Tag: ESG Research

December Global Regulatory Brief: Green finance | Insights | Bloomberg Professional Services
[ad_1]
European Commission proposes simplified transparency rules for Sustainable Financial products

The European Commission has proposed a set of amendments to the Sustainable Finance Disclosure Regulation (SFDR) to make sustainability disclosure rules simpler, clearer, and more cost-efficient. The revisions aim to reduce reporting burdens for financial market participants (FMPs), make disclosures more understandable for retail investors, and introduce a clear categorisation system for sustainable financial products.

Context

The SFDR, in force since March 2021, established the EU’s transparency framework for sustainability-related financial products. However, the Commission’s recent review found the framework overly complex, costly to implement, and unintentionally used as a labelling regime, leading to investor confusion. The proposed changes are part of the Commission’s broader effort to streamline EU financial regulation, consistent with the February 2025 “Omnibus I” simplification package.

Key takeaways

Streamlined Entity-Level Disclosures:

Entity-level reporting on “principal adverse impacts” will be deleted from SFDR to eliminate overlap with the Corporate Sustainability Reporting Directive (CSRD).

Only large FMPs covered under CSRD thresholds will be required to disclose their environmental and social impacts.

This reform significantly reduces duplication and compliance costs for smaller firms.

Simplified Product-Level Disclosures:

Product disclosures will be limited to essential, comparable, and meaningful sustainability data.

The aim is to improve investor understanding and comparability while reducing complexity for product manufacturers.

Retail-oriented presentation standards will be introduced to improve clarity.

Introduction of Three Product Categories:

Sustainable: Products investing in assets that already meet high sustainability standards.

Transition: Products supporting entities or projects on a credible path toward sustainability.

ESG Basics: Products applying general ESG integration or exclusion strategies without qualifying as sustainable or transition investments.

Categorized products must ensure at least 70% of investments align with their sustainability strategy and must exclude harmful sectors (e.g., human rights violators, tobacco, prohibited weapons, high fossil fuel exposure).

ESG-related product names and marketing claims will be restricted to products within these categories.

Next steps

The Commission’s proposal will now proceed to the European Parliament and EU Member States (Council) for consideration under the ordinary legislative procedure. At a future date, the Commission will issue implementing rules setting out the technical specifications for disclosures and category criteria.
Financial Conduct Authority (FCA) consults on UK ESG Ratings Regime

The FCA has launched a comprehensive consultation setting out the detailed regulatory framework for the UK’s new ESG ratings regime. The proposals combine baseline FCA rules with tailored requirements covering transparency, governance, conflicts of interest, and stakeholder engagement. The consultation is open until 31 March 2026 and final rules are expected in Q4 2026, with the regime going live on 29 June 2028.

Context

The consultation follows HM Treasury’s secondary legislation bringing ESG rating providers within the FCA perimeter. The FCA seeks to reduce harms arising from inconsistent or opaque ESG ratings and to align the regime with IOSCO recommendations.

Key takeaways

Given that this will be a newly regulated sector, the FCA are proposing to do the following:

Apply many existing baseline rules to rating providers that apply to most other FCA-regulated firms, ensuring that there is a consistent approach. Some of the existing baseline standards include the following:

Threshold Conditions (COND): The minimum conditions, set out in the Financial Services and Markets Act 2000 (FSMA), that a firm must satisfy, and continue to satisfy, to get and keep its permission. The TCs are not part of this consultation, but the FCA is open to feedback on applying COND to ESG rating providers.

Principles for Business (PRIN): A general statement of the fundamental obligations that firms must comply with at all times. The FCA is further proposing that ESG rating providers must always comply with Principle 7 on “Communications with clients”, while also noting that ESG rating providers cannot treat their clients as ‘eligible counterparties’ for the purposes of PRIN 3.4.1R and PRIN 3.4.2R.

Systems and Controls (SYSC): Sets out how firms must organize their businesses, manage risk and maintain effective internal systems and controls. One of its purposes is to underline Principle 3: ‘A firm must take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems’.

Senior Managers and Certification Regime (SM&CR): How firms must allocate responsibilities, certify key staff and apply conduct rules to promote accountability and good governance. The proposal for SM&CR is to classify ESG rating providers as “Core Firms” under SM&CR, unless a regulated firm undertakes other activities and has been categorized as an Enhanced firm will keep this Enhanced status, even if it also provides ESG ratings.

General Provisions (GEN): General rules that apply to all firms, including statutory disclosure statements and use of the FCA name or logo.

Introduce tailored rules where existing baseline requirements (mentioned above) are not appropriate or not proportionate to address the risks of harm. It is important to note, is that these rules are building on the IOSCO recommendations. These rules focus on the following areas:

Transparency: Minimum disclosure requirements for methodologies, data sources and objectives, so users better understand the ratings and rated entities understand how they are assessed.

Systems and Controls: Requirements for robust arrangements to ensure the integrity of the ratings process, including quality control, data validation and methodology reviews.

Governance: Requirements to maintain operational responsibility over the ratings process, including any outsourcing, to ensure appropriate oversight and compliance with the regime.

Conflicts of interest: Requirements to identify, prevent, manage, and disclose conflicts of interest at the organizational and personnel level, to maintain the ratings’ independence and integrity.

