In March, the IPCC released its sixth assessment report which illustrates a critical need to accelerate climate policy action due to a ‘rapidly closing window of opportunity to secure a livable and sustainable future for all’. Despite the current state of play, the IPCC is optimistic that strategic macroeconomic policies would help unlock climate finance and support investment in low-emission infrastructure and technologies.
In the EU, regulators are launching initiatives that build on the ‘Fit for 55’ package to cut emissions by 55% by 2030, compared to 1990 levels. The EU Council and Parliament announced a proposal to revise the Renewable Energy Directive, orchestrating a shift towards the use of clean energy and fuel across the bloc. Regulators are also tackling transition in the maritime sector by introducing carbon intensity reduction targets for large ships. In the financial services sector, the ECB released its first set of climate-related financial disclosures that show a positive trend towards portfolio decarbonization.
Across the Channel, regulators in the UK are defining a pathway to net zero through the intersection of finance, technology and innovation. Among other priority areas, the UK ‘s latest Green Finance Strategy seeks to mobilize private finance in the realm of clean energy and technologies.
In the Americas, the commitment to climate action is being driven in large part by federal governments conscious of the expenditure on carbon-intensive infrastructure. In March, the Canadian Government introduced climate disclosure requirements for major federal suppliers with the purpose of “greening its operations”.
India is also multiplying sustainability governance on many fronts, starting with the Securities and Exchange Board of India’s ESG disclosure rules for corporates and a new classification system for ESG mutual funds.
Across the world, there is a sustained increase in the number and types of policy instruments to increase transparency, accountability and efficiency in the allocation of capital. Global financial regulators are faced with widespread sustainability-related risks which may not be adequately addressed through unilateral policy measures. As stated in the latest IPCC report, the enduring and inclusive quality of global sustainability regulation rests on multi-level governance and calculated coordination across multiple policy domains.
Europe
Proposal to revise EU Renewable Energy Directive
The European Council and EU Parliament reached a provisional agreement to increase the EU’s overall renewable energy use. The revised directive mandates that the EU’s total energy consumption must consist of 42.5% renewable energy by 2030. Each member state must adhere to sector-specific targets in transport, industry, buildings and district heating and cooling. The agreement offers several options for member states to lower carbon intensity, including the adoption of binding year-on-year transition targets for each sector. The Renewable Energy Directive will enhance the implementation of the EU’s ‘Fit for 55’ package and boost the region’s energy security by speeding up the permit approval process for renewable energy projects. Member states will have to reach a consensus on the agreement before it enters into force.Read more
Provisional agreement reached on European Green Bond Standard
Key negotiators in the European Parliament have established the first ‘best-in-class’ green bond standard. Companies issuing green bonds in accordance with the standards can communicate the use of proceeds in a substantive disclosure. Disclosures would provide decision-useful information to investors, allowing them to suitably add sustainable technologies and businesses to their portfolio. In addition to enhancing transparency, companies that adopt the EUGBS will be aligned with the EU Taxonomy’s classification system for sustainable economic activities.Read more
EU reaches deal on ‘FuelEU Maritime’
A new agreement was signed by EU lawmakers to significantly reduce carbon intensity in the maritime transport sector through the use of low-carbon fuels. The maritime sector contributes to 3-4% of the EU’s CO2 emissions and the law aims to induce demand in the sustainable maritime fuels market. The law provides for 80% maritime decarbonisation by 2050, starting with a 2% ship emissions reduction by 2025. Currently, the regulation is applicable to ships above 5,000 tonnes and it includes a requirement for zero-emissions at berth. Container ships and passenger ships docking at major EU ports must also use onshore power supply by 2030. Under the new law, ships may collectively demonstrate compliance with intensity targets by opting into a voluntary pooling system.Read more
ECB’s first climate-related disclosures reflect portfolios’ path to decarbonization
The ECB has published two reports on climate-related financial disclosures that give a detailed overview of its portfolios’ carbon footprint, physical risk exposure, climate-related governance and risk management. A review of the Eurosystem’s corporate sector portfolios shows a gradual trend towards decarbonisation, in part due to emissions reduction efforts from companies in the ECB’s portfolio for every million euro of revenue earned. Additionally, the Eurosystem is reducing relative emissions by tilting its corporate bond purchasing towards issuers with better climate performance. In the second report, the ECB signals the readiness of central banks in the euro monetary zone to boost transparency by meeting standardised climate reporting requirements based on recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). These will be published by the end of April. Both the ECB’s reports are a concrete step towards deploying the commitments laid out in its climate change action plan. The ECB’s forward-looking initiative to integrate climate risk in its strategy and operations will continue with a periodic review of policy measures and a decarbonization path in line with the Paris Agreement. Read more
United Kingdom
UK releases updated Green Finance Strategy
The UK Government released the Mobilizing Green Investment: 2023 Green Finance Strategy to strengthen the UK’s transition economy and create a sufficient pathway to achieve net zero goals. It provides a blueprint to close investments gaps and reorient capital towards clean technologies and renewables projects. In addition to furthering climate neutrality objectives, the government will explore the development of high-integrity voluntary nature markets in the UK. Read more
North America
Government of Canada to require major federal suppliers to disclose emissions and set reduction targets
Under the newly adopted “Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets” federal contractors will be obligated to report emissions and set greenhouse gas reduction targets that are aligned with the Paris Agreement. The disclosure requirements will be in effect from April 2, 2023. Suppliers can satisfy the conditions of this rule by participating in Canada’s Net Zero Challege – a voluntary initiative that encourages businesses to create an effective transition plan for achieving net zero emissions by 2050. In addition to the disclosure rule, the new Treasury Board also announced the Standard on Embodied Carbon in Construction for major government construction projects to report and reduce embodied carbon footprint. Read more
Asia Pacific
SEBI finalizes core metrics for ESG disclosures and code of conduct for ratings providers
India’s top financial regulator launched the Business Responsibility and Sustainability Report (BRSR) Core – a set of essential ESG indicators for top listed companies. BRSR Core consists of under 50 reporting metrics derived from global standards (GRI, TCFD, SASB, SDG SASB). The Core framework will be supplemented with sector-specific guidance to ensure reliable disclosures consistent with corporate sustainability data across global jurisdictions. SEBI will also create a code of conduct for ratings providers and provide oversight in accordance with IOSCO recommendations. Regulation in this area is necessary to ensure a low degree of discrepancy between ratings methodologies. This would help appropriately reorient capital flows towards transition activities. Similarly, SEBI has proposed a rule to distinguish between different types of ESG mutual funds. SEBI is among many Indian regulators tightening disclosure rules to ensure that investors are not misled by unsubstantiated sustainability claims.Read more
Other News & Resources
- European Commission proposes Green Claims Directive to verify environmental labeling of products. Read more
- TNFD releases final draft of disclosure framework. Read more
- HM Treasury consultation on a future regulatory regime for ESG rating providers open until 30 June 2023.
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