Monthly Updates on Regulatory Frontlines for Environmental, Social, and Governance Issues in the Financial Services Sector
The financial sector is witnessing a significant shift towards sustainable finance, with regulators and organisations across the globe taking concrete steps to address climate change and environmental risks. Here's a roundup of some of the key developments in this area.
Regulatory Responses
The Financial Conduct Authority (FCA) in the UK has responded to the Transition Finance's Market Review findings, aiming to enhance the industry's ability to manage climate-related risks. Meanwhile, the European Banking Authority (EBA) has issued a consultation on draft guidelines on the management of Environmental, Social, and Governance (ESG) risks.
The Australian Securities and Investments Commission (ASIC) has also addressed climate-related risks in the financial system, and the Australian Competition and Consumer Commission (ACCC) has authorised the Australian Sustainable Finance Institute (ASFI) to collaborate on sustainable finance initiatives, subject to conditions to prevent anti-competitive behavior.
Greenwashing Penalties and Guidelines
Regulators are taking action against greenwashing. The SEC in the US has imposed a $4 million payout over 'greenwashing' charges, while ASIC in Australia has initiated a greenwashing proceeding. The FCA has also published finalised guidance on the anti-greenwashing rule.
Sustainability Standards and Recommendations
The International Sustainability Standards Board (ISSB) has published its inaugural standards, aiming to provide a global baseline for high-quality sustainability reporting. The Taskforce on Nature-related Financial Disclosures (TNFD) has also published recommendations and draft guidance on nature transition planning.
The European Commission has adopted the European Sustainability Reporting Standards (ESRS) and a recommendation for voluntary sustainability reporting for Small and Medium Enterprises (SMEs) in the EU.
Sustainable Finance Packages and Reports
The European Commission's sustainable finance package is under discussion, focusing on enhancing the EU's financial sector's role in supporting the green transition. The ESAs have published progress reports on greenwashing in the financial sector, and ESMA has discussed its annual report on EU carbon markets and their implementation timeline on sustainable finance.
Greenwashing Legal Challenges
ClientEarth, an environmental law organisation, has attempted to judicially review a decision of the FCA to approve the prospectus of a UK oil and gas company, Ithaca Energy plc, citing concerns about greenwashing.
Net-Zero Transition and Decarbonisation
Global Financial Alliance for Net Zero (GFANZ) is providing guidance and support for net-zero transition and real-economy decarbonisation. The Network for Greening the Financial System (NGFS) has published short-term scenarios to help financial institutions understand the risks and opportunities associated with the transition to a net-zero economy.
Diversity and Inclusion in Finance
The FCA and the Prudential Regulation Authority (PRA) in the UK have set out proposals to introduce a new regulatory framework on diversity and inclusion in the financial sector.
Sustainable Finance in Other Regions
In the Netherlands, the government is consulting on the implementation of the Corporate Sustainability Due Diligence Directive into Dutch law. The California Climate Emissions and Carbon Offset Disclosure Laws are also under discussion.
These developments underscore the growing global commitment to sustainable finance and the efforts being made to address climate change and environmental risks. As the shift towards sustainability continues, we can expect to see more regulatory action, standards, and initiatives aimed at promoting a greener and more resilient financial sector.
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