Request Free Trial
March 17, 2022

Regulatory round-up

By Victor Smart and

EU finance ministers have agreed a unified position on a proposed Carbon Border Adjustment Mechanism that will introduce a levy on imports of carbon-intensive products, such as steel, aluminium, fertiliser and cement. A draft regulation establishing CBAM was released this week. It is the world’s first major climate import tariff and could be introduced as early as 2026.

CBAM will initially complement the EU’s greenhouse gas emission allowance trading system by applying an equivalent set of rules to imports into the bloc, and will progressively become an alternative to the mechanisms established under the existing trading system.

‘Climate club’: “CBAM has to be part and parcel of an open climate club. We want to encourage other countries to make similar and appropriate efforts, and we have to react to these efforts,” said German finance minister Christian Lindner, as reported by Euractiv.

Timing: The agreement shows the EU’s commitment to the ‘Fit for 55’ climate package, which some feared would take a back seat as policymakers deal with the energy crisis erupting from Russia’s invasion of Ukraine. Moscow is Europe’s biggest supplier of carbon-intensive products (including gas and oil), which in 2019 amounted to an estimated €10bn.

But: There’s no agreement yet over the use of proceeds from the levy.

 

The Taskforce on Nature-related Financial Disclosures (TNFD) has invited feedback on a prototype framework it published this week. The TNFD, formally recognised by both the G7 and G20, is designed to do for biodiversity what the hugely influential Task Force on Climate-related Financial Disclosures (TCFD) has done on climate change. The idea is to create uniform but voluntary disclosures to help corporates, investors, lenders and others manage nature-related risks, such as species loss or soil infertility. 

The TNFD is backed by Global Canopy, the UN Development Programme, the UN Environment Programme Finance Initiative and the World Wide Fund for Nature. The proposed disclosure framework has been designed to align with the work being finalised by the new International Sustainability Standards Board.  

In their words: We spoke to TNFD’s co-chair David Craig, here, while Elizabeth Mrema, the organisation’s other co-chair, said she hoped governments will agree on an “ambitious and effective” post-2020 global biodiversity framework, as proposed by the UN. “The process towards the Global Biodiversity Framework and the TNFD are two key initiatives, among others, that support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes,” she wrote in the statement announcing the framework.

 

Japan’s Financial Services Agency intends to make it mandatory for listed firms to disclose their ratio of women in senior managerial positions, according to The Asahi Shimbun newspaper, and is also considering mandating the disclosure of gender gaps in wages. The new rules could come in next year. Japan lags “woefully behind other advanced nations in this regard”, said the publication. 

Rules needed: The country’s new corporate governance code, which took effect in June 2021 asks companies to set voluntary targets for promoting diversity in senior management positions by appointing women, non-Japanese and mid-career professionals. However, under the Tokyo Stock Exchange reorganisation plan, only so-called prime section companies will be subject to the code.

 

In other policy news

The general secretary of the International Organization of Securities Commissions (Iosco) says countries reconsidering their energy policies following Russia’s invasion of Ukraine should retain a sustainable approach as this is vital for the long term. Iosco’s Martin Moloney told Sustainable Views: “However the debates around energy policy dictated by the concerns around Ukraine turn out, the merits of developing a fit-for-purpose financial market with a sustainable finance focus remain, and they will remain as important over the next 30 years as they are now.” 

The International Sustainability Standards Board is set to publish a draft of its “game-changing” standards for climate reporting later this month. Janine Guillot, chief executive officer of the Value Reporting Foundation and special adviser to the chair of the ISSB, said the group intends to publish for consultation drafts of the ISSB’s first two standards, a climate standard and a general requirements standard. These standards are built on prototype documents published at COP26. Guillot was speaking on a webinar hosted by the International Corporate Governance Network, said Environmental Finance.

The UK’s Competition and Markets Authority has published an open letter to government, proposing standardised definitions enshrined in law of environmental terms that are commonly used in product marketing, such as ‘net zero’.

Sarah Bloom Raskin has withdrawn her nomination to serve as the US Federal Reserve’s top financial regulator after what US president Joe Biden described as “baseless attacks” from industry and conservative groups because of her calls for regulators to be more proactive in addressing financial risks related to climate change.

Alison Herren Lee, a prominent environmentally-aware commissioner at the US Securities and Exchange Commission, has announced she will not seek a second term amid speculation that the SEC will water down proposals on climate disclosure next week.

A service from the Financial Times