Global Regulatory Brief: Green finance, March edition
The Global Regulatory Brief provides monthly insights from regulatory bodies on developments within risk and regulation. This brief was written by Bloomberg’s Regulatory Affairs Specialists.
Green finance regulatory developments
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- UK fleshes out its approach to the green finance agenda
- Singapore’s Green Finance Industry Taskforce issues proposals for green taxonomy
- New Zealand begins mandatory climate-related disclosures
- Federal Reserve Board provides additional details on how its pilot climate scenario analysis exercise will be conducted
- CFTC chief sees bigger role in policing voluntary carbon markets
- US Department of Labor sued over ESG proxy rules
- US Congressman Patrick McHenry announces formation of a Republican ESG Working Group
UK fleshes out its approach to the green finance agenda
The broader role of financial regulation in the green transition and ESG policy-making is the subject of a discussion paper published on February 10 by the UK’s FCA. The FCA is exploring firms’ sustainability-related governance, incentives, competence and stewardship arrangements and the evolution of firms’ processes to achieve positive sustainability outcomes. The FCA is interested in hearing from firms about how to move beyond disclosure-based initiatives in contributing to a net-zero economy. In particular, the FCA touches on how governance, incentives and competence are considered in the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations, and how expectations are evolving with the work of the International Sustainability Standards Board, the UK’s Transition Plan Taskforce and the Glasgow Financial Alliance for Net Zero, as well as sustainability training in regulated firms. Comments are due by May 10, 2023.
The paper comes after the UK Government committed to publish an updated Green Finance Strategy in 2023 and consult on bringing ESG ratings providers into the regulatory perimeter as part of the UK Chancellor’s Edinburgh Reforms in December 2022.
On February 21, the Chief Secretary to the Treasury John Glen MP delivered a speech in which he underlined the ongoing work the UK is undertaking to accelerate the adoption of robust standards for investing in a broader range of ecosystem services, including the integration of climate change considerations into the work of the UK’s financial regulators.
Singapore’s Green Finance Industry Taskforce issues proposals for green taxonomy
Singapore’s Green Finance Industry Taskforce (GFIT) has issued on February 15 its third and final set of proposals for consultation on a green taxonomy for Singapore-based financial institutions. GFIT wants views on how thresholds and classification criteria for green transition activities can be calibrated in five sectors: agriculture and forestry/land use, industrial, waste and water, information and communications technology, and carbon capture and sequestration. GFIT has proposed a traffic light classification system to signal a particular activity’s contribution to climate change mitigation.
The previous two rounds of consultation in January 2021 and May 2022 covered the energy, transport and real estate sectors. This third round brings the coverage of the green taxonomy to eight sectors in total, representing approximately 90% of greenhouse gas emissions in South-East Asia. GFIT will consider feedback from all three consultations before publishing its final taxonomy before summer 2023.
New Zealand begins mandatory climate-related disclosures
Reporting has begun for around 200 large financial firms against new climate reporting standards in New Zealand for financial years beginning on or after January 1, 2023. Following new laws passed in October 2021, large banks, asset managers, insurers and certain listed issuers are required to disclose the business impact of climate change. This makes New Zealand the first jurisdiction to legislate on the Task Force on Climate-related Disclosures (TCFD) recommendations.
The new disclosure regime will be gradually phased in, with the second phase requiring the disclosure elements relating to greenhouse gas emissions to have independent assurance. This phase will apply to accounting periods ending on or after October 27, 2024.
Federal Reserve Board provides additional details on how its pilot climate scenario analysis exercise will be conducted
The Federal Reserve Board provided additional details on how its pilot climate scenario analysis exercise will be conducted and the information risk management practices that will be gathered over the course of the exercise. The six largest US banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. To support the exercise’s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks, the Board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.
CFTC chief sees bigger role in policing voluntary carbon markets
CFTC Chair Rostin Behnam said his agency has the power to investigate suspected fraud and manipulation in spot markets if a tipster comes to the agency with evidence of misconduct. It has already done so in cryptocurrencies and the same principle would apply to carbon markets. Regulators including the CFTC and the SEC have been under pressure since crypto exchange FTX’s sudden collapse in November. Much like crypto, trading in voluntary carbon markets happens unregulated in the spot markets, outside the CFTC’s remit.
US Department of Labor sued over ESG proxy rules
Texas, leading a coalition of 24 states, sued the Biden Administration to stop a new Department of Labor rule that allegedly prioritizes “ill-defined” ESG concepts into ERISA regulations. The rule “prioritizes woke Environmental, Social and Governance investing over protecting the retirement savings of approximately two-thirds of the US population,” Texas Attorney General Ken Paxton (R) said in a press statement announcing the filing at the US District Court for the Northern District of Texas. The rule authorizes retirement plans to consider nonfinancial factors when administering trust assets, which violates the federal tax and labor law, the complaint said.
US Congressman Patrick McHenry announces formation of a Republican ESG Working Group
Patrick McHenry (NC-10), the Chairman of the House Financial Services Committee, announced the formation of a Republican Working Group to “combat the threat to our capital markets posed by those on the far left pushing environmental, social, and governance (ESG) proposals.” The working group will examine ways to: “rein in SEC’s regulatory overreach; reinforce the materiality standard as a pillar of our disclosure regime; and hold to account market participants who misuse the proxy process or their outsized influence to impose ideological preferences in ways that circumvent democratic lawmaking.”
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