Stakeholder engagement: Requirements to provide rated entities with the opportunity to correct factual errors, procedures to allow other stakeholders to provide feedback and a fair complaints-handling procedure

Source: FCA Consultation Paper (p.7), Overview of proposed regime

Next steps

The FCA is welcoming feedback on the draft rules and any questions. The deadline to respond to the consultation is 31 March 2026. The FCA expects to finalize the rules by Q4 2026. The FCA authorizations gateway intends to open in June 2027. The regime go-live is on 29 June 2028. An overview of the timeline can be found in the Consultation Paper on page 8.
Brunei launches Sustainable Finance Roadmap to drive ESG integration

The Brunei Darussalam Central Bank (BDCB) has introduced the Sustainable Finance Roadmap (SFR) to guide the financial sector in embedding environmental, social, and governance (ESG) considerations into financial practices. The roadmap aims to support the country’s transition to a low-carbon, climate-resilient economy and strengthen financial stability through sustainability integration.

Context

The SFR aligns with Brunei’s broader sustainability agenda outlined in three key policy documents:

Brunei National Climate Change Policy (BNCCP) – strategies for a low-carbon, climate-resilient economy.

Economic Blueprint for Brunei Darussalam – aspirations for a dynamic and sustainable economy under Wawasan Brunei 2035.

Financial Sector Blueprint (FSBP) 2016–2025 – vision for a competitive and innovative financial sector.

Key takeaways

Definition: Sustainable finance under the SFR integrates ESG factors into financial decision-making to promote sustainable growth and long-term social well-being.

Vision: A sustainable and climate-resilient financial sector.

Purpose: Provide strategic direction for ESG adoption across financial institutions.

Time Horizon: 2025–2030 (6 years).

Goals:

Increase readiness to manage sustainability-related risks.

Facilitate development of sustainable financial products and services.

Enhance adoption of ESG practices in business models and strategies.

Robust Sustainability Risk Management Framework – strengthen capabilities and policies to manage ESG risks.

Innovative Sustainable Products and Services – promote financial products supporting national sustainability initiatives.

International Cooperation – boost Brunei’s role in regional and global sustainable finance efforts.

Knowledge, Skills, and Talent Development – build capacity among regulators, industry, and consumers for ESG integration.

Next steps

Implementation of the roadmap begins in 2025, with milestones set through 2030.

Financial institutions are expected to align strategies with the roadmap and develop ESG-compliant products.

BDCB will issue supporting policies and frameworks to operationalize the roadmap’s pillars.
[ad_2]

Bloomberg

Source link
December 23, 2025
Does climate leadership drive financial performance, or is it the reverse? | Insights | Bloomberg Professional Services

[ad_1]

On the other hand, firms might choose to set targets, not because of a belief in direct benefits to their bottom line, but because of competitive positioning. Companies might want to strategically signal to the market that climate action is a priority for them, to stay afloat with target-setting activity amongst their peers, thereby preserving their reputation with stakeholders like investors and customers. In other words, their motivations might be more extrinsic. If this is more often the case, we might expect target adoption to occur more frequently when a company’s financial conditions can accommodate it.

Decoding who sets targets and why

We analyzed a large universe of publicly listed companies to understand the relationships between firm-level financial performance and the presence of climate targets, considering three different target types. We used data available on the Bloomberg Terminal (ESGD CARBON TARGETS ) to look at whether companies had set any GHG target at all, a net zero target and finally, an SBTi externally validated target. Profitability was measured through the latest value for EBITDA margin (EBITDA/Revenue). We first grouped the entire sample into 10 equally sized bins in terms of profit margins. Figure 1 below illustrates the proportion of each group (decile) with a climate target of each type. The overall prevalence of these target types differs as expected, with generic GHG targets being the most frequently set (48%), followed by net zero targets (28%) and finally SBTi-validated targets (13%).

However, a more notable takeaway is that a clear increasing trend is seen with net zero target-setting through the profitability bins. There is also a rise in the portion setting more generic GHG targets, and SBTi-validated targets as profitability increases, but the pattern isn’t quite as clear. In all cases there is an obvious drop-off in targets in the low-profit groups. This suggests that climate target setting falls down the list of priorities for firms that are more cost constrained and operate with thinner margins.

Naturally, some sectors populate the higher profit bins more often. It is well understood that due to the cyclicity of economic sectors, different business models, technology maturity and reliance on R&D, some sectors are inherently more profitable than others. At the same time, we would expect target adoption to be more frequent in some sectors than in others. To illustrate this further, Figure 2 shows the sector mix through the profit margin deciles on the left pane, reflecting the fundamental characteristics of economic sectors. The right pane shows the sector mix of net zero target setting companies in the same groups. We can see that the greater prevalence of target adoption is partially a sector story.

Utilities occupy a greater share of the most profitable group, and we might also expect them to set climate targets more frequently than firms in other sectors. The sector is very high-emitting and also has many opportunities to decarbonize through viable and scalable low carbon alternative technologies. Conversely, health care companies tend to operate on thinner margins and (arguably) we might expect firms in this sector to be less likely to set climate targets, acknowledging that they are less material from an emissions standpoint.

We then repeated the analysis but took a more sector-neutral approach. In this case, companies are assessed on their level of profitability relative to their sector peers. The highest decile bin is comprised by the most profitable 10% of companies in each sector, and the lowest decile bin by the least profitable 10% in each sector. This counteracts the effects of sectoral differences in profitability and concentration. Interestingly, the monotonic pattern is still mostly preserved, as demonstrated by Figure 3. Once again, it is with net zero targets that we see adoption rising most steadily in line with the level of profitability versus sector peers.

