How are other countries developing their ESG regulatory frameworks?

While the EU is currently a leader when it comes to developing its sustainability regulatory framework, other jurisdictions are not far behind. However, a lack of consistency between different jurisdictions is likely to make the sustainable finance landscape increasingly complex. To address this issue, we are now seeing a number of international initiatives underway to foster convergence and global consistency. 

United Kingdom

Post-Brexit, the UK will not apply the EU’s Sustainable Finance Disclosures Regulation, but it has onshored the Taxonomy and Climate Benchmarks Regulations. The UK has announced that it aims to match the ambition of the EU when it comes to Sustainable Finance, starting with a core focus on climate issues in the run up to the COP26 Climate Change Conference in November 2021. This will include:

• mandating TCFD disclosures across the economy by 2025,
• implementing a UK Taxonomy, based on the science-based metric set out in the EU regulation; and
• Issuance of Green Gilts. 
   

United States

With the election of President Biden, there are high hopes that the new administration will reverse many of the Trump-era rules aimed at curtailing ESG investing. It is expected that the new administration will focus on introducing new disclosures including:

• Corporate disclosure mandates for public company issuers on material ESG issues
• Asset manager disclosures mandates and enhanced due diligence for funds
• Disclosure mandates for other market participants, including credit ratings agencies, proxy advisory firms, index providers and exchanges
• Standards and Taxonomy to enhance comparability of disclosures

Australia

Australia’s Sustainable Finance Roadmap was published in November 2020 and includes 37 recommendations around four themes:

• embedding sustainability in leadership,
• embedding sustainability in practice,
• building sustainable financial markets and
• enabling resilience for all Australians. 

Canada

The Final Report by the Expert Panel on Sustainable Finance published in 2019 included 15 recommendations falling under three pillars:

• Defining the Opportunity,
• Foundations for Market Scale, and
• Financial Products and Markets for Sustainable Growth

The aim of the actions is to mainstream sustainable finance in Canada and develop and scaling market structures and financial products that could offer transformative economic benefit to Canada in building a low-emissions, climate-smart future.

Hong Kong

Hong Kong has established a Cross-Agency Steering Group on Green and Sustainable Finance and in December 2020 set out its 6 strategic focus areas:

• strengthening climate-related financial risk management;
• promoting the flow of climate-related information at all levels to facilitate risk management, capital allocation and investor protection; enhancing capacity building for the financial services industry and raising public awareness;
• encouraging innovation and exploring initiatives to facilitate capital flows towards green and sustainable causes; capitalising on Mainland opportunities to develop Hong Kong into a green finance centre in the Guangdong-Hong Kong-Macao Greater Bay Area; and strengthening regional and international collaboration.

Global initiatives and relevant organisations:

1. Taskforce on Climate-related Disclosures (TCFD): The Financial Stability Board established the TCFD to develop recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions and, in turn, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks. The TCFD’s recommendations have quickly become a best practice standard for climate-related disclosures and we are increasingly seeing moves by regulators to adopt the standards as a mandatory requirement.
2. International Organisation of Securities Commissioners (IOSCO): As sustainability issues become increasingly relevant to the effective functioning of capital markets, IOSCO established a Sustainable Finance Task Force which is takes with developing recommendations on: the alignment of frameworks and requirements; the identification of relevant components of disclosure;  increased public accountability and assurance standards; and increased ESG integration, including exploration of risks relating to ESG ratings.
3. International Financial Reporting Standards (IFRS): As consensus regarding the need for a globally consistent approach to ESG corporate disclosures has grown, in September the IFRS Trustees launched a consultation regarding whether the IFRS should establish a Sustainable Standards Board (SSB) to develop sustainable reporting standards. In February, the Trustees announced that work on the SSB would go ahead and would provide a roadmap by September 2021.
4. Network for Greening the Financial System (NGFS): The Network is made up of central banks and supervisors from around the globe with the purpose to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development. To this end, the Network defines and promotes best practices to be implemented within and outside of the Membership of the NGFS and conducts or commissions analytical work on green finance.
5. International Platform on Sustainable Finance (IPSF): The IPSF includes representatives from 16 countries with the ultimate objective to scale up the mobilisation of private capital towards environmentally sustainable investments by providing a multilateral forum of dialogue between policymakers that are in charge of developing sustainable finance regulatory measures to help investors identify and seize sustainable investment opportunities that truly contribute to climate and environmental objectives. The IPSF workplan includes developing work on a “common ground Taxonomy” led by the EU and China. 

The above article is an excerpt from our recent whitepaper, which you can download in full here: Shifting Gears: Preparing for the new sustainable finance regulations in Europe.

Click on one of the below pieces or go back to the hub.