Global Regulatory Brief: Green finance, September 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 takes shape as regulators seek to provide firms with greater clarity regarding the practical implications of new rules relating to green finance. From the UK to Malaysia, the following global developments from the past month in green finance stand-out:

• UK outlines next steps for sustainability disclosure standards
• EU Commission adopts first set of European Sustainability Reporting Standards
• Malaysia proposes simplified ESG disclosure guide 
• US federal financial regulators give update on climate issues 
• Hong Kong launches enhanced competency framework on green and sustainable finance 
• ICVCM announces global benchmark for high-intensity carbon credits

UK outlines next steps for sustainability disclosure standards

The UK Government has published further information on its plans to establish internationally coherent Sustainability Disclosure Standards (SDS) for corporations. 

What does this mean: The UK SDS will form the basis of any future requirements in the UK for companies to report on risks and opportunities relating to sustainability matters and climate change. Notably: 

• UK SDS will be based on standards issued by the International Sustainability Standards Board (ISSB). 
• The aim is for the information companies disclose under UK SDS to be globally comparable and decision-useful for investors.

Wider background: The creation of the ISSB was announced at COP26, the 2021 UN Climate Change Conference in Glasgow, with the role of creating a global baseline for sustainability reporting. ISSB published its first two new standards in June 2023. 

Next steps: An official announcement of the UK’s endorsement of ISSB – which will formally create the UK SDS – is expected by July 2024. The UK endorsed standards will only divert from the global baseline if absolutely necessary for UK specific matters. 

Still in consideration: While the exact scope of impact is unconfirmed, it is expected that the requirements will apply to UK registered companies and limited liability partnerships, as well as UK listed companies.

Closely related: The Financial Reporting Council (FRC), as part of its role as secretariat to the UK sustainability disclosure technical advisory committee, has issued a call for evidence to inform the proposed adoption of ISSB standards in the UK. The deadline to submit feedback is October 11, 2023.

EU Commission adopts first set of European Sustainability Reporting Standards

The European Commission (EC) has published the final detailed rules outlining the first set of European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). 

What this means: All disclosure points under the ten topical reporting standards are subject to a materiality assessment. 

• Certain types of companies and some disclosure requirements are subject to phase-in periods before reporting becomes mandatory. 
• For example, companies with less than 750 employees can delay Scope 3 reporting by one year.

 Next steps: If no objections are made during the scrutiny period, the rules will be published in the EU’s Official Journal and will become binding for companies under EU law and take effect from January 1, 2024. 

Related: The Commission also released an FAQ document on the ESRS. The interoperability between the ESRS and ISSB standards was subject to discussion at the most recent public session of the Sustainability Reporting Board (SRB) in late August. 

Malaysia proposes simplified ESG disclosure guide

Capital Markets Malaysia (CMM) has introduced proposals to simplify its ESG disclosure guide (SEDG) for small and medium enterprises. 

Background: The guide was developed after the Malaysian Securities Commission recognized challenges faced by SMEs in embedding sustainability practices in their business operations. 

What it means: The SEDG aims to offer practical, structured guidance for SMEs on disclosing ESG matters that is aligned with the major global frameworks and reporting standards such as the Global Reporting Initiative (GRI) and ISSB. 

• It will also reference local reporting requirements including those under the Bursa Malaysia Listing Requirements, Bursa’s Sustainability Reporting Guide as well as the Malaysian Code on Corporate Governance. 

Next steps: CMM plans to officially launch the SEDG in November this year.  

US federal financial regulators give updates on climate issues during FSOC meeting

At the Financial Stability Oversight Council’s (FSOC) July 28 meeting, federal financial regulators provided updates on the progress made to assess and address climate-related financial risks.

• Gary Gensler, Chair of the Securities and Exchange Commission (SEC), stated that, while the SEC has no role as to climate itself, it does have a role in ensuring that public companies make a “full, fair, and truthful disclosure about the material risks they face.” Gensler said the SEC is still considering more than 15,000 comments received on the climate disclosure rule proposal from last year.
• Treasury Secretary Janet Yellen, who chairs the FSOC, said that a spate of extreme weather events is causing insurers to raise rates on homeowners. Some firms have withdrawn entirely from offering coverage in areas deemed to be high risk, she added. Yellen said it is necessary for FSOC to examine how these shifts may affect the wider financial system.

Hong Kong launches enhanced competency framework on green and sustainable finance

The HKMA, the Hong Kong Institute of Bankers (HKIB) and the banking industry have launched the Core Level of the Enhanced Competency Framework on Green and Sustainable Finance (ECF-GSF) to establish common competency standards for GSF-related job roles in the banking sector. 

Overview: Authorized institutions are strongly encouraged to adopt the ECF-GSF as part of their overall staff recruitment and development efforts. 

• The HKMA expects institutions to adopt appropriate measures to monitor and maintain the competence levels of their staff, support their staff in attending training and examinations to meet ECF certification, and keep proper records of the relevant training and qualification of their staff 
• Institutions are also expected to provide staff with the necessary assistance in their applications for grandfathering, certification and fulfillment of continuing professional development training under the ECF-GSF.

Implementation: The ECG-GSF will be launched in two phases:

• Phase 1 (core level) – which will lay a solid foundation on the knowledge and application of GSF; and
• Phase 2 (professional level) – which will focus on specialized domain areas covering upcoming market developments and regulatory trends.

ICVCM announces global benchmark for high-intensity carbon credits

The Integrity Council for the Voluntary Carbon Market (ICVCM) released its full global benchmark for high-intensity carbon credits, with the goal of maximizing the ability of the voluntary carbon markets to support delivery of global climate targets. 

What you need to know: The completed framework for assessing categories of credits and crediting methodologies will be used to determine whether carbon credits meets ICVCM’s high-integrity Core Carbon Principles (CCPs). 

• Carbon-crediting programs can now apply for assessment by submitting evidence that they meet the CCps through the ICVCM’s application portal. 
• Once approved as CCP-Eligible, programs will be able to use the CCP label on specific categories of credits that have been approved as meeting the CCps. 

View the additional regulatory briefs from this month:

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

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