To formally test for a positive monotonic association, the rank correlation coefficient (Spearman’s ρ) was calculated in each of the cases above. When this value is closer to 1, it is evidence that the prevalence of targets increases consistently as profitability rises. When the corresponding p-values are smaller (i.e. closer to zero) it indicates that the observed trend is less likely to have occurred by chance. Table 1 below summarises these investigations and demonstrates how the trend is clearest with net zero targets. While the relationship does become slightly weaker after sector neutralisation, with the increase in targets plateauing after decile 7, it is still a noteworthy finding.

Maximizing reputational risk-to-reward

The trend is strongest with net zero targets over the other types, and we explored some reasons why this might be the case. For the more generic GHG target adoption, this might be because less profitable companies (e.g. bins 3-4) perceive it as low risk to make some kind of emissions reduction commitment, without being too precise in terms of the level of ambition, and without the oversight and scrutiny of an external validation process. Whereas for SBTi targets, the additional hurdles needed to set and validate targets, as well as a perception of short-term costs, might be enough to constrain adoption even among some of the more profitable companies.

Net zero targets might be something of a middle ground for companies: a strong signal of ambition with an apparent link to wider climate goals through an industry-recognized term, but without the scrutiny and administrative overhead incurred by an external validation process. And this is where we see target adoption rising most steadily in step with stronger profit margins. Companies may send a strong signal of ambition to the market but with a relatively moderate process cost. Note that the mechanisms described here are simply plausible explanations consistent with what we have observed from this analysis, but they do not yet establish causality.

Profit margins or sector: which matters more?

We wanted to investigate this more explicitly and tease apart how much sector membership is responsible to target adoption, versus the “profitability effect”. We fit a simple additive logistic model to predict whether a given company has set a net zero target or not, including sector-level fixed effects as well as information on profitability within sectors. The model is not designed for accurate firm-level predictions, but rather as a tool to help us understand and explain the overall patterns of target adoption.

Averaging across sectors, the model estimates that firms in the top profitability decile have about 2.5× higher probability of having a net zero target than those in the bottom decile (≈33% vs 13%, +20 percentage points). It also reveals that profitability is a more dominant driver of net zero target status than sector membership, at least in this specification. When we decompose the model’s predicted probability surface, about two-thirds of the variation (≈63–65%) is tied to profitability, and about one-third (≈35%) to sector membership. Figure 4 visualizes the probability grids by sector and profit margin deciles, with the model’s predicted values on the left and the observed values on the right.

This model is coarse given its simple design, so naturally it will not match every sector and decile combination exactly. Nevertheless, it is helpful to quantify and communicate the broad patterns seen in the data and demonstrates how each of the key dimensions of profitability and sector shape the landscape of corporate net zero target-setting.

From surface-level signals to deep credibility assessments

This analysis supports the hypothesis that profitability enables climate target-setting, rather than the reverse. The results suggest that healthier profit margins provide the headroom a company needs to set climate commitments. This intuitively aligns with resource-based theories around corporate sustainability, according to which only firms with sufficient financial slack can afford to engage in voluntary sustainability initiatives. This is not to say that profitable firms cannot also be genuine climate leaders, but the strength of the pattern we’ve observed suggests that targets often function more as indicators of financial capacity than as reliable proxies for decarbonization intent.

There are limits to what this analysis can establish, given its cross-sectional nature. Future research should look to add a temporal dimension, for example through longitudinal testing and events studies that factor in the cyclicity of profit margins and the precise timing of target announcements. This would help to further determine directionality and address whether climate leadership drives financial performance, or the reverse.

For investors, this analysis builds upon an already familiar idea: that climate targets on their own are a weak and incomplete signal of climate ambition. Companies may be establishing targets only once their financial conditions allow, rather than being climate leaders regardless of whether they are facing headwinds or tailwinds. A net zero target is best substantiated when it is accompanied by a comprehensive and realistic climate transition plan, which outlines governance and oversight, incentives, decarbonisation levers and plans around transition finance. Investors taking into account disclosed climate ambition therefore may wish to further distinguish between companies setting surface-level climate commitments and those with deep decarbonisation intentions by integrating analysis using a much broader set of transition credibility indicators.

The findings also have a clear implication for portfolio construction. Investors that use climate target status for as a screen or universe filter might be embedding a profitability/quality tilt, which can diminish exposure to other styles. Investors may wish to note this potential bias and how it could affect factor exposures.

Technical notes

The starting universe for the data collected for this analysis was the BESGCOV, which includes approximately 17k companies across markets globally. After accounting for coverage across relevant data fields, the core analysis covers approximately 15.1k companies.

Determining the larger driver of net zero target adoption (within sector profitability versus sector membership) was achieved through ANOVA-style split in combination with a Shapley split of explainable deviance. Variance splits are reported on both the probability and deviance scales; results are consistent across both tests.

Data on company climate targets is available on the Bloomberg Terminal at ESGD CARBON TARGETS .

Data on company transition plan credibility is available on the Bloomberg Terminal at ESG NETZ and ESGD TRANSITION PLAN .

[ad_2]

Bloomberg

Source link

November 25, 2025
November Global Regulatory Brief: Green finance | Insights | Bloomberg Professional Services
[ad_1]
Key takeaways
- Scope reduction:
  
  Sustainability reporting will apply only to firms with over 1,750 employees and net turnover above €450 million.
  
