Regulators have examined the disclosures of both firms and products regarding the significant negative impacts of investments on the environment and people.
According to sustainable finance disclosure rules, firms must report on the “principal adverse impacts” of investment decisions on sustainability and provide insight into their approach to these effects.
The report stated that when financial market participants consider principal adverse impacts, they should aim to reduce the negative impact of the companies they invest in.
However, the regulators found that firms vary significantly in their compliance with these requirements and the quality of their disclosures.
Although it is now easier to find these disclosures on firms’ websites, the regulators believe that firms should do a better job of explaining why they do not disclose major negative environmental impacts.
In addition, the regulators discovered that financial market participants generally do not disclose the extent to which their investments align with the Paris Agreement on climate change.
The report mentioned, “While the overall level of disclosure is low, entities mention their degree of alignment to the Paris Agreement without referencing the indicators for the decarbonisation path of their investments.”
In response to their review, the regulators recommended that local authorities take action against non-compliant firms and consider enforcement measures.
They also called for assistance to help firms comply with the requirements, raise industry awareness, and exchange best practices in this area.