Global Regulatory Brief: Green finance, July 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 green finance agenda continues to be a high priority as global regulators advance a number of initiatives. The EU has set out a package of measures to significantly bolster the framework for sustainable finance and Europe’s markets regulator has published a report on ‘greenwashing’ in the financial sector ahead of later potential legislative changes. Ahead of hosting this year’s COP 28, the United Arab Emirates (UAE) has announced that green and sustainability-linked bonds will be exempt from registration fees for the year 2023. Hong Kong is consulting on a green taxonomy framework and the US derivatives regulator has issued an alert on carbon market misconduct. Finally, Australia’s banking regulator has included climate risk to its policy priorities in its Statement of Intent for the first time.
EU sets out sustainable finance regulation, including ESG ratings regulation
The European Commission has presented new measures to build out the EU’s legislative framework for sustainable finance. At the center of the package is a proposed regulatory framework for environmental, social and governance (ESG) ratings providers.
The new sustainable finance package also includes a range of other proposals including a new draft EU Taxonomy criteria for economic activities making a substantial contribution to one or more of the non-climate environmental objectives. The package also proposes to expand the economic activities contributing to climate change mitigation and adaptation through revisions to the EU Taxonomy Climate Delegated Act. The Commission has adopted changes to the EU Taxonomy Disclosures Delegated Act to clarify the disclosure obligations for the additional activities.
The Commission expects the Taxonomy Delegated Acts to apply from January 2024, while the proposal for ESG rating providers needs to follow the legislative procedure before it becomes binding law.
GFANZ APAC Network launches public consultation on proposal to phase out coal-fired power plants
The Glasgow Financial Alliance for Net Zero Asia-Pacific (GFANZ APAC) Network has launched a public consultation on its proposed set of voluntary guidance for financing the early retirement of coal-fired power plants in the Asia-Pacific region. The GFANZ APAC Network is seeking feedback on the practical steps that financial institutions can take to support the financing of coal phaseout transactions. This builds on emerging frameworks for the managed phaseout of coal-fired power plants, such as GFANZ’s managed phaseout of high-emitting assets guidance released last year. For context, coal power generation is the largest source of carbon dioxide emissions globally and it is expected to continue rising in Asia for several more years. The final guidance seeks to strengthen the credibility of these transactions in the eyes of relevant stakeholders. The consultation is open until August 4, 2023.
UAE SCA to exempt companies wishing to list their green or sustainability-linked bonds from registration fees
The Securities and Commodities Authority (SCA) Board of Directors approved a proposal for the SCA to exempt companies wishing to list their green or sustainability-linked bonds or sukuk in a local market from registration fees for the year 2023. The decision aims to highlight the actions taken by the UAE in accordance with a clear agenda to achieve the objectives of sustainable development on more than one level, especially with regard to sustainable economic growth.
Hong Kong consults on prototype green classification framework
The Hong Kong Monetary Authority (HKMA) has released a discussion paper and a proposed prototype framework setting out its approach to the development of a green taxonomy to provide a local green classification framework. The initiative is intended to provide a standardized framework for classifying and labeling financial products and investments based on their environmental sustainability. The HKMA proposes three layers of depth to provide different degrees of precision when it comes to green definitions. The first layer is intended to map activities to standardized industrial classification codes, the second layer identifies the key metrics and the third layer proposes technical screening criteria.
As Hong Kong seeks to strengthen its status as an international green finance hub, the HKMA has commissioned the Climate Bonds Initiative to work on a green classification framework for adoption in the local market. The period for comments closed on June 30, 2023.
European regulators publish progress report on greenwashing
The European Supervisory Authorities (ESAs) have published their progress reports on greenwashing in the financial sector, which they define as a practice where sustainability-related communications do not clearly and fairly reflect the underlying sustainability profile of a particular entity, product or service. This can potentially mislead consumers and investors.The reports highlight that sustainability-related misleading claims can occur and spread either intentionally or unintentionally and in relation to entities and products both within and outside the EU regulatory framework. Both the European and national regulators are working to meet expectations to ensure investor and consumer protection, support market integrity and maintain a trusted environment for sustainable finance. The ESAs will publish final greenwashing reports in May 2024 and will consider final recommendations which may include possible changes to the EU regulatory framework.
US CFTC Whistleblower Office issues alert seeking tips relating to carbon markets misconduct
The US Commodity Futures Trading Commission (CFTC)’s Whistleblower Office in the Division of Enforcement issued an alert notifying the public on how to identify and report potential Commodity Exchange Act (CEA) violations connected to fraud or manipulation in the carbon markets. As described in the alert, the CFTC’s Whistleblower Office will work with market participants that report information related to potential fraud in the carbon markets including, but not limited to, manipulative and wash trading, “ghost” credits, double counting, fraudulent statements relating to material terms of the carbon credits, and potential manipulation of tokenized carbon markets.
Australia banking regulator adds climate change risk to new Statement of Intent
The Australian Prudential Regulation Authority (APRA) has for the first time included ‘climate-related risks’ in its policy priorities as listed on its Statement of Intent. Specifically, APRA considers the promotion of prudent practices and transparency in relation to climate-related risks as a key priority focus. The parallel Statement of Expectations recognizes that the costs and burdens of regulatory requirements are best dealt with through a proportionate and principles-based approach that considers different business models.
In parallel, the Chair of the Australian Securities & Investments Commission (ASIC), Joe Longo, outlined in a speech the growing importance of greater transparency and higher disclosure standards when it comes to ESG reporting. He indicated that the ‘E’ of ESG will likely expand over time with mandatory disclosures around climate being the beginning rather than end. Chair Longo outlined that three key areas of focus for ASIC can be summarized as the ‘three Gs’: governance, greenwashing, and growth in sustainable finance. Chair Longo concluded by stating that firms are advised to prepare thoroughly as the ESG space evolves and Australian regulators set high standards.
SEC aims to publish climate disclosure rules in October 2023
According to the recently released Spring 2023 Unified Agenda of Regulatory and Deregulatory Actions, the SEC now expects to release climate disclosure rules in October 2023, a year later than its initial anticipated date. The SEC also looks to propose rules on human capital and finalize rules on enhanced ESG disclosures by investment advisers and companies around this time. The SEC’s agenda is published with other agencies’ rulemaking plans twice a year.
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