  Due diligence duties will apply solely to companies with over 5,000 employees and turnover above €1.5 billion.
- Simplified reporting standards:
  
  Reporting requirements under the CSRD will involve fewer qualitative disclosures; sector-specific standards will become voluntary.
  
  Large firms cannot compel smaller suppliers to provide more data than required by voluntary templates, protecting SMEs from cascading obligations.
- Due diligence obligations:
  
  A risk-based approach will replace blanket requirements. Large companies may rely on existing information and engage smaller partners only as a last resort.
  
  The requirement to prepare climate transition plans aligned with the Paris Agreement will be removed.
  
  Liability will be established and enforced at national level only (no EU-wide requirement).
- Digital portal:
  
  The European Commission will establish an EU-wide online portal offering templates, guidelines, and free access to all sustainability reporting obligations.
  
  The platform will complement the European Single Access Point (ESAP) initiative.
Next steps

Trilogue negotiations between the Parliament, EU Member States, and European Commission will begin on 18 November 2025, with the objective of finalising the legislation by end-2025.
Singapore government launched initiatives to support the development of high-integrity carbon markets

Summary

The Singapore Government has announced a series of coordinated initiatives to advance the development of high-integrity carbon markets, reinforcing the city-state’s role as a leading regional hub for climate finance and sustainability solutions. The initiatives, jointly led by the National Climate Change Secretariat (NCCS), Ministry of Trade and Industry (MTI), Enterprise Singapore (EnterpriseSG), and the Monetary Authority of Singapore (MAS), focus on three key areas: providing guidance for companies on the use of carbon credits, fostering an industry-led buyers’ coalition to drive credible demand, and introducing a new grant scheme to support financial institutions’ participation in carbon markets.

Together, these measures aim to catalyse market growth, strengthen confidence in carbon credit integrity, and channel capital into credible projects that contribute to the global transition towards net zero.

In more detail

Carbon markets play an increasingly important role in facilitating global decarbonisation by mobilising private capital towards emission reduction and removal projects. However, their growth has been constrained in recent years by weak demand, limited supply of high-quality credits, and gaps in market infrastructure. To address these challenges, Singapore is introducing a comprehensive framework that strengthens both demand and supply while enhancing transparency and governance.

A key component of this framework is the publication of the Voluntary Carbon Market (VCM) Guidance, developed by NCCS, MTI, and EnterpriseSG. The guidance provides a clear framework for companies on how to incorporate carbon credits into their decarbonisation strategies in a credible and transparent manner. It outlines principles for identifying high-integrity carbon credits, determining appropriate usage, and disclosing credit utilisation within corporate sustainability reporting. Developed in consultation with industry experts, academics, and international organisations, the guidance will be regularly reviewed to ensure it remains aligned with global best practices and evolving standards.

To complement the guidance, Enterprise Singapore is engaging with major corporates across Asia to form an industry-led buyers’ coalition that aligns and aggregates regional demand for high-quality carbon credits. The coalition is expected to enhance liquidity, provide stronger demand signals to project developers, and help scale the pipeline of credible carbon projects across Asia and beyond. Details on its structure and implementation are expected in 2026.

In parallel, the Monetary Authority of Singapore (MAS) will launch a Financial Sector Carbon Market Development Grant to strengthen the financial sector’s role in carbon markets. Financial institutions play a vital part in the carbon value chain — from project financing and structuring to insurance, trading, and risk management. However, early participation has been limited by high upfront costs and the complexity of developing new capabilities in this emerging field. The new grant, supported by S$15 million over three years until 2028 from the Financial Sector Development Fund, will help offset these challenges. It will support the establishment or expansion of financial institution teams engaged in carbon market activities, as well as defray costs associated with developing innovative financing structures, conducting due diligence and verification, managing risks, and purchasing carbon credit insurance. Applications will open on 1 November 2025, with details on eligibility and process available through the MAS website.

Through these initiatives, Singapore seeks to build a robust and trusted carbon market ecosystem, underpinned by integrity, transparency, and strong participation from both corporates and financial institutions. This effort builds on previous government actions, including the Carbon Project Development Grant launched at COP29 and ongoing Article 6 partnerships with international counterparts. Collectively, they form part of a broader strategy to scale up credible carbon finance and promote sustainable economic growth.

Next steps

The Singapore Government agencies will work closely with industry to promote adoption of the new VCM guidance and encourage companies to align their decarbonisation strategies with its principles.

For the financial sector, MAS will begin accepting applications for the Carbon Market Development Grant in November, prioritising projects that demonstrate strong potential to build market capacity or innovation. This phase is expected to lay the groundwork for sustained institutional participation in carbon financing, trading, and risk management.

EnterpriseSG will continue discussions with leading corporates to finalise the framework for the buyers’ coalition, with the goal of launching it in 2026. The coalition is expected to create a coordinated demand base that drives investment in verified, high-integrity carbon projects.

Over the medium term, Singapore will deepen collaboration with international partners through initiatives such as Article 6 cooperation and the Coalition to Grow Carbon Markets, enhancing cross-border trust and supporting the development of scalable, transparent carbon markets.

These efforts reinforce Singapore’s long-term vision of a credible, efficient, and high-integrity carbon market ecosystem that supports global climate goals while positioning the financial and corporate sectors for sustainable growth.
HKMA to issue new guidance on bank climate risk management good practices

The HKMA is preparing to roll out additional supervisory guidance on managing climate-related financial risks, highlighting three key trends observed in the banking industry.

