The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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Mansion House 2024
November 14, 2024
Rachel Reeves, the U.K. Chancellor has set out a package of reforms in her Mansion House speech. The reforms aim to drive growth and competitiveness in financial services. Ms. Reeves stated that the regulatory changes post-financial crisis created a system which sought to eliminate risk-taking that 'has gone too far' and has led to unintended consequences. Ms. Reeves hopes to maintain the U.K.'s high regulatory standards while rebalancing elements of the regulatory system to drive economic growth and competitiveness. The package includes:- A proposed Financial Services Growth and Competitiveness Strategy
- Further reforms to the U.K.'s wholesale markets framework
- A new Payments Vision
- Confirmation of the introduction of PISCES
- A consultation on a proposed U.K. Green Taxonomy
- Confirms that the provision of ESG ratings will be brought within the scope of the U.K. regulatory perimeter
- Potential credit union common bond reform
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Mansion House: Response to Consultation on Future Regulatory Regime for ESG Ratings Providers
November 14, 2024
Following its consultation, HM Treasury has published its response to the consultation on the future regulatory regime for ESG ratings providers, along with the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2024. HM Treasury confirms that it will be proceeding with its proposal to bring the provision of ESG ratings within the scope of the U.K. regulatory perimeter. The government welcomes technical comments on the draft regulation by January 14, 2025. The government plans to finalize the legislation in 2025, at which point the Financial Conduct Authority will consult on the specific requirements. HM Treasury expects the overall process of designing, developing and commencing the ESG ratings regulatory regime to take approximately four years.
As part of the design of the future regulatory framework for ESG ratings provision, the FCA is also considering its approach to overseas ESG ratings providers applying for U.K. authorization. This includes exploring whether, according to size, significance, or market impact in the U.K., an ESG ratings provider would be expected to be incorporated in the U.K. HM Treasury is also exploring creating overseas regimes and other access routes into the U.K. market for overseas providers, including a possible market access or overseas regime for ratings issued in overseas jurisdictions. -
Mansion House: HM Treasury Consults on UK Green Taxonomy
November 14, 2024
HM Treasury has published a consultation on developing a U.K. Green Taxonomy to classify sustainable economic activities, with the aim of increasing sustainable investment and reducing greenwashing risk. Responses to the consultation may be submitted until February 6, 2025.
The consultation seeks views on the use cases for a taxonomy, including complementing the U.K.'s other green initiatives, supporting the development of sustainability-focused financial products and the potential application to investment fund and investment portfolio product disclosures. It further seeks input on whether the taxonomy could support the mobilization of transition finance, following the U.K.'s Transition Finance Market Review (discussed in our blog post, "UK Transition Finance Market Review Publishes Recommendations"). The consultation also sets out proposed design features to maximize the usability of any such taxonomy, including: (i) its interoperability with other international taxonomy regimes; (ii) the environmental objectives and sectoral scope of the U.K. Taxonomy; (iii) the best way to incorporate the "do no significant harm" principle; and (iv) the desired level of governance and oversight to ensure credibility of the regime. -
Mansion House: Financial Services Growth and Competitiveness Strategy
November 14, 2024
HM Treasury has launched a call for evidence on a proposed Financial Services Growth & Competitiveness Strategy, a key part of the latest Mansion House reforms. Once developed, the Strategy will serve as the central guiding framework for the next ten years through which the government aims to deliver sustainable, inclusive growth for the financial services sector and secure the U.K.'s competitiveness as an international financial center. To meet its objectives, the proposed strategy sets out five core policy pillars central to sustainable growth: innovation and technology, regulatory environment, regional growth, skills and access to talent, and international partnerships and trade. The proposed strategy also identified five priority growth areas within the financial services sector: fintech, sustainable finance, capital markets (including retail investment), insurance and reinsurance markets, and asset management and wholesale services. Responses to the call for evidence may be submitted is December 12, 2024. HM Treasury intends to publish the strategy in Spring 2025.
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Network for Greening the Financial System Long-Term Climate Macro-Financial Scenarios for Climate Risks Assessments
November 5, 2024
The Network for Greening the Financial System has published the fifth phase of its long-term climate macro-financial scenarios for climate risks assessments. The main development is an updated assessment of physical risk. It now incorporates a new damage function, resulting in more substantial physical impacts from climate change. The Network for Greening the Financial System scenarios have been updated with new economic and climate data, policy commitments, and model versions.
