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December 15, 2022

Regulatory Round-up: EIOPA’s first climate stress test, ISSB’s emerging market meeting

By Victor Smart

The European Insurance and Occupational Pensions Authority has published its first climate stress test, which reveals that the EU pensions sector has “a material exposure to transition risks”. Eiopa says the test was designed to “assess the resilience of institutions for occupational retirement provisions against a climate change scenario that simulates a sudden, disorderly transition to a green economy as a consequence of the delayed implementation of policy measures”. The authority reported that on the asset side, the stress scenario resulted in an overall drop of 12.9 per cent, corresponding to asset valuation losses of around €255bn.

The European Banking Authority has published a three-year roadmap for sustainable finance and environmental, social and governance risks. This outlines the EBA’s approach to integrating ESG risk considerations in the banking framework and supporting the EU transition to a more sustainable economy.

The UK’s Financial Conduct Authority has set up a new advisory committee to oversee the authority’s ESG-related responsibilities. Part of its role will be to ensure that when the FCA is formulating its objectives and functions, it has a “regard” for the UK’s commitment to achieving a net zero economy by 2050.

The UK will consult in the first quarter of the new year on imposing a regulatory framework for ESG ratings providers, chancellor Jeremy Hunt has announced. The UK Treasury is to join the industry-led ESG data and ratings code of conduct working group, recently convened by the Financial Conduct Authority, as an observer. Hunt also said the government would publish an updated green finance strategy early in 2023. The move is part of a package of regulatory reforms of the UK finance sector. 

The UK government has also said it will not take a decision on a national green taxonomy this year, and postponed considering the matter to 2023. The All-Party Parliamentary Group on ESG’s Alexander Stattford, who called for a UK “dark green” taxonomy in November, said the announcement was “deeply unsatisfactory”. He added: “We have seen little movement in over a year, this signal should have been delivered earlier to reassure industry and investors that the UK is committed to leading global green finance, instead we are giving out the very opposite message.”

The Securities Commission Malaysia has published a principles-based sustainable and responsible investment taxonomy for local capital markets. The taxonomy is designed to boost Malaysia’s efforts on climate and sustainability by providing definitions on sustainable investments and addressing confusion around greenwashing.

One hundred and fifty financial institutions, representing over $24tn in assets under management, have urged world leaders to adopt measures that “would set a clear mandate for the alignment of financial flows with the preservation of global biodiversity” during COP15, the UN biodiversity conference in Montreal. The statement has been coordinated by the UN-backed Principles for Responsible Investment, the UN Environment Programme Finance Initiative and the Finance for Biodiversity Foundation. Signatories include AXA Group, Legal & General Investment Management, Shinhan Financial Group, Sumitomo Mitsui Trust Asset Management and UBS.

The International Sustainability Standards Board has met with jurisdictions from the global south to ensure its standards “can be adopted and applied effectively around the world”. Representatives from Brazil, Chile, Egypt, Indonesia, Kazakhstan, Kenya, Nigeria, Mexico, Pakistan, South Africa, Sri Lanka, Uzbekistan and Zimbabwe took part in the roundtable, said the ISSB, with Thailand and Papua New Guinea dispatching written comments.

The ISSB has also announced it will incorporate nature-related considerations beyond climate change into its sustainability standards, which it is due to publish in 2023, after it received “strong feedback on the connection between climate and nature, including cultivated and natural biodiversity, deforestation and water”. The organisation said it will study how to complement its proposed climate-related disclosure standard with aspects relating to natural ecosystems and human capital as part a just transition to a green economy. It also said it will consider the existing work of the Taskforce on Nature-related Financial Disclosures.

The International Swaps and Derivatives Association has issued new industry documentation for the trading of verified carbon credits, as it seeks to develop legal and risk management standards for markets related to environmental, social and governance activities.

A service from the Financial Times