Global Regulatory Brief: Green finance, May 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

The rules and regulations around green finance are constantly shifting and being redefined, with a number of global regulatory bodies consulting and developing on Sustainable Disclosure and Taxonomy, to name a few. Navigate the regulatory challenges that are reshaping financial markets with confidence.

• Singapore launches finance for net zero action plan
• UK publish updated Green Finance Strategy and consult on ESG ratings
• European regulators consult on the Sustainable Disclosure and Taxonomy
• Australia to co-fund the initial development of Sustainable Finance Taxonomy
• Federal Reserve Bank of New York releases report on climate stress testing

Singapore launches finance for net zero action plan

The Monetary Authority of Singapore (MAS) has launched its Finance for Net Zero (FiNZ) Action Plan which sets out its strategy to mobilize finance to aid the transition to net zero. FiNZ builds on the Green Finance Action Plan launched in 2019 by including transition finance, which refers to investment, lending, insurance and other services that assist in the decarbonization of areas such as power generation, buildings and transportation. FiNZ is centred on four strategic outcomes, namely:

• Data, Definitions & Disclosures. To promote consistent, comparable, and reliable climate data and disclosures to guide decision-making MAS is working to develop a code of conduct that will require ESG ratings and data product provider to disclose how transition risks feature in their products. MAS is also looking at how to improve the interoperability of taxonomies across jurisdictions, and will set out a roadmap for key ISSB-aligned disclosures.
• Climate Resilient Financial Sector. To foster sound environmental risk management practices, MAS will incorporate evolving international best practices in the supervision of transition planning for financial instituions.
• Credible Transition Plans. To support the adoption of science-based transition plans, MAS will engage international partners such as the International Energy Agency to support the development of credible regional sectoral decarbonization pathways.
• Green & Transition Solutions & Markets. MAS will promote innovation in the market for transition financing solutions by expanding the scope of its sustainable bond and loan grant schemes to include transition bonds and loans, which provisions in place to mitigate the risk of ‘greenwashing’. MAS will also support the development of carbon services and carbon credits markets in Singapore to channel financing toward carbon removal projects in Asia.

Additionally, Singapore and China have established a green finance taskforce (GFTF) to strengthen collaboration in green and transition finance between Singapore and China as Asia seeks to transition to a low carbon future. The three initial priorities of the GFTF are i) achieving interoperability between the Singapore and China taxonomies, ii) strengthening sustainability bond market connectivity, iii) leveraging technology such as digital green bonds with carbon credits to facilitate sustainable finance adoption.

UK publish updated Green Finance Strategy and consult on ESG ratings

The UK Government has published a revised Green Finance Strategy setting out its policy framework for managing the risks and opportunities associated with climate change and supporting the transition to net zero. The strategy includes updates around the UK Taxonomy, implementation of the International Sustainability Standards Board (ISSB), transition plan disclosure, biodiversity, ESG ratings and benchmarks, and voluntary carbon markets.

The FCA has announced an update on the next steps for its proposed investment labels under the Sustainability Disclosure Requirements (SDR) regime. The FCA has delayed the date of publication for its final policy statement on the SDR proposals to Q3 2023 (original date was June 2023), as it continues to consider the wide range of feedback. The UK regulators have published a joint statement welcoming the updated Strategy.

In parallel, HM Treasury (HMT) has also published a consultation setting out initial policy proposals on the scope of a potential regulatory regime for ESG ratings providers, covering the description of ESG ratings and their provision, exclusions, territorial scope, and proportionality. The consultation closes on June 30, 2023.

European regulators consult on the Sustainable Disclosure and Taxonomy

The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published a consultation paper containing proposed changes to the Sustainable Finance Disclosure Regulation (SFDR). Specifically, the ESAs are seeking feedback on whether to extend the list of universal social indicators for the disclosure of the principal adverse impacts of investment decisions to include items such as earnings from non-cooperative tax jurisdictions or interference in the formation of trade unions. The ESAs are also looking to refine the content of other indicators for adverse impacts and add product disclosures regarding decarbonisation targets. The consultation closes on July 4, 2023 and the ESAs plan to deliver the final report by the end of October 2023.

In parallel, the EU Commission has published for consultation two sets of draft rules to implement the Taxonomy regulation that specifies the screening criteria for the purposes of determining whether certain economic activities qualify as environmentally sustainable or not. The consultation closes on May 3, 2023.

Australia to co-fund the initial development of Sustainable Finance Taxonomy

The Australian Government has announced that it will co‑fund the initial development phase of an Australian Sustainable Finance Taxonomy. The Australian Sustainable Finance Institute (ASFI) will partner with the Government to realize this project. The Taxonomy is intended to attract more green investment to Australia by helping investors target particular sustainability objectives and ensure investments deliver on their sustainability claims. Additionally, the Australian Government plans to crack down on misleading claims about the sustainability of products (‘greenwashing’) by funding an expansion of ASIC’s surveillance and enforcement capabilities.

Federal Reserve Bank of New York releases report on climate stress testing

The Staff Report No. 105 explores the design of climate stress tests to assess and manage macroprudential risks from climate change in the financial sector. Among other things, the report reviews the climate stress scenarios currently employed by regulators, highlighting the need to: (i) consider many transition risks as dynamic policy choices; (ii) better understand and incorporate feedback loops between climate change and the economy; and (iii) further explore “compound risk” scenarios in which climate risks co-occur with other risks. 

View the additional regulatory briefs from this month:

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

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