Global Regulatory Brief: Green finance, October edition

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 implementation of the global green finance agenda is gathering speed as regulators seek to provide firms with greater clarity regarding the practical implications of new rules relating to green finance. The following developments from the past month in green finance stand out:

• EU: Commission launches consultations on SFDR
• US: California passes legislation requiring disclosures of GHG emissions and climate-related financial risks
• Hong Kong: GFANZ announces Hong Kong chapter
• UK: FCA responds to ISSB consultation on priorities for next two-year work plan
• Japan: FSA and BOJ test climate-related risks with banks and insurers
• ASEAN: Exchanges agree on new set of ESG metrics
• Singapore: SGX RegCo seeks to align listing rules with ISSB Standards
• Indonesia: OJK issues new rules for carbon trading
• Taiwan: FSC releases schedule for implementation of IFRS sustainability disclosure standards

EU Commission launches consultations on SFDR

The EU Commission has launched a targeted consultation and a public consultation to seek feedback on the Sustainable Finance Disclosure Regulation (SFDR).

In other words: The Commission is interested in understanding how the SFDR has been implemented and any potential shortcomings, including in its interaction with the other parts of the EU’s framework for sustainable finance, and in exploring possible options to improve the framework.

Who is this addressed to? The targeted consultation will gather input from public bodies and stakeholders who are more familiar with the SFDR and the EU’s sustainable finance framework as a whole.

• This will include financial market participants, investors, NGOs, relevant public authorities, national regulators, and others that are subject directly or indirectly to the provisions of the SFDR and have a more in-depth knowledge of SFDR

Who else can respond? The public consultation is addressed to a broad range of stakeholders across individuals, interest groups, member associations, and representative bodies with a more general knowledge of SFDR.

Next steps: The consultations will be accompanied by a series of workshops, beginning on October 10, 2023. Comments on both consultations are due by December 2023.

California passes legislation requiring disclosures of GHG emissions and climate-related financial risks

California state legislatures passed two bills that would require both public and private companies to disclose their greenhouse gas emissions and climate-related financial risks.

The details: SB 253, known as the Climate Corporate Data Accountability Act, would require any public or private company with over $1 billion in annual revenue that operates in California to publicly disclose the greenhouse gas emissions, including Scope 3 emissions from their supply chain.

California lawmakers also passed SB 261, which would require private and public companies doing business in California with annual revenues over $500 million to make biennial climate-related financial risk reports in accordance with the disclosure framework recommended by the Task Force on Climate-Related Financial Disclosures (TCFD).

Next steps: Both bills are currently pending before California Governor Gavin Newsom, who will choose to sign or veto before they automatically become law on October 14. Newsom stated that he intends to sign the bills into law.

GFANZ announces Hong Kong chapter

The Glasgow Financial Alliance for Net Zero (GFANZ) has announced that Hong Kong will host a GFANZ Chapter, joining the Japan Chapter as part of the broader GFANZ Asia-Pacific (APAC) Network launched in June 2022.

In detail: As an extension of GFANZ’s APAC Network, the Hong Kong Chapter will engage and build capacity with financial institutions in Greater China on net-zero efforts, transition planning and scaling transition finance, working with existing local sustainable finance initiatives to support further progress.

Who’s in charge? The Hong Kong Chapter will be advised by Chief Executive of the Hong Kong Monetary Authority, Eddie Yue, who is a member of the GFANZ APAC Network Advisory Board, and Dr. Ma Jun, Chairman of Hong Kong Green Finance Association and former Co-Chair of G20 Sustainable Finance Working Group.

FCA responds to ISSB consultation on priorities for next two-year work plan

The FCA has published its response to the International Sustainability Standards Board (ISSB)’s May 2023 consultation, seeking feedback on its priorities for its next two-year work plan following the publication of its first two international reporting standards (IFRS S1 and IFRS S2).

The FCA recommends: The strategic direction of the ISSB’s work should focus on embedding the General Requirements for Disclosure of Sustainability-related financial information (IFRS S1), and the requirements for Climate-related Disclosures (IFRS S2).

• The ISSB should also launch a comprehensive work programme to develop a suite of investor-material sustainability-related disclosure standards beyond climate
• Finally, the FCA also encourages the ISSB to begin work towards a thematic standard on nature, leveraging the final recommendations and framework of the Taskforce on Nature-related Financial Disclosures (TNFD)

Japanese authorities test climate-related risks with banks and insurers

The Financial Services Agency (FSA) and the Bank of Japan (BOJ) published findings from a climate-related risks scenario analysis they conducted with three banks and three non-life insurance groups.

At a high level: Using the Network for Greening the Financial System (NGFS) scenarios, the study aimed to understand the implications of climate change on financial systems and institutions.

