Global Regulatory Brief: Green finance, April 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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- EU legislators reach an agreement on the Green Bond Standard
- Bank of England issues report on climate risks
- Japan sets timeline for domestic implementation of ISSB Standards
- SEBI issues new wave of ESG proposals
- New Zealand considers limited exemption for climate reporting
- US Republican lawmakers ask for SEC climate proposal records
- Fifty US lawmakers, led by Sens. Warren and Whitehouse, urge SEC Chair Gensler for strong climate rule
EU legislators reach an agreement on the Green Bond Standard
European legislators have agreed to a final version of the EU Green Bond Standard (GBS), making the EU a first-mover when it comes to setting standards for green bonds. According to statistics published by the European Parliament, Europe is the most prolific issuance region for green bonds with 51% of the global volume of green bonds being issued in the EU in 2020.
This final deal establishes uniform requirements for bond issuers that wish to adopt an “Eu GB” or “European green bond” label. The idea is that this GBS will provide more certainty to investors looking to position their investments toward more sustainable technologies and businesses. The standard is aligned with the EU Taxonomy Regulation which defines which economic activities can be considered as environmentally sustainable. The text will now go through a legal review before translation into all EU official languages. The rules will then apply in approximately Q2 2024.
Bank of England issues report on climate risks
The Bank of England (BoE) published a report setting out its latest thinking around climate-related risks and regulatory capital frameworks for banks and insurers. The report does not set out any policy or regulatory changes at this stage, as the BoE concluded that substantial further work is needed and there remain many open questions, notably on potential regime gaps to capture systemic risks from climate change and unintended consequences.
However, the report contains a number of key findings; for example, the report concluded that the existing time horizons over which risks are capitalized by banks and insurers are appropriate for climate risks, at this stage. Nonetheless, the BoE will continue to consider how climate risks may be properly calibrated within the timelines in existing capital frameworks. The report also confirmed that further analysis and work is needed to assess whether there may be a gap in the current macroprudential regime to effectively take into account climate risk.
Japan sets timeline for domestic implementation of ISSB Standards
Following an inaugural meeting with the International Sustainability Standards Board (ISSB), Japan authorities have announced plans to adopt ESG standards by March 31, 2025 based on the forthcoming ISSB framework. The work will be led by the Sustainability Standards Board of Japan (SSBJ), who will issue a draft version by March 31, 2024 for feedback. While the implementation date for mandatory application of the standards has not yet been set, the SSBJ will discuss whether early application would be permitted for fiscal years ending after the publication of the final rules.
SEBI issues new wave of ESG proposals
The Securities and Exchange Board of India (SEBI) has issued proposals on a wide-ranging regulatory framework for ESG that cover disclosure requirements for listed entities, the use of ESG ratings in the securities market and ESG investing by mutual funds.
Some key proposals include new requirements for India’s top 250 companies to make disclosures in relation to their supply chains on a ‘comply or explain’ basis beginning for fiscal years 2024-25. However, assurance of such disclosures will not be mandatory for fiscal years 2024-25, and instead, assurance will be enforced on a ‘comply or explain’ basis from fiscal year 2025-26 onwards.
The SEBI is also seeking to increase transparency on the votes cast by ESG funds and their engagement with portfolio companies through enhanced disclosure requirements in an effort to mitigate the ‘greenwashing’.
On ESG ratings, the SEBI proposes that ESG ratings providers will have to factor in 15 ESG parameters that “have an Indian context” when assigning ESG ratings to Indian companies. In parallel, SEBI has also proposed a wider supervisory and regulatory framework for the ESG ratings market, based on amendments to its existing CRA Regulations. SEBI will consider industry feedback and publish final rules for India’s ESG regulatory framework in due course.
New Zealand considers limited exemption for climate reporting
The New Zealand Financial Markets Authority (FMA) is considering certain exemptions for foreign exempt issuers from mandatory climate-related disclosures. The proposal is that this will apply to companies listed on a recognized foreign exchange and have a secondary listing and foreign exempt issuer status on the New Zealand Stock Exchange (NZX). This proposal would relieve NZX FEIs that do not have a substantial presence in New Zealand from needing to comply with certain elements of the Climate-Related Disclosures Act (CRD). The FMA is aiming to strike a balance between fulfilling the objectives of the CRD regime in helping New Zealand to achieve its target of net zero carbon by 2050 and avoiding unnecessary compliance burdens for foreign exempt issuers in New Zealand, which may lead to the loss of FEIs on the NZX and reduced choice for investors. The proposals are open for feedback until April 17, 2023.
US Republican lawmakers ask for SEC climate proposal records
In a letter dated Feb. 22, 2023, Rep. Patrick McHenry and other leading Republican lawmakers asked the SEC to provide information on the SEC’s proposed climate disclosure rule. Citing the Supreme Court’s recent ruling in West Virginia v. EPA in which upheld the major questions doctrine requiring government agencies to have clear congressional authorization for its actions, the Republicans requested records related to any legal advice or analysis the SEC received or considered on its statutory authority to adopt climate disclosure rules, among other items.
Fifty US lawmakers, led by Sens. Warren and Whitehouse, urge SEC Chair Gensler for strong climate rule
A group of 50 members of Congress, led by Sens. Elizabeth Warren and Sheldon Whitehouse, wrote to SEC Chair Gary Gensler and urged the SEC to fulfill its duty to investors and to follow through on finalizing a strong climate disclosure rule without delay. In a letter dated Mar. 5, 2023, the lawmakers raised concerns with recent news reports that that the SEC considering scaling back the proposed climate disclosure rule and asked the SEC to require public companies to disclose information about their carbon footprints, including Scope 3 information, which covers greenhouse gas emissions generated by companies’ suppliers and customers.
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