.
Green finance regulation is welcome, but a nuanced approach to industry oversight is critical.
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Green finance regulation is welcome, but a nuanced approach to scrutinising the industry is vital