The Global Regulatory Brief provides monthly insights on the latest risk and regulatory developments. This brief was written by Bloomberg’s Regulatory Affairs Specialists.
Green finance regulatory developments
The financial sector continues to face new rules and government expectations as part of the broader effort to aid the green transition. From Kenya to Canada, the following developments from the past month in green finance stand out:
- Kenya: Capital Markets Authority encourages use of technology to enhance ESG data
- Singapore: Monetary Authority endorses launch of the Sustainable Finance Association
- Canada: Quebec’s prudential regulator releases climate risk management guideline
- EU: Banking Authority consults on ESG risk management guidelines
- EU: Financial Reporting Advisory Group publishes guidance for implementing sustainability reporting standards
- EU: Commission adopts first set of Sustainability Reporting Standards
- Australia: Government publishes final policy and draft legislation for climate disclosures
- US: House committee holds oversight hearing on SEC climate disclosure rule
- US: New York Governor announces guidance to manage climate risk for banking and mortgage institutions
Kenya encourages use of technology to enhance ESG data collection and reporting in the capital markets
Kenya’s Capital Markets Authority (CMA) has expressed support for the adoption of technology in ESG data collection to enhance transparency in ESG reporting as aligned with the CMA’s ambition of leveraging technology to enhance efficiency of the capital markets value chain.
Wider context: This move is aligned to CMA’s ambition of leveraging technology to enhance efficiency of the capital markets value chain. With the growing adoption of enhanced ESG reporting globally, more Kenyan listed companies are expected to come on board as this is emerging as a key consideration for investors.
More detail: The Nairobi Securities Exchange (NSE) is working with industry on the adoption of ESG frameworks for listed companies.
- The NSE plans to introduce an index to measure disclosures and performance on climate-change action, including carbon gas emissions by listed companies, which is expected to lead to increased uptake of ESG reporting
- ESG reporting is voluntary for listed companies in Kenya, with 29 companies having adopted the practice so far
MAS endorses launch of the Singapore Sustainable Finance Association
The Singapore Sustainable Finance Association (SSFA) was launched on January 24, 2024, convening members from financial services, non-financial sector corporations, academia, non-governmental organizations and other industry associations.
Co-chairs: The Chief Sustainability Officer of the Monetary Authority of Singapore (MAS) and Director of the Association of Banks in Singapore (ABS) are standing members of the Executive Committee, with HSBC Singapore CEO and Head of Southeast Asia of Blackrock serving as co-chairs for the first term.
Purpose of the SSFA: The SSFA will serve as a platform for cross-sector collaboration to achieve the following strategic objectives:
- Develop industry best practices in areas such as carbon credits trading and transition finance
- Identify integrated approaches to address barriers in scaling the financing needed for a low-carbon transition
- Contribute to upskilling and capacity-building initiatives by guiding the relevance of sustainable-finance courses
Five key workstreams: The work plan for the first year will focus on five workstreams: carbon markets, transition finance, blended finance, natural capital and biodiversity, and taxonomy.
Membership: Aside from MAS and ABS who serve as standing members, there are 19 other EXCO members including DBS, OCBC, SGX, Climate Impact X, Great Eastern Life and Temasek. The SSFA is recruiting members, welcoming organizations that would like to play a role in advancing sustainable-finance practices in Singapore and the region.
Quebec’s prudential regulator releases climate risk management guidelines
Quebec’s prudential regulator, the Autorité des marchés financiers (AMF), has published its draft Climate Risk Management Guideline for public comments until January 30, 2024.
Scope: The Guideline applies to authorized insurers, financial services cooperatives and credit unions, authorized trust companies and other authorized deposit institutions, regardless of size, nature, complexity or risk profile.
Bottom line: These institutions are expected to consider climate-related risks in their risk-management processes, including adopting forward-looking approaches to climate risk which are holistic, integrated and built on reliable empirical data and analyses.
The expectations of the AMF: The Guideline sets out expectations that financial institutions should be meeting for the effective management of their climate risks. These are:
- Governance expectations, such as the role and responsibilities of the board of directors
- Integrated risk management expectations
- Expectations regarding climate scenarios and stress testing
- Expectations regarding capital and liquidity adequacy
- Fair treatment of clients (FTC) expectations
- Expectations for climate-related financial risk disclosures
EBA consults on guidelines on the management of ESG risks
The European Banking Authority (EBA) has launched a public consultation on draft guidelines on the management of ESG risks.
