2 Nov, 2021

Sustainable Finance Regulatory Update: October 2021


October 2021 has been one of the most eventful months of the year, with a series of updates across ESG disclosure requirements, regulations, and sustainable investing provisions. In the run up to COP26 in Glasgow, we bring you up to speed on the updated EU Taxonomy and SFDR Regulatory Technical Standards, ECB’s climate stress test methodology, UK’s Green Finance Roadmap, and many more interesting developments across the global sustainability reporting.

Global Reporting Initiative (“GRI”) raises the global bar for due diligence and human rights reporting

The GRI published its revised Universal Standards on 5th October, clarifying material topics and providing guidance on reporting principles. In the most significant change since the standards launched in 2016, GRI also unveiled the first GRI Sector Standard for the oil and gas industry, further bringing material ESG reporting into focus. Read more 

The European Financial Reporting Advisory Group (EFRAG) publishes final ‘Towards Sustainable Business’ report  

The project task force on reporting of non-financial risks and opportunities, and linkage to the business model (PTF-RNFRO) published its Final Report titled ‘Towards Sustainable Business: Good Practices in Business Model, Risks and Opportunities Reporting in the EU’, including a supporting ‘Supplementary Document: Good Reporting Practices’. Read more 

European Supervisory Authorities (ESAs) update draft Regulatory Technical Standards (RTS) for SFDR and EU Taxonomy alignment  

EU Regulators provided much required clarity on the long-awaited RTS, including further detail regarding the scope of Taxonomy alignment disclosures that take effect in July 2022. In particular, supervisors shed light on sovereign bond disclosures, Do-No-Significant-Harm (DNSH) reporting, as well as the relationship between SFDR and EU Taxonomy criteria. Read more.  

ECB releases bank climate stress test methodology 

The forthcoming ECB Climate Risk Stress Test will require lenders to report on a common set of climate risk metrics, including the volume of greenhouse gas emissions they finance. As of 2022, banks will also be required to assess their exposure to short-term physical and transitional climate risks, and to evaluate their response to common transition scenarios over the next 30 years. Read more

European Commission Study on the integration of ESG factors into banks’ risk management processes, business strategies and prudential supervision 

Findings show that ESG integration is at an early stage, and the pace of implementation needs to be accelerated in order to achieve effective ESG integration into banks’ risk management and business strategies, as well as prudential supervision. To support this acceleration, enhancements are required on ESG definitions, measurement methodologies, and associated quantitative indicators. A lack of adequate data and common standards remain key challenges to overcome to drive ESG integration. Read more 

UK’s Green Finance Roadmap published 

In a significant development in the UK government’s drive towards “greening” the financial system, as part of the transition to a net-zero carbon economy, Her Majesty’s Treasury (HMT) published a policy paper entitled “Greening Finance: A Roadmap to Sustainable Investing”.  Read more

US Shareholder Rights Regulation takes favourable view on ESG Investing 

On October 14, 2021, the U.S. Department of Labor (the “DOL”) published a proposed regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Proposed Rule”).  The Proposed Rule is the latest in a series of DOL guidance and regulations regarding a plan fiduciary’s consideration of ESG factors when making investment decisions for ERISA (Employee Retirement Income Security Act of 1974) plans and the exercise of shareholder rights by such plans. Read more

The US Financial Stability Oversight Council (FSOC) releases 133-page report on Climate-Related Financial Risk 

Published on 21 October, the Report and related Factsheet discuss how climate-related financial risks can implicate financial stability and declare climate-related finance risk as an emerging threat to financial stability. 

Global Collaboration: IMF, World Bank and OECD  

The three international bodies are working together on classification systems to harmonize and support the development of sustainable finance markets. Read more 

Other News 

  • New Zealand passes world-first climate reporting legislation. Read more 
  • French Regulator AMF publishes initial conclusions of the Climate and Sustainable Finance Commission on the carbon neutrality of companies. Read more 
  • Illinois Enacts Comprehensive Climate and Clean Energy Legislation. Read more 
  • The International Energy Agency (IEA) released its flagship report “World Energy Outlook Report 2021 examining the full spectrum of energy issues in oil, gas, coal and other forms of energy. Read more 
  • UN Human Rights Council formally recognized that access to a healthy environment is a fundamental human right. Read more 

Podcasts and Speeches 

  • ​Listen to the latest EFRAG podcastrelated to the European Lab Project Task Force on the reporting of non-financial risks and opportunities and the linkage to the business model (PTF-RNFRO) report. The third and final episode on the report highlights the current and potential role of technology in sustainability reporting. 
  • “The Earth has a deadline. Let’s make it a lifeline”: An insightful keynote address and speech by Mr. Ravi Menon, Managing Director, Monetary Authority of Singapore on “What We Need to Do to Make Green Finance Work” at Financial Times Investing for Good Asia Digital Conference on 8 September 2021 Read the complete speech here.