IFSCA vide circular dated November 21, 2024 has issued the principles to mitigate the Risk of Greenwashing in ESG labelled debt securities in the IFSC. While there is no universally accepted definition/taxonomy of greenwashing, the term “Greenwashing” generally refers to the deceptive practice of making unsubstantiated, false, vague, exaggerated or misleading claims regarding the sustainability benefits of a product, service, or business operation. It also includes practices such as concealing, omitting, or hiding relevant information in sustainability claims and use of words, labels, symbols, and imagery placing emphasis on positive environmental aspects while downplaying or concealing harmful attributes.
As part of directions for prevention of greenwashing, the issuer shall disclose in the offer document a statement on ESG objectives, details of process followed for evaluating and selecting the project(s) and/or asset(s), proposed use of the proceeds and details of the systems and procedures for tracking the deployment of the proceeds for the issue of securities. The issuer shall avoid the use of broad or generic statements to describe investment screening criteria. Further, disclosures should enable investors to fully understand the product’s sustainability-related investment screening criteria.
Further Guidance:
- The issuer of the security should clearly communicate the projects’ sustainability objectives and the methodology used to measure the projects’ sustainability objectives, information on processes by which the issuer identifies and manages perceived social and environmental risks associated with the relevant project(s) and various tools deployed for investment decisions.
- If the issuer has set a certain sustainability target as in the case of sustainability-linked bonds, the issuer should clearly explain what the target is, how and when the issuer is expected to meet the target and any assumptions the issuer has relied on when setting that target.