In more detail

In a recent speech, Hong Kong Monetary Authority Executive Director Carmen Chu confirmed that climate risk is a financial risk impacting bank operations, collateral values, and cash flows. The HKMA is committed to solidify Hong Kong’s position as a leading sustainable finance hub by building a climate-resilient financial system, and support sustainable development in Asia and further afield. Central to this is to build a financial system that is truly climate-resilient. The Supervisory Policy Manual (GS-1) offers guidance on the essentials of climate-related risk management for banks. and two rounds of climate risk stress tests.

HKMA has supplemented this guidance by issuing circulars sharing tools and best practices that exceed minimum requirements. Furthermore, both the pilot and second rounds of sector-wide climate risk stress tests have been used to help banks enhance their methods for measuring and assessing climate exposures.

Following recent industry consultations and examinations, the HKMA plans to issue new guidance focusing on good practices adopted by Authorized Institutions, grouped under three themes:
- Quantitative Frameworks: A move toward measuring climate risk with numbers, such as using metrics and limits in risk appetite statements, and leveraging financial technology (fintech) for more efficient risk management.
- Data-Driven Approaches: Banks are bridging data gaps by utilizing tailored ESG questionnaires, alternative datasets, and proxy methods to incorporate climate factors into credit decisions.
- Holistic Views: Banks are increasingly embedding climate considerations across all traditional risk disciplines, including operational, market, liquidity, and reputational risks. The Whole Industry Simulation Exercise (WISE) focus on “extreme weather” reinforces the need for holistic operational resilience.
What’s next

The HKMA is set to release additional guidance that will provide the best practices observed in the industry to further strengthen climate risk management among banks.
HKMA to issue new guidance on bank climate risk management good practices

The HKMA is preparing to roll out additional supervisory guidance on managing climate-related financial risks, highlighting three key trends observed in the banking industry.

In more detail

In a recent speech, Hong Kong Monetary Authority Executive Director Carmen Chu confirmed that climate risk is a financial risk impacting bank operations, collateral values, and cash flows. The HKMA is committed to solidify Hong Kong’s position as a leading sustainable finance hub by building a climate-resilient financial system, and support sustainable development in Asia and further afield. Central to this is to build a financial system that is truly climate-resilient. The Supervisory Policy Manual (GS-1) offers guidance on the essentials of climate-related risk management for banks. and two rounds of climate risk stress tests.

HKMA has supplemented this guidance by issuing circulars sharing tools and best practices that exceed minimum requirements. Furthermore, both the pilot and second rounds of sector-wide climate risk stress tests have been used to help banks enhance their methods for measuring and assessing climate exposures.

Following recent industry consultations and examinations, the HKMA plans to issue new guidance focusing on good practices adopted by Authorized Institutions, grouped under three themes:
- Quantitative Frameworks: A move toward measuring climate risk with numbers, such as using metrics and limits in risk appetite statements, and leveraging financial technology (fintech) for more efficient risk management.
- Data-Driven Approaches: Banks are bridging data gaps by utilizing tailored ESG questionnaires, alternative datasets, and proxy methods to incorporate climate factors into credit decisions.
- Holistic Views: Banks are increasingly embedding climate considerations across all traditional risk disciplines, including operational, market, liquidity, and reputational risks. The Whole Industry Simulation Exercise (WISE) focus on “extreme weather” reinforces the need for holistic operational resilience.
What’s next

The HKMA is set to release additional guidance that will provide the best practices observed in the industry to further strengthen climate risk management among banks.
The Central Bank of Bahrain proposes new rules to introduce Sustainable and Sustainability-Linked Debt Instruments

Summary

The Central Bank of Bahrain (CBB) is proposing new regulatory rules to introduce and govern the issuance of Sustainable Debt Securities (SDS) and Sustainability-Linked Debt (SLD) instruments in Bahrain. These rules are intended to align with international sustainability standards, enhance market transparency, and support Bahrain’s broader ESG goals.

The consultation invites feedback on the proposed additions to Volume 6 of the CBB Rulebook, which focuses on the offering of securities and collective investment undertakings.

Key proposals include

New Chapter on Sustainable Instruments: Addition of a new chapter in Volume 6 (Offering of Securities Module) covering requirements for SDS and SLD instruments.

Eligible Instruments: Applies to bonds, sukuk, and similar debt instruments that are either:
- Labelled as “green,” “social,” or “sustainability” (SDS), or
- Sustainability-linked (SLD) with ESG performance targets.
Disclosure Requirements: Issuers must provide pre-issuance frameworks and post-issuance reports aligned with international principles (e.g., ICMA Green Bond Principles, Sustainability-Linked Bond Principles).

Verification and Reporting: Mandatory third-party external reviews (pre- and post-issuance). Ongoing annual updates are required for transparency.

SLD-Specific Obligations: For SLDs, key performance indicators (KPIs), sustainability performance targets (SPTs), and impact of failure to meet SPTs must be clearly disclosed.

Label Use: Use of sustainability-related labels must be justified with robust documentation.

Next steps

The CBB is soliciting comments from stakeholders until 30 October 2025.
[ad_2]

Bloomberg

Source link
November 25, 2025
October Global Regulatory Brief: Green finance | Insights | Bloomberg Professional Services
[ad_1]
Key takeaways

MEPs propose that only companies with more than 1,000 employees and over €450 million in annual turnover be required to undertake sustainability reporting.

