ISSB publishes first two sets of sustainability disclosure standards
The International Sustainability Standards Board (ISSB) published the first two sets of international sustainability disclosure standards. These set out an internationally consistent approach to managing sustainability and climate disclosures. The intention is that these standards will improve the trust and confidence that can be placed in making sustainably informed financial decisions. The new standards are expected to be effective from January 1, 2024 and the ISSB will create a transition implementation group to support companies adopting the new standards.
Abu Dhabi implements sustainable finance regulatory framework
Abu Dhabi Global Market (ADGM) has announced the implementation of its sustainable finance regulatory framework with immediate effect, following significant support received through public consultation. The new framework is intended to reinforce its position as a leading sustainable financial hub. The framework encompasses rules on sustainability-oriented investment funds, managed portfolios and bonds as well as requirements for environmental, social and governance (ESG) disclosures by ADGM companies. It is designed to accelerate the transition of the UAE to net zero greenhouse gas emissions and complement existing regulation relating to carbon offsets.
Singapore proposes industry code for ESG Data Providers and consults on coal phaseout
The Monetary Authority of Singapore (MAS) has launched a public consultation on an industry code of conduct for providers of Environmental, Social and Governance (ESG) ratings and data products. As the use of ESG ratings and data products grows, the MAS proposes to elevate standards and disclosures of ESG ratings and data products in Singapore via a phased and proportionate regulatory approach, starting with a voluntary industry code of conduct for the providers. The industry code will cover best practices on governance, management of conflicts of interest, and transparency of methodologies and data sources, including disclosure on how forward-looking elements are taken into account in the products. The intent is to enable users to better consider transition risks and opportunities when making decisions on capital allocation. The consultation is open for comments until August 22, 2023.
In parallel, MAS is consulting on including coal phaseout in the Singapore-Asia Taxonomy. This fourth and final consultation sets out detailed thresholds and criteria for financing the early phase-out of coal-fired power plants. The consultation proposes to set technical screening criteria in the Singapore-Asia Taxonomy applicable to coal plant facilities as well as their owner entities – taking into consideration other guidance including the ASEAN Taxonomy, and the ‘The Managed Phaseout of High-Emitting Assets’ report by GFANZ (Glasgow Financial Alliance for Net Zero). The consultation paper closed for comments on July 28, 2023.
India introduces ESG ratings framework
The Securities and Exchange Board of India (SEBI) published final amendments to its credit ratings agencies regulations, formally introducing a new chapter for ESG ratings providers and subsequent regulatory and supervisory framework for ESG ratings providers operating in India.
European Union further specifies criteria for the green taxonomy
The European Union (EU) Commission has further specified the criteria for meeting the environmental objectives under the EU Taxonomy Regulation through the adoption of two implementing laws. For context, the EU Taxonomy Regulation provides definitions of economic activities that can be considered to be environmentally sustainable and aims to help direct investments in economic sectors where they are most needed for the green transition.
The Taxonomy Environmental Delegated Act sets the criteria for economic activities that make a substantial contribution to one or more of the non-climate environmental objectives. The Taxonomy Climate Delegated Act brings in additional economic activities that qualify as making a substantial contribution to the climate environmental objectives of climate change mitigation and adaptation. The new laws will start to apply from January 2024.
European regulators investigate sustainability disclosures and risks in the investment fund sector
The European Securities and Markets Authority (ESMA) and the European national competent authorities (NCAs) have launched a common supervisory action on sustainability-related disclosures and the integration of sustainability risks. The aim of the exercise is to assess the compliance of supervised asset managers with the relevant provisions in the Sustainable Finance Disclosure Regulation (SFDR), the Taxonomy Regulation and relevant provisions from other asset management regulations. The regulators want to assess whether market participants adhere to the relevant rules and standards and gain a better understanding on greenwashing risks. The results of the exercise will help inform whether further relevant intervention is necessary. The common supervisory action will run until Q3 2024.
US CFTC holds voluntary carbon markets convening and seeks tips relating to carbon markets misconduct
At the July 19, 2023 convening, the US Commodity Futures Trading Commission (CFTC) heard from panelists representing the US federal government, private sector standards, initiatives, and credit ratings, spot and derivatives exchanges, and market participants. In addition, CFTC Chair Rostin Behnam announced that the CFTC’s Climate Risk Unit is drafting a guidance on standards for carbon markets, which will be released for public comments.
