The Financial Markets Authority is seeking views on how green bonds and other responsible investment products should be described, labelled and promoted to investors.
Nick Kynoch, FMA General Counsel and Acting Co-Head of Capital Markets, said there was a growing demand for sustainable or responsible investment products.
“In response, issuers and providers are now offering an increasing array of products. While the FMA supports the development of the market for these products, there are associated risks and issues, largely arising from the lack of common understanding of what makes an investment responsible.”
The FMA is seeking feedback before publishing official guidance for the market on how to provide investors with a clear understanding of what they are being offered and the risks involved.
“With the growing popularity of these products we want to ensure investors are protected from ‘greenwashing’ and have a clear understanding of what is on offer. They should be able to determine just how green, ethical, or responsible a financial product is,” said Mr Kynoch. “For example, making it clear that a green bond is funding the construction of a new environmentally sustainable building rather than necessarily funding a green issuer.”
The FMA’s guidance will not set out prescriptive definitions of ‘green’, ‘ethical’ or ‘responsible’ but will set expectations for issuers and product providers about good conduct and good disclosure so investors can make an informed choice.
Currently, all regulated offers, including those for responsible investment products, must explain features, benefits and expected returns to investors in accordance with Part 3 of the Financial Markets Conduct (FMC) Act and the related Regulations. All investment products must also comply with the fair dealing provisions in Part 2 of the FMC Act, which prohibit misleading or deceptive conduct, false or misleading representations and unsubstantiated statements in relation to all offers of financial products and services.
“We are satisfied the current law is flexible enough to accommodate responsible investment products. But in an area like this, with a lack of consistent, agreed-upon definitions, we are keen to benchmark what good conduct and good disclosure look like, to ensure issuers focus on meeting investor needs,” said Kynoch.
Submissions on the draft guidance close on Thursday 24 October 2019. The FMA expects to publish the final guidance by the end of the year, along with information for investors about the risks and features of different kinds of responsible investments, and questions they should ask product and service providers before investing.
A copy of the consultation paper can be found here https://www.fma.govt.nz/compliance/consultation/proposed-guidance-on-green-bonds/