Firms falling outside the scope would report Corporate Sustainability Reporting Directive (CSRD) and EU Taxonomy data on a voluntary basis following Commission guidance. Large companies would be prohibited from demanding sustainability data beyond these voluntary standards from smaller partners.

Sector-specific reporting would become voluntary and European Sustainability Reporting Standards (ESRS) would focus on quantitative disclosures to ease cost and compliance burdens.

The Commission would establish a free online portal with templates, guidelines, and reporting information to complement the European Single Access Point.

Obligations under the Corporate Sustainability Due Diligence Directive (CSDDD) would apply only to EU firms with over 5,000 employees and €1.5 billion in turnover, or foreign companies meeting the same EU turnover threshold.

Companies would face national, rather than EU-level, liability for due diligence breaches, with fines capped at 5% of global turnover.

Large firms would still be required to prepare a transition plan aligned with the Paris Agreement.

Next Steps

The European Parliament is due to adopt the position in a plenary sitting next week, after which interinstitutional negotiations with the EU Member States (Council) and Commission are expected to begin in late October or November to finalise the legislative text under the Omnibus package.
MAS appoints new Chief Sustainability Officer

The Monetary Authority of Singapore (MAS) has appointed Ms. Abigail Ng as its new Chief Sustainability Officer (CSO), effective October 6, 2025. Ms. Ng, currently the Department Head of the Markets Policy & Consumer Department, will take over from Ms. Gillian Tan, who had concurrently held the CSO role with her duties as Assistant Managing Director (Development & International) since October 2022. This transition marks the move to a dedicated CSO role as MAS’s sustainability agenda enters a more mature phase.

Key takeaways

The leadership change reflects MAS’s decision to dedicate the CSO role as its Sustainability Group (SG) agenda matures. The outgoing CSO, Ms. Gillian Tan, will focus on her position as Group Head of the Development & International Group.

Under Ms. Tan’s three-year tenure, the Sustainability Group spearheaded several significant initiatives to advance sustainable finance in Asia, including:

Finance for Net Zero Action Plan: A strategy aimed at mobilizing financing to support Asia’s shift to a low-carbon economy.

Singapore-Asia Taxonomy: An effort to establish consistent and clear standards for sustainable financing.

Key Transition and Blended Finance Initiatives: The launch of the Transition Credits Coalition (TRACTION) and the Financing Asia’s Transition Partnership (FAST-P) to accelerate the energy transition.

Talent Development: The Sustainable Finance Jobs Transformation Map to boost skills and competencies within the sector.

The incoming CSO, Ms. Abigail Ng, is expected to leverage her extensive background in sustainability issues, including her experience in formulating sustainability disclosure policies and collaborating with international and diverse stakeholders, to lead the Sustainability Group in its next phase.

Next steps

Looking ahead, there would likely be continued focus on MAS’ key efforts like the Singapore-Asia Taxonomy and blended finance platforms (TRACTION, FAST-P). Given Ms. Ng’s expertise in policy, her tenure may also bring greater focus to sustainability disclosure requirements. This dedicated leadership structure reinforces the MAS’s commitment to advancing Singapore’s role as a key regional hub for sustainable finance.
Switzerland to align due diligence law with EU CSDDD

The Swiss Federal Council has announced plans to introduce a corporate due diligence law aligned with the EU Corporate Sustainability Due Diligence Directive (CSDDD). A draft legislative proposal is expected by March 2026 based on the EU’s final framework following adoption of the first Omnibus package.

Context

The initiative follows renewed political momentum in Switzerland, spurred by a popular initiative launched in summer 2025 with support from over 280,000 citizens and a broad civil society coalition.

Key takeaways

Swiss government will design its due diligence law in line with the EU’s CSDDD framework.

Announcement responds to strong domestic political and civil society pressure.

Signals convergence of Swiss and EU approaches to sustainability and responsible business conduct.

Companies headquartered or operating in Switzerland should anticipate tighter requirements on human rights and environmental due diligence, particularly for multinationals with cross-border operations.

Next steps

Draft legislation to be presented by March 2026.

Text will be coordinated with the EU’s final CSDDD as amended under the Omnibus simplification package.
FCA publishes letter on sustainability-linked loans market

The Financial Conduct Authority (FCA) has published a letter highlighting progress in the overall functioning of the sustainability-linked loans (SLLs) market since its last review in 2023. The letter highlights the importance of robust internal controls, governance frameworks, and transparency in SLL arrangements.

Key takeaways

Overall, the FCA recognises that – despite headwinds – the SLL market has matured, with firms adopting better practices and stronger product structures. Specifically, the FCA noted:

Improvements in the quality of SLL structuring, including more robust KPIs and stronger governance processes;

Post-transaction monitoring could be a tool to inform self-assessments of existing approaches to SLL provision and help ensure internal frameworks evolve to account for best practice;

Regulated firms should remain alert to risks of misleading disclosures and ensure sustainability claims are accurate and appropriately communicated.

Next steps: Firms should continue to review their internal systems and governance arrangements for SLLs in light of the FCA’s observations. The FCA will continue to work closely with the UK’s Transition Finance Council as it drives forward the UK Government’s recommendations to promote a credible transition finance ecosystem.
[ad_2]

Bloomberg

Source link
October 30, 2025
Which ESG scores work best for portfolio construction? | Insights | Bloomberg Professional Services

[ad_1]

What are the key characteristics of Zero-Centered Scores?

