ESG REGULATORY COMPLIANCE AND AVOIDING GREENWASHING – “Is AI the answer”?

How do you avoid GREENWASHING and meet your regulator rules for enhancing transparency and accountability in corporate sustainability?

1. “Greenwashing: The practice by asset managers of misrepresenting their sustainability-related practices or the sustainability-related features of their investment products.”

1. Definition from Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management Final Report, International Organization of Securities Commissions, November 2021 - https://www.iosco.org/library/pubdocs/pdf/IOSCOPD688.pdf

COMSURE and its REGTECH partner firm ESCHI have an AI TOOL that can assist please refer to the following video link: https://www.youtube.com/watch?v=qXdD989WSLk . You can also see the flyer here [click here]

INTRODUCTION

• Greenwashing, both actual and potential, and whether deliberate or unintentional, has become a focus of global regulatory concern.
• The risks associated with greenwashing include the potential for encouraging investors to make an investment sold to them based on positive environmentally sustainable characteristics when such characteristics either do not exist or do not exist to the extent suggested by the investment’s marketing materials. 
• This carries reputational risks not only for the investment product itself but also for its service providers and, by association, their jurisdiction. It also risks undermining the credibility of genuinely environmentally sustainable products.

Here are some ways the COMSURE-ESCHI AI TOOL can help:

1. Data Verification: AI can cross-check sustainability claims against a wide range of data sources, ensuring that verifiable data back companies’ environmental statements
2. Detecting Inconsistencies: AI algorithms can identify discrepancies between a company’s reported sustainability efforts and its actual practices. This helps spot exaggerated or false claims.
3. Monitoring Real-Time Data: AI tools can continuously monitor real-time data from various sources, such as social media, news articles, and regulatory filings, to detect any misleading information or changes in a company’s sustainability practices
4. Natural Language Processing (NLP): NLP can analyse the language used in sustainability reports and marketing materials to identify potentially misleading or vague statements that could indicate greenwashing
5. Benchmarking: AI can compare a company’s sustainability performance against industry standards and benchmarks, highlighting any areas where the company may be overstating its achievements
6. Enhanced Reporting: By providing detailed and accurate ESG data, AI tools can help companies produce more transparent and reliable sustainability reports, reducing the risk of greenwashing

By leveraging these capabilities, the COMSURE-ESCHI AI TOOL can help ensure companies’ sustainability claims are genuine, building trust with consumers, investors and regulators.

Considering regulators, the Guernsey GFSC has issued GREENWASHING guidance –

• The Protection of Investors (Bailiwick of Guernsey) Law, 2020 - Guidance for Authorised and Registered Collective Investment Schemes on Measures to Counter the Risk of Greenwashing
• Issued 20 September 2022
• https://www.gfsc.gg/sites/default/files/2022-09/Guidance%20for%20Auth%20and%20Reg%20CIS%20on%20Measures%20to%20Counter%20the%20Risk%20of%20Greenwashing.pdf#:~:text=%E2%80%9CGreenwashing%3A%20The%20practice%20by%20asset%20managers%20of%20misrepresenting,or%20the%20sustainability-related%20features%20of%20their%20investment%20products.%E2%80%9D

GFSC has issued GREENWASHING guidance for its fund industry – This guidance is summarised as follows:-

DEFINITION

1. For this Guidance Note, the term “environmentally sustainable investment” means

1. An investment in an economic activity that contributes to an environmental objective (including mitigating climate change, mitigating environmental damage, making a positive contribution to the natural world, or significantly reducing harm to the natural world).

2. This definition also includes

1. An environmentally sustainable investment as defined in the European Union Taxonomy for Sustainable Activities Regulation.

1. 1. 1. Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088

3. A Guernsey collective investment scheme making disclosures compliant with the European Union’s Sustainability-related Financial Disclosure Regulations (“SFDR”) would be deemed to comply with this guidance.

GUIDANCE

4. This Guidance applies to all collective investment schemes which are authorised or registered under Section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (“the POI Law”) and those responsible for preparing the prospectuses and other marketing materials of such schemes.
5. The term “prospectus” has the meaning defined in the POI Law and includes scheme particulars, information particulars and other equivalent documents concerning a collective investment scheme.
6. Where the rules applicable to a class or type of scheme require the preparation of a prospectus, they also need the disclosure of the scheme’s investment objectives and policy and/or any relevant investment restrictions within that document.
7. The Commission expects that this disclosure requirement extends to ensuring that any explicit claims or statements indicating that the scheme or its underlying assets are environmentally sustainable investments are not misleading.
8. The Commission considers it essential that any disclosures are based on genuine facts and can be evidenced by the scheme or its service providers.
9. As part of any application process and its ongoing supervision, the Commission may request such evidence to support any claims that the scheme or its assets are environmentally sustainable investments. It would take appropriate action in line with our statutory functions in cases where such claims cannot be adequately substantiated.
10. Where the prospectus of a scheme explicitly claims that the scheme itself or any of its underlying assets are environmentally sustainable investments, the Commission expects that relevant information is provided to allow potential investors to understand how the sustainable investment objective is intended to be achieved and how that will be monitored, measured, reported, and kept up to date.
11. This might, for instance, include any alignment with a specific taxonomy, the proportion of investments that are environmentally sustainable and any associated limits, and the basis on which any benchmarking or measurement against targets will be measured and reported.
12. The preceding guidance is expected to be met, but this fact should be disclosed when a collective investment scheme fails to implement such measures. The Commission would expect similar levels of transparency in any other marketing materials associated with a Guernsey-regulated collective investment scheme.
13. Those responsible for preparing and updating a scheme's prospectus and marketing materials should remain mindful of their duty to ensure that all relevant information to enable a potential investor to make a well-considered assessment of the merits and risks of investing in the scheme is disclosed (including whether, or the extent to which, it might be considered a truly environmentally sustainable investment). They should also be aware of their role in ensuring that the prospectus and marketing materials do not intentionally or otherwise facilitate greenwashing.

SOURCE

• https://www.gfsc.gg/sites/default/files/2022-09/Guidance%20for%20Auth%20and%20Reg%20CIS%20on%20Measures%20to%20Counter%20the%20Risk%20of%20Greenwashing.pdf#:~:text=%E2%80%9CGreenwashing%3A%20The%20practice%20by%20asset%20managers%20of%20misrepresenting,or%20the%20sustainability-related%20features%20of%20their%20investment%20products.%E2%80%9D

COMSURE and its REGTECH partner firm ESCHI have an AI Sustainable Finance Fund Tool  [AI TOOL] that can assist - please refer to the following video link:https://www.youtube.com/watch?v=qXdD989WSLk

For more information on COMSURE ESG AI solution, please contact

Mathew Beale - Chartered FCSI

Principal & Director - Comsure Compliance Limited, Comsure Technology Limited, Comsure Mauritius

(the "Comsure Group of Companies")

mathewbeale@comsuregroup.com

T (Jersey) +44 1534 733-588 /+44 7797 747-490

T (Mauritius) +230 214-6487 / +230 5717-6907