The results: Key findings revealed that banks’ credit cost increases due to climate risks were much lower than their annual net incomes, but these risks depend significantly on banks’ models and other assumptions. Non-life insurers’ results indicated rising claim payments with increasing temperatures.

Next steps: Both FSA and BOJ plan to continue refining the scenario analysis methodology and will engage in international discussions on the subject.

ASEAN exchanges agree on new set of ESG metrics

A half dozen ASEAN stock exchanges have agreed on a new set of core sustainability metrics that are aligned to international standards and established practices.

The background: Previously, through a working group formed in 2021, metrics relating to environment (E) and social (S) issues were developed. The ASEAN exchanges have now agreed on ten governance (G) metrics, to complement the E and S metrics.

Who’s behind the initiative? The metrics were jointly developed by Bursa Malaysia, IDX (Indonesia Stock Exchange), PSE (Philippine Stock Exchange), SGX (Singapore Exchange), Vietnam Exchange, and SET (Stock Exchange of Thailand).

Going forward: Together, the core metrics will be recommended for disclosure by listed companies, serving as a common basis for member stock exchanges to build upon in order to drive sustainability in their home markets.

• This initiative is intended to encourage the disclosure of consistent ESG information on material topics, aid in bolstering sustainable investment across the region, and align with global trends

Next steps: The ASEAN exchanges are also working together to explore ways to further enhance ESG collaboration, product development, regional promotion, and depositary receipts cooperation.

SGX RegCo expected to align listing rules with ISSB Standards

The Singapore Exchange Regulation (SGX RegCo) said it expects to consult on listing rules amendments to align sustainability reporting requirements with the IFRS Sustainability Disclosure (ISSB) Standards by the end of the year.

What’s the goal? SGX RegCo CEO Tan Boon Gin says the objective of climate-related sustainability disclosure standards is to guide companies on how to explain the financial impact of climate change on their business.

Next steps: Tan adds that in finalizing its recommendations by 2024, SGX RegCo will also consider the feedback received by the Sustainability Reporting Advisory Committee during its public consultation to mandate climate-related disclosures for Singapore-incorporated companies.

Indonesia’s OJK issues new rules for carbon trading

Indonesia’s OJK (Financial Services Authority) has issued new rules to govern the trading of carbon credits through carbon exchanges.

What this means: The rules are part of OJK’s efforts to support the government in reducing GHG emissions, in line with the country’s commitments under the Paris Agreement, OJK said in a statement.

In detail: The new rules define carbon credits traded through carbon exchanges as securities, requiring them to be registered in a national registry system.

• Similarly, market operators must be licensed as carbon market operators to carry out business activities as carbon exchanges and to develop carbon credit-based products
• The rules also cover supervision of transactions and settlement, trading governance, risk management, consumer protection, and other activities related to carbon trading

Taiwan FSC releases schedule for implementation of IFRS sustainability disclosure standards

The Taiwan FSC has released a roadmap for Taiwan listed companies to align with IFRS Sustainability Disclosure Standards.

The plan: The FSC has established a taskforce to promote the alignments, and an execution period scheduled from 2023 to 2027. The aim is to further align with international standards, continually enhance the quality and comparability of sustainability information reporting, and strengthen trust in the capital markets.

Key points: The roadmap is structured as follows:

• Alignment approach – The FSC will adopt IFRS Sustainability Disclosure Standards
• Applicable entities and timeline – The FSC will take a phase-in approach to adopt IFRS Sustainability Disclosure Standards starting from FY2026
• Location and timing of disclosures – The FSC will amend “Regulations Governing Information to be Published in Annual Reports of Public Companies”, which requires companies to disclose sustainability information in accordance with IFRS Sustainability Disclosure Standards in their annual reports and to publish the sustainability information at the same time as the financial statements
• Disclosure content – The FSC has decided to provide sufficient flexibility for companies to prepare for adoption of IFRS Sustainability Disclosure Standards, such as the possibility to use transition reliefs, qualitative information and estimates

Next steps: Starting from 2026, the initial application of IFRS Sustainability Disclosure Standards shall include IFRS S1 and IFRS S2.

• From 2027 onwards, the FSC will continue assessing and endorsing each up-coming standards issued by ISSB, based on the development of IFRS Sustainability Standards

View the additional regulatory briefs from this month:

• Trading and markets
• Risk, capital and financial stability
• Digital finance

Sign up to receive these updates in your inbox first.

How we can help

Bloomberg’s Public Policy and Regulatory team brings you insight and analysis on policy developments to help navigate the complex and fast changing global regulatory landscape. To discuss regulatory solutions, please get in touch with our specialists or read more insights from our Regulatory team.