Bloomberg ESG Scores measure best-in-class performance of a company’s management of financially material corporate sustainability issues. The issues deemed material in the Environmental (E) and Social (S) pillars are peer group-specific. The scores also factor in a company’s level of quantitative data disclosure. Since the average levels of company-reported data in the E and S Pillars vary considerably across industries, Bloomberg ESG Scores are not comparable across peer groups. That is, a score of 3, say, may indicate a laggard in one peer group, but an average company in another.

This is not an issue for analysts studying narrowly specified industries, but it poses a problem for portfolio managers or index providers whose tradable universe spans multiple sectors. To facilitate comparisons across broad market portfolios, practitioners often use peer group-specific percentiles as a way of identifying leading and lagging companies. Percentiles rank companies by their relative standing within a peer group, making them effective for filtering or screening exercises—for example, excluding the lowest 10% of companies from a portfolio.

Bloomberg’s Zero-Centered Scores, by contrast, go beyond ordinal ranking and provide an added element of the magnitude of a company’s outperformance or underperformance on sustainability relative to its peers, much like a Z-score. The Zero-Centered Score represents the difference between a company’s ESG Score and its peer group’s median ESG Score from the previous fiscal year, with the prior year’s median floored at 1.5. ZCSs can range from –10 to 8.5, with higher values indicating better outcomes.

The median company in a peer group has a ZCS near 0, outperforming companies have ZCSs greater than 0 and underperforming companies have ZCSs less than 0. Any two companies, from any peer groups, that have the same ZCSs can be considered to be performing equally relative to their specific peer averages. Corporate sustainability performance can thus be compared across all peer groups through this lens.

Each year’s peer-group medians are determined for an essentially fixed set of core companies. This provides year-over-year stability of ZCSs by virtue of a time series that is more robust to changes in the overall scoring universe (additions, removals etc.) than a time series typically constructed using Percentiles or ranks. This feature is particularly valuable for analyses of score changes over time (e.g., identifying improvers).

Percentiles and ZCSs have different scales. Percentiles span 0 to 100, and ZCSs can range from –10 to 8.5, though in practice the range is approximately -4 to 4. Nevertheless, these two metrics are highly correlated since ZCSs preserve the ordinal information captured by Percentiles. For many types of analysis, investors could use either measure and obtain similar results.

To illustrate this, we use point-in-time ZCS and Percentiles data retrieved via Bloomberg Query Language (BQL) for the subsequent analysis. We reproduce a chart we presented (as Figure 5a) in our earlier article and show it as Figure 1a here. It shows the historical returns and Sharpe ratios of quintile portfolios formed by sorting on ZCSs of companies in the Bloomberg WORLD Index that have High or Average levels of quantitative data disclosure, as defined in the previous article.

Figure 1b shows results for the same set of companies, but for quintile portfolios formed on Percentiles. In both cases, the results are similar: the quintile portfolios of companies with better sustainability performance (i.e., higher ZCSs or Percentiles) exhibited higher returns than those with worse sustainability performance. Though not shown here, the same pattern is seen in market value-weighted quintile portfolios.

To understand how Percentiles and ZCSs differ we examine how their values are distributed. Figures 2a and 2b show histograms of the distribution of all companies that have Bloomberg ESG Scores in June 2025, using ZCSs and Percentiles as the ESG–score metric, respectively. Percentiles, by definition, follow a uniform distribution, with approximately the same number of companies in each quantile.

By contrast, the ZCS distribution is bell–shaped, with a concentration of companies near a ZCS of –1 and very few companies with very low (–4) or very high (4) ZCSs. This reflects that few companies underperform or outperform their peer averages by a significant amount. Thus, in this example, ZCSs distinguished marginally better performance from exceptional outperformance and could have helped portfolio managers calibrate portfolio tilts.

The scatter plot in Figure 3 makes the differences in the distributions more evident. The two metrics are highly correlated and follow a linear trend for the most part. However, there is some dispersion of ZCSs at any given Percentile.

How do Zero-Centered Scores improve portfolio optimization?

We now present the results of two portfolio optimization exercises that used Zero-Centered Scores and Percentiles as their ESG signals, respectively. Once more, we limit our universe to companies in the Bloomberg WORLD Index that have ESG Scores based on High or Average quantitative data disclosure.

We utilized Bloomberg’s PORT Optimizer and Bloomberg’s Multi-Asset Class Fundamental risk model (MAC3) to maximize each portfolio’s ESG signal (ZCS or Percentile, respectively) while limiting ex-ante annualized tracking error volatility (TEV) to the WORLD Index to 3% and simultaneously constraining total active factor risk exposures to near zero.

This allowed us to create two portfolios that closely track the WORLD Index benchmark while varying individual security weights to maximize the ESG signal (ZCS or Percentile). Additionally, we utilized the risk model to do this in a manner that prevents any incidental active risk factor exposures—such as country, industry or style (e.g. momentum, value)—between the portfolio and the benchmark. Thus, any differences in performance between the two portfolios and the benchmark index should have been due primarily to the effect of security selection effects resulting from the use of different sustainability metrics. Note that for a more comprehensive description of the “Selection Effect”, please see the return attribution analysis in our prior blog post.

Figure 4a summarizes portfolio performance statistics relative to the benchmark, Figures 4b and 4c show the portfolio performances for the period from 17 March 2017 – through 30 June 2025.

In the back-tests, the portfolio optimized to maximize the Zero-Centered Score (ZCS) delivered an annualized return of 11.68%, outperforming the benchmark by 0.52% annualized over the period. By contrast, the Percentile-optimized portfolio largely tracked the benchmark and did not show sustained outperformance.

