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May Global Regulatory Brief: Green finance

May 28, 2025

Bloomberg Professional Services

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. The following green finance policy developments represent a sample of wider regulatory and policy coverage available to Bloomberg Terminal customers. Run REGS <GO> to find out more or contact your Bloomberg representative to learn more:

UK: PRA publishes consultation on managing climate-related risks
EU: ECB publishes opinion on Commission’s Simplification Package
International: ISSB publishes exposure draft on targeted amendments to IFRS S2 climate-related disclosures
Japan: JFSA publishes survey on scenario analysis and transition plans

Explore the latest regulatory insights with our outlooks, webinars, research and analysis.

UK PRA publishes consultation on managing climate-related risks

The UK Prudential Regulatory Authority (PRA) published a Consultation Paper proposing the replacement of its existing Supervisory Statement on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change with a new Supervisory Statement setting out updated, more detailed supervisory expectations. The proposed expectations focus on the following five themes: governance, risk management, climate scenario analysis, data and disclosure.

Alongside publication of the Consultation Paper, David Bailey (Executive Director of Prudential Policy at the PRA) also gave a speech at the Climate Financial Risk Forum commenting on the proposals.

The scope of application for the proposed expectations would remain the same as the already existing Supervisory Statement (UK insurance and reinsurance firms and groups, banks, building societies and PRA-designated investment firms but would not apply to branches).

The PRA also makes clear that the proposals are supervisory expectations, rather than rules. Consequently, there is no reference to enforcement, either in the Consultation Paper or the speech.

Governance: The PRA emphasises that it is necessary for a firm’s Board to set and own the overall business risk appetite for climate, including providing effective challenge on climate-related risk. To support this, its proposal includes:

Management bodies should provide the Board with relevant information on climate-related risks and appropriate training on climate-related risk, including on the current methods and tools used by the firm to manage risks.
The Board should be provided with an analysis of the performance of the firm’s business strategy under a range of climate scenarios.
The Board should ensure there is a periodic review of the firm’s risk appetite, climate-related risk management practices and strategy.
Where a firm has voluntarily adopted climate goals or operates in jurisdictions with national climate targets (including the UK), it should be able to demonstrate how it has integrated its plan to meet any climate goals into its overall business strategy.
Management responsibilities for identifying and managing climate-related risks should be assigned at an appropriate level of seniority within the organisation, such as a relevant SMF holder or Board member.

Risk Management: The PRA has identified significant variance in the quality and depth of firms’ approaches to risk management and so aims to set out clearer expectations on this in its proposals:

Firms should periodically carry out a structured risk identification and assessment to identify the material climate-related risks they face and appropriately classify all materials risks in the firm’s risk register. Any judgements made during the risk assessment should be substantiated and recorded so as to enable appropriate challenge.
Firms should undertake a risk assessment of climate-related risks arising from material relationships with clients, counterparties, investees and policyholders.
Firms should develop quantitative risk appetite metrics and limits for each material climate-related risk. It is worth noting that the PRA is not itself proposing any specific risk metrics on the basis that market practice is still evolving and the appropriateness of different risk metrics will vary across firms.
Firms should develop an appropriate internal risk reporting infrastructure that enables regular and ad-hoc reporting of climate-related risks to the Board and relevant sub-committees.

Climate Scenario Analysis: Recognising that Climate Scenario Analysis (CSA) has evolved since the initial supervisory statement was published, the PRA is proposing to enhance its supervisory expectations in relation to the use of CSA. Its proposals include:

Firms’ CSA should seek to capture all material climate-related risks. Firms should appropriately document how CSA fulfils their objectives and informs their decision-making and should be able to justify the scenarios they rely on.
Firms should develop an appropriate understanding of the CSA models and toolkits they use to inform their effective application, including any relevant limitations.
In relation to the scenarios, firms should select, match and tailor scenarios as relevant for their objectives and specific use cases.
With respect to capital, firms should include CSA as part of their Internal Capital Adequacy Assessment Process or own risk and solvency assessment.
Firms should regularly review and update their scenarios in line with modelling and scientific advances.

Data: The PRA draws attention to the ongoing challenges in firms’ management of climate-related risks caused by data gaps and proposes the following:

Where data gaps have been identified and can be remedied by further investment in data tools, frameworks and capabilities, firms should have in place strategic plans to manage and close those gaps.
Where reliable data is still not available, firms should have in place contingency solutions that use appropriately conservative assumptions and proxies as an intermediate step.
Where firms rely on external data providers, they should have in place an effective system of governance to oversee and integrate the data provided. Notably, whilst the PRA recognises that most firms are currently reliant on external data, it also proposes that firms should plan their strategic development of in-house data capabilities.

Disclosure: The PRA does not propose substantial changes to its expectations on disclosures, noting that proliferation of new disclosure requirements by multiple regulators would place operational strain on firms.

The main proposed change is to replace the reference to TCFD recommendations with a reference to the UK Sustainability Reporting Standards (‘UK SRS’) in order to reflect the UK Government’s proposed shift to UK SRS.

Next steps: The consultation is open until 30 July 2025.

European Central Bank publishes non-binding opinion on Commission’s Simplification Package

The European Central Bank (ECB) has published an opinion on the Commission’s Omnibus proposals. The opinion has been issued on the ECB’s own initiative to inform and influence the proposed amendments to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). It consists of general observations and concrete drafting changes to the Commission’s text.

