Global Regulatory Brief: Green finance, June 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
Five laws within the EU’s ‘Fit for 55’ package have been adopted by the EU Council to enable greater greenhouse gas emission reductions while the Australian Minister Stephen Jones has set out the Government’s approach to reducing global emissions. International insurance supervisors have published a statement on the role of insurance in managing the financial impacts of natural disasters, and the Hong Kong regulator has published guidelines for its second climate risk stress test.
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- EU Council adopts greenhouse gas emissions legislation
- Australian Government outlines its emission-reduction regulatory strategy
- Malaysia to update green taxonomy
- IAIS publishes statement on natural catastrophe protection gaps
- HKMA publishes second climate risk stress test guidelines
- Japan’s GFANZ chapter to support APAC transition
EU Council adopts greenhouse gas emissions legislation
The EU Council has adopted five laws designed to cut greenhouse gas emissions within the main sectors of the European economy, marking the last step in the decision-making procedure. The laws are part of the ‘Fit for 55’ package, which sets the EU’s policies in line with its commitments to reduce its net greenhouse gas emissions by at least 55% by 2030 compared to the 1990 levels and to achieve climate neutrality in 2050. The amendments relate to the Emissions Trading System (ETS), a carbon market based on a cap-and-trade system of emissions allowances for energy-intensive industries and the power generation and aviation sector. The new rules increase the overall ambition of emissions reductions by 2030 in the sectors covered by the ETS to 62% compared to 2005 levels.
The rules also bring emissions from shipping within the scope of the ETS and will gradually introduce obligations for shipping companies to surrender allowances. Further, a new ETS for the buildings, road transport and additional sectors has been established and free emission allowances for the aviation sector will be gradually phased out and full auctioning from 2026 will be implemented. The Carbon Border Adjustment Mechanism aims to prevent a scenario whereby greenhouse gas emission reductions in the EU are offset through increased imports of products in carbon-intensive industries. Finally, the revenues from the new ETS will partially fund the Social Climate Fund to support vulnerable householders, micro-enterprises and transport users as they adjust to the price impact.
The rules will now be signed by the Council and European Parliament before publication in the EU Official Journal and entry into force.
Australian Government outlines its emission-reduction regulatory strategy
Assistant Treasurer and Minister for Financial Services Stephen Jones has set out in a speech the Australian Government’s policy agenda to help reduce global emissions and to hit a 43% emission reduction target by 2030. To this end, the Government will be publishing its draft Sustainable Finance Strategy for consultation in the second half of 2023. This will include a Sovereign Green Bonds program to attract more green capital, a sustainable finance taxonomy to provide a common standard to measure what is green, and heightened surveillance of suspected greenwashing to ensure that claims are accurate and substantiated. The financial services minister also acknowledged that feedback to its climate risk disclosure framework has signaled universal support for the implementation of internally aligned reporting standards, and that further consultation will come later this year.
In parallel, the Australian Securities & Investments Commission (ASIC) has released a short report detailing the 35 interventions it has made in response to its greenwashing surveillance activities from July 2022 to March 2023.
Malaysia to update green taxonomy
Malaysia’s Joint Committee on Climate Change (JC3) has announced that it plans to review and update the TCFD Application Guide for Malaysian Financial Institutions to help firms implement climate-related disclosures in line with the TCFD recommendations. Specifically, the guide will be updated to account for the upcoming release of general sustainability-related and climate-related disclosure standards by the International Sustainability Standards Board (ISSB). This guide was first published in June 2022 and while the JC3 has published guidance in the form of FAQs, expanded use cases and the development of due diligence and screening criteria, JC3 members have observed that this needs to be complemented by further efforts to address prevailing data gaps. The implementation of Malaysia’s Climate Change and Principle-based Taxonomy (CCPT) remains a key priority for the JC3 to support other green-finance related projects such as greening supply chains, scaling up green technology adoption in the agriculture sector, and supporting the development of the sustainable sukuk and bond market.
IAIS publishes statement on natural catastrophe protection gaps
The International Association of Insurance Supervisors (IAIS) has published a statement on the role of insurance supervisors in bolstering natural catastrophe protection. The statement underlines the significant role that insurance and reinsurance has to play in managing the financial impact of natural disasters by offering financial protection against the damage done by natural disaster events and providing incentives for risk preparedness before a disaster. Insurance supervisors are already supporting the availability of risk analytics to assess disaster risks and encouraging risk prevention measures. By the end of 2023 the IAIS will publish a report that analyzes the various types of initiatives undertaken by insurance supervisors and will facilitate information exchange at the global level.
HKMA publishes second climate risk stress test guidelines
The Hong Kong Monetary Authority (HKMA) has published guidelines for the second round of the climate risk stress test, which will take place from June 2023 to June 2024. Notably, the HKMA has enhanced the climate risk stress test framework through a variety of measures such as a new 5-year scenario, the inclusion of exposures usually considered less susceptible to climate change, and more detailed reporting standards. Over 30 firms have confirmed their participation in the upcoming stress test and additional guidance will be provided throughout the process.
Japan’s GFANZ chapter to support APAC transition
Japan has become the first nation to host a Glasgow Financial Alliance for Net Zero (GFANZ) Country Chapter, which will be part of the broader GFANZ Asia-Pacfiic Network and will launch in June 2023. The Japan Chapter will support local financial institutions as they work to decarbonize by sharing knowledge and best practices on developing net-zero transition plans. The Japan Chapter launch coincides with Japan’s G7 presidency.
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