These results exclude transaction costs; adding turnover constraints or other cost controls would likely reduce realized excess returns. Given identical tracking–error limits and near-zero active factor-risk constraints for both portfolios, the performance gap most likely reflects the incremental sustainability-related information captured by ZCS rather than differences in factor exposures.

Key takeaways: ESG score selection makes a difference for portfolio construction

For investors, the choice of inability metric matters. Peer Group Percentiles are simple and effective for screening, but they can fall short when applied in portfolio construction. Zero-Centered Scores, by contrast, provide richer information that enables more stable comparisons across industries and time, and—as the back–tests showed—could enhance portfolio performance. Investors looking to integrate sustainability considerations into systematic processes may therefore benefit from relying on ZCS as their primary input. Put simply, when it comes to ESG scores, measuring how much better or worse a company is than its peers can make a difference.

Disclaimer

Nothing in the Services shall constitute or be construed as an offering of financial instruments by Bloomberg, or as investment advice or recommendations by Bloomberg of an investment strategy or whether or not to “buy”, “sell” or “hold” an investment. Information available via the Services should not be considered as information sufficient upon which to base an investment decision. Bloomberg makes no claims or representations, or provides any assurances, about the sustainability characteristics, profile or data points of any underlying issuers, products or services, and users should make their own determination on such issues. All rights reserved. ©Bloomberg.

[ad_2]

Bloomberg

Source link

October 1, 2025
Power shift: Should investors pay attention to renewable energy adoption? | Insights | Bloomberg Professional Services
[ad_1]
Financial performance and renewable energy adoption

When renewable energy costs become competitive with or lower than traditional fossil fuel alternatives, transitioning to renewables can directly lead to cost savings and therefore enhance corporate profitability. However, a critical consideration for investors is whether companies adopting renewable energy realize measurable improvements in financial performance, and whether these improvements are reflected in stock valuations.

To investigate this, we analyzed companies within the Bloomberg World Large & Mid Cap Index (Bloomberg ticker: “WORLD Index”), a broadly diversified, float market-cap-weighted global equity benchmark index representing approximately 85% of global market capitalization of the measured markets. In aggregate, Bloomberg’s sustainable finance data covers about 97% of the index’s constituents and 99% of its market value as of December 2024. In particular, the analysis employs the Bloomberg field “Percentage of Renewable Energy Consumed” (Field Id: SA011) as the primary determining factor. Companies lacking data on renewable energy consumption were excluded to maintain analysis integrity.

Disclosure rates for renewable energy use vary moderately across sectors and geographic markets. Figures 3a and 3b illustrate that most sectors disclose at rates between 50% and 80%, with Consumer Staples (74.5%), Consumer Discretionary (63.0%), and Communications (62.1%) leading. Geographically, developed markets generally exhibit strong disclosure rates, whereas certain emerging markets show significantly lower levels. While these variations introduce variability in data availability, the disclosure patterns do not indicate extreme biases toward specific sectors or regions, thereby providing a reasonably balanced dataset for subsequent analysis.
We conducted a sector-neutral analysis by sorting companies with available data on a quarterly basis into quintile portfolios based on renewable energy consumption, employing the following methodology:

Sector-specific stock selection: Within each sector, companies were ranked and assigned to quintiles based on their percentage of renewable energy usage.

Sector weight matching: Portfolios were rebalanced quarterly to match benchmark sector weights, eliminating sector-driven biases.

Figures 4a and 4b summarize performance outcomes for equal-weighted and market value-weighted quintile portfolios from February 2017 to May 2025.
Key findings

The analysis reveals a distinct pattern: companies in the highest quintile for renewable energy consumption achieved higher returns and superior Sharpe ratios (which measures risk-adjusted returns) compared to companies in the lowest quintile. Notably, this outcome persists across both equal-weighted and market value-weighted methodologies, indicating that performance differences are not driven purely by company size.

However, the observed outperformance did not reach conventional levels of statistical significance. This may be due to the limited historical period and moderate magnitude of the observed differences. Additionally, uneven disclosure rates and resulting data gaps could also have influenced these results.

To further investigate whether this observed outperformance can be specifically attributed to renewable energy consumption rather than incidental exposure to other factors, we conducted a return attribution analysis using Bloomberg’s Multi-Asset Class Fundamental risk model (MAC3) for equities. We formed equal-weighted long-short portfolios within the WORLD Index universe, going long the companies in the highest quintile and short those in the lowest quintile based on sector-specific levels of renewable energy consumption.

Note that this return attribution is based on monthly down-sampled risk exposures from MAC3, which are produced at a daily frequency. As a result, the attribution results shown here are approximations and may not precisely match analyses performed in PORT tool available via the Bloomberg Terminal.

A significant portion of the returns from these long-short portfolios could not be explained by conventional factors such as Industry, Country, Currency, or Equity Style (e.g., value, quality), termed the “selection effect”. In our analysis, this effect accounted for 1.0% out of the 2.4% annualized returns of the long-short portfolio, suggesting meaningful financial materiality linked explicitly to the level of renewable energy usage.

suggest financial benefits linked to greater renewable energy adoption, warranting further examination using extended timeframes and broader datasets for definitive validation. Investors, whether explicitly focused on energy transition or not, may therefore benefit from studying and incorporating this signal into their investment processes.
[ad_2]

Bloomberg

Source link
September 16, 2025