Context: The ECB supports the Commission’s overarching goal of enhancing the European economy’s long-term competitiveness, whilst maintaining the objectives of the European Green Deal and Sustainable Finance Action Plan. The opinion takes a prudential perspective and argues that a well-calibrated sustainability reporting framework is essential for market participants to understand and price sustainability-related financial risks.

Key suggestions: In terms of key takeaways, the ECB argues the following.

Balanced Simplification: The ECB supports simplifying sustainability reporting to reduce company burdens, but insists this must not compromise the availability of reliable, harmonised ESG data essential for financial stability and investment decisions.
Data Quality for Risk Management: High-quality, comparable sustainability data is necessary for effective market risk assessment, prudential supervision, and the ECB’s monetary policy decisions.
Timely and Proportionate Implementation: The ECB urges swift legislative action and timely national transposition to provide legal certainty and allow firms adequate preparation time, while ensuring reporting obligations remain proportionate.
Need for Robust Verification: Strong assurance processes and retention of key reporting standards – especially related to climate and biodiversity – are vital to ensure the credibility and usefulness of sustainability disclosures.

In detail: In its detailed drafting suggestions, the Commission puts forward the following changes:

Wider Reporting Scope: The ECB recommends that medium-large undertakings (i.e. those having on average 500 to 1000 employees), including parent companies of large groups with the same employee thresholds, remain subject to sustainability reporting. The Commission should develop simplified, proportionate standards for these firms. It also advises against raising the turnover threshold for third-country companies, warning this could disadvantage EU-based firms.
Mandatory Assurance Standards: The ECB urges the Commission to publish limited assurance guidelines without delay, followed by binding standards for limited assurance. It also recommends keeping the option to adopt reasonable assurance standards in the future, once initial CSRD reporting experience has been gained.
Retaining Sector-Specific Standards: The ECB disagrees with removing the Commission’s power to adopt sector-specific sustainability reporting standards under the CSRD, noting their importance for ensuring comparability, data quality, and effective risk assessment—particularly for financial institutions. If this empowerment is removed, the ECB encourages the Commission to issue sector-specific guidelines to support consistent implementation across sectors.

ISSB publishes exposure draft on targeted amendments to IFRS S2 climate-related disclosures

The ISSB published an Exposure Draft proposing targeted amendments to IFRS S2 Climate-related Disclosures and has invited industry to comment on these proposals.

In summary: The targeted amendments aim at supporting entities applying IFRS S2 by reducing the complexity, risk of potential duplication of reporting and related costs of applying specific requirements in IFRS S2, and the reliefs would be optional.

Key proposals:

Category 15 Scope 3 GHG emissions: firms would be permitted to exclude Category 15 Scope 3 GHG emissions (‘financed emissions’) associated with derivatives, facilitated emissions and insurance-associated emissions from their measurement and disclosure of GHG emissions.
Use of jurisdictional reliefs:
The proposal clarifies that a firm can measure its GHG emissions using a method other than the GHG Protocol, where a different method is required by a jurisdictional authority or an exchange on which the firm is listed.
The jurisdictional relief also permits the use of Global Warming Potential (GWP) values that are not from the latest Intergovernmental Panel on Climate Change (IPCC) assessment.
Use of Global Industry Classification Standard (GICS) codes: the exposure draft introduces flexibility in the use of GICS codes for disaggregating financed emissions by industry, specifically for those firms whose operations qualify as commercial banking and insurance.

Next steps: The ISSB aims to redeliberate and finalise the amendments later in 2025, after consultation. The deadline for the consultation is June 27 2025.

JFSA publishes survey on scenario analysis and transition plans

The Financial Services Agency (FSA) of Japan published a report titled “Survey on the Current Status of Scenario Analysis by Financial Institutions in Line with TCFD Recommendations and Transition Plans Based on the Results”. This report, commissioned to EY ShinNihon LLC, aims to analyse the scenario analysis and transition plans disclosed by major Japanese financial institutions (FIs) in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

In more detail: The report provides a comprehensive analysis of how major Japanese FIs, including banks, insurance companies, and life insurance companies, are implementing scenario analysis and developing transition plans based on the TCFD recommendations. The study compares the differences across various sectors and evaluates the content of the transition plans.

Key findings include:

The extent to which FIs have integrated TCFD recommendations into their scenario analysis
Differences in the approach and depth of scenario analysis across different financial sectors
The content and comprehensiveness of transition plans developed by these institutions

The report highlights that while many institutions have made significant progress in adopting TCFD recommendations, there are still variations in the level of detail and rigour applied in their scenario analyses and transition plans. The findings suggest a need for further standardisation and enhancement of these practices to ensure consistency and effectiveness in addressing climate-related risks.

Next steps: Following the publication of this report, the FSA plans to continue monitoring the implementation of TCFD recommendations by FIs. The agency will provide guidance and support to help institutions enhance their scenario analysis and transition planning processes. Additionally, the FSA will work towards promoting greater standardisation and transparency in climate-related disclosures to ensure that financial institutions can effectively manage climate risks and contribute to a sustainable financial system.

The FSA also encourages FIs to engage actively with stakeholders, including investors and regulators, to improve the quality and consistency of their climate-related disclosures. This ongoing effort aims to strengthen the resilience of Japan’s financial sector in the face of climate change and support the country’s transition to a low-carbon economy.

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