In late June, the CFTC’s Whistleblower Office in the Division of Enforcement issued an alert notifying the public on how to identify and report potential violations connected to fraud or manipulation in the carbon markets. As described in the alert, the CFTC’s Whistleblower Office will work with market participants that report information related to potential fraud in the carbon markets including, but not limited to, manipulative and wash trading, “ghost” credits, double counting, fraudulent statements relating to material terms of the carbon credits, and potential manipulation of tokenized carbon markets.
Thai regulators publish first phase of Sustainable Finance Taxonomy
The Bank of Thailand (BOT) and Securities and Exchange Commission (SEC) published the Thailand Taxonomy Phase I on sustainable finance following consultation earlier this year. The Taxonomy is intended to be a reference tool for making policy or strategy, access to green funding, and managing the opportunity and risk relating to the environment and climate change scenarios. It employs a so-called traffic light system that distinguishes between green, amber (transitional), and red activities, and compliance with the Do No Significant Harm and Minimum Social Safeguards. The Thailand Taxonomy Phase II will be focused on manufacturing, agriculture, real estate, construction, and waste management.
Australian Treasury consults on climate-related financial disclosures
The Australian Government is seeking feedback on proposals to implement disclosures of climate-related financial risks and opportunities in Australia. The Government proposes mandatory reporting requirements beginning on July 1, 2024 for Australia’s largest listed and unlisted companies and financial institutions, with other businesses subject to the requirements over time. A three-phased approach is proposed, starting with a relatively limited group of very large entities that expands over two years to apply to progressively smaller entities. Allowing smaller entities more lead time before they are subject to the mandatory requirements is thought to enable them to build the capability and skills required to meet their obligations. The Treasury seeks views on the workability of the proposed positions relating to coverage, content, framework and liability and will organize information sessions for stakeholders.
In parallel, the Australian Competition and Consumer Commission has set out draft guidance for firms to comply with when making environmental and sustainability claims. This comes as the regulatory focus on ‘greenwashing’ intensifies.
New Zealand publishes scenario analysis information sheet for climate related disclosures
New Zealand’s Financial Markets Authority (FMA) has released its scenario analysis information sheet to help climate reporting entities meet their obligations under the Climate-Related Disclosures (CRD) regime. Under the regime, firms are required to undertake scenario analysis and disclose how the process was conducted in their annual climate statements. The information sheet explains the FMA’s expectations for the scenario analysis disclosures set out in the External Reporting Board’s Aotearoa New Zealand Climate Standards. With climate-related scenario analysis being a new concept for most entities in New Zealand, this information sheet is intended to enable entities to better understand the inter-related dynamics of climate change, prepare for an uncertain future, and ultimately consider how to improve their long-term resilience. Scenario analysis forms part of the requirements under the strategy pillar of the CRD reporting regime. The other three pillars are risk management, governance, and metrics and data.
US House Financial Services Committee holds a series of ESG hearings
July is “ESG Month” in the House Financial Services Committee (HFSC), which held several hearings on ESG-related topics, including: (1) “Reforming the Proxy Process of Safeguard Investor Interests” (Capital Markets Subcommittee); (2) “Oversight of the Proxy Advisory Industry” (Oversight and Investigations Subcommittee); and (3) “How Mandates Like ESG Distort Markets and Drive Up Costs for Insurance and Housing” (Housing and Insurance Subcommittee); (4) “Climate-Risk: Are Financial Regulators Politically Independent?” (Financial Institutions and Monetary Policy Subcommittee; and (5) “Oversight of the SEC’s Division of Corporation Finance” (Capital Markets Subcommittee). Additional hearings are scheduled to take place throughout the month and several bills related to ESG are to be introduced.
In addition, as part of the Republican lawmakers’ focus on the proxy process and how shares are voted on behalf of beneficial owners, HFSC Oversight Subcommittee Chair Bill Huizenga sent letters to major asset managers asking how they can “balance [ESG] initiatives with sound decisions on behalf of investors.” This follows an interim report released by the Republican ESG Working Group last month that identified key priorities such as: (1) proxy voting system; (2) proxy advisory system; (3) shareholder voting; (4) oversight of the large asset managers; (5) ESG ratings agency accountability; (6) oversight of and investigations into federal regulatory efforts on climate; (7) statutory limits of financial and consumer regulatory agencies; and (8) protection of US companies from EU regulations. Republicans in the House Judiciary Committee also called on companies such as BlackRock and Vanguard to explain corporate ESG efforts that could potentially violate antitrust laws. Two Republican lawmakers also requested interviews with current and former officials at the US Securities and Exchange Commission about the Commission’s activities taken in connection or coordination with the European Union on ESG and climate-related measures that may circumvent the US regulatory process.
Bloomberg
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