Alongside the updated scenarios, the NGFS has published: (i) a high-level overview of the updates in the publication package, with a specific focus on the new damage function used for (chronic) physical risk assessment; (ii) a more detailed explanatory note on the new damage function; and (iii) updated technical documentation that discusses the NGFS modeling framework and assumptions behind the scenarios.Topic : Climate & Sustainable Finance -
UK Conduct Authority Publishes Guidance on Pre-Contractual Disclosure Under Sustainability Disclosure Requirements and Investment Labels Regime
November 1, 2024
The U.K. Financial Conduct Authority has set out good and poor practice examples to assist firms in meeting the pre-contractual disclosure requirements under the Sustainability Disclosure Requirements and investment labels regime. The examples cover a selection of labels, but the FCA considers that much of the practice will be relevant across all investment labels. The SDR and investment labels regime enters into force on December 2, 2024, although firms have been able to use investment labels since July 31, 2024.Topic : Climate & Sustainable Finance -
UK Transition Plan Taskforce Publishes Final Report on Progress Achieved and the Path Ahead
October 31, 2024The Transition Plan Taskforce has published its final report on the progress achieved and the path ahead. The report marks the end of the TPT's efforts to establish a gold standard for private sector transition plans. The report identifies key opportunities and challenges for the global adoption of transition plans, including building market capabilities, sharing best practices, developing tools for decision-makers, and fostering global consistency in transition planning norms.
The final report reveals that more companies than ever are disclosing their transition plans and aligning their business strategies with net-zero commitments. Financial institutions increasingly leverage these transition plans to direct transition finance, driving investments towards sustainable solutions. Internationally, momentum continues to grow to establish consistent standards and regulations on transition planning. The TPT observes that a growing number of jurisdictions are adopting the International Financial Reporting Standards (IFRS) S1 and S2 Standards. With the IFRS assuming responsibility for the TPT's disclosure materials, these will be utilized worldwide to support the emergence of a global norm on transition planning. The report also highlights four key areas where collective efforts could be focused in the future, to mainstream effective transition plans across the economy: (i) building market capabilities, practice and sharing experiences; (ii) developing enabling tools and driving thought leadership; (iii) ensuring that transition plans are integrated into decision-making; and (iv) increasing global consistency in transition planning norms and expectations. -
Glasgow Financial Alliance for Net Zero Consults on Guidance on Nature in Net-Zero Transition Plans and Index Guidance to Support Real-Economy Decarbonization
October 29, 2024
The Glasgow Financial Alliance for Net Zero has published a consultation paper on nature in net-zero transition plans, which supplements the guidance provided in its November 2022 financial institution net-zero transition plans report. The proposed guidance covers opportunities to reduce nature emissions or increase nature sinks (natural climate mitigation), as well as opportunities to support emissions reductions and sequestration through nature-related activities (natural climate enablers). GFANZ explains that collectively, these nature-related levers expand the toolkit for financial institutions to achieve their net-zero commitments and may identify more potential net-zero financing opportunities. GFANZ notes that general impacts on nature from climate change are beyond the scope of the proposed guidance but are discussed in the consultation paper as an area for ongoing consideration, which may lead to integrated transition planning in the future. The deadline for comments is January 27, 2025. GFANZ expects to publish the final supplemental guidance in Q1 2025.
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Taskforce on Nature-Related Financial Disclosures Publishes Draft Guidance on Nature Transition Planning at COP16
October 27, 2024
The Taskforce on Nature-related Financial Disclosures has published a discussion paper setting out draft guidance on nature transition planning for corporates and financial institutions developing and disclosing a transition plan in line with the TNFD recommended disclosures. The TNFD explains that delivering the transition implied by the Kunming-Montreal Global Biodiversity Framework (GBF) requires significant changes to business practices across all sectors. The guidance covers all aspects of nature apart from climate change and greenhouse gas emissions as drivers of nature loss, and natural carbon stocks. The TNFD explains that transition planning for these topics is covered in guidance from organizations such as GFANZ.
Key focus areas of the discussion paper are: (i) a definition