The guidelines in detail: The guidelines set out requirements for institutions for the identification, measurement, management and monitoring of ESG risks, including plans aimed at addressing the risks arising from the transition towards an EU climate-neutral economy.
Specifically, these guidelines set out principles for the development and content of institutions’ plans in accordance with the Capital Requirement Directive (CRD6), with a view to monitoring and adequately addressing the financial risks stemming from ESG factors, including those resulting from the adjustments needed to achieve climate neutrality in the EU by 2050.
Next steps: The consultation closes on April 18, 2024. The EBA will hold a virtual public hearing on the consultation paper on February 28, 2024.
EFRAG publishes guidance for implementing European Sustainability Reporting Standards
The European Financial Reporting Advisory Group (EFRAG) has published its first three draft ESRS Implementation Guidance documents for public feedback. The first paper deals with the requirements on the materiality assessment in ESRS and the second paper deals with the value-chain aspects in ESRS. Finally, the third paper contains the detailed ESRS data points as a workbook with an accompanying explanatory note.
In detail: These documents are non-authoritative and are meant to support the implementation of the ESRS.
- Draft 1 describes the reporting requirements on the materiality assessment, including the illustration of possible steps of the process. It also contains FAQs on the double materiality assessment to provide implementation guidance from a practical perspective.
- Draft 2 describes the reporting requirements on the value chain during the materiality statement, for impacts, risks and opportunity management as well as metrics and targets. It discusses the reporting boundary of the group for sustainability reporting including operational control. Draft 2 also contains FAQs to provide further information and the “value-chain map” summarizes the VC implications per disclosure requirement.
- Draft 3 presents the complete list of the detailed requirements contained in each Disclosure Requirement and related Application Requirements, in an Excel format. This list can form a basis of a data gap analysis.
Deadline for feedback: Stakeholders can provide feedback until February 2, 2024.
Commission adopts first set of European Sustainability Reporting Standards
The Commission has adopted the first set of European Sustainability Reporting Standards (ESRS) for use by all companies subject to the Corporate Sustainability Reporting Directive (CSRD).
In detail: The standards will be used by all companies preparing their disclosures under the CSRD. They cover the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights.
- They also provide information for investors to understand the sustainability impact of the companies in which they invest
- They also take account of discussions with the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) in order to ensure a very high degree of interoperability between EU and global standards and to prevent unnecessary double reporting by companies
Next steps: The reporting requirements under the CSRD will be phased in over time for different companies, with the first reports due in 2025.
Australian government publishes final policy and draft legislation for climate disclosure
The Australian government has released its Exposure Draft, requiring specified large businesses and financial institutions to make climate-related disclosures. This consultation follows the government’s announcement of the final policy design for corporate climate-related financial disclosure requirements, as outlined in the Policy Statement.
The details: The Exposure Draft legislation seeks to amend parts of the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001, to introduce mandatory requirements for large businesses and financial institutions to disclose their climate-related risks and opportunities. The mandatory climate-related disclosure requirements are set to be implemented via a three-phase approach based on the size of the entity, with the first entities reporting from July 1, 2024.
Feedback welcome: The Australian government is seeking views on the Exposure Draft legislation and accompanying explanatory materials by February 9, 2024.
U.S. House Financial Services Subcommittee on Oversight and Investigations holds hearing on SEC climate-disclosure rule
Topics discussed in the hearing included:
- The cost of compliance
- SEC rulemaking authority
- Effect on farmers
- The SEC’s climate disclosure rule’s strength in law
- The costs of climate change
The following witnesses testified at the hearing: Charles Crain, Vice President, Domestic Policy, National Association of Manufacturers; Lawrence Cunningham, Special Counsel, Mayer Brown; Bill Schultz, Vice President, Schultz Fruitridge Farms, Inc.; and George Georgiev, Associate Professor of Law, Emory University School of Law.
New York Governor Hochul announces guidance to manage climate risk for banking and mortgage institutions
Governor Kathy Hochul announced that the New York State Department of Financial Services adopted guidance for New York State-regulated banking and mortgage institutions to help them manage their material financial and operational risks associated with climate change.
The details: The guidance is designed to support institutions’ efforts to identify, measure, monitor, and control their material climate-related financial and operational risks in a manner consistent with current risk-management principles. It addresses key components of prudent risk management by Institutions — including corporate governance, internal control frameworks, risk-management processes and data collection and analysis — so that institutions will incorporate assessment of these risks into their existing risk frameworks, taking a strategic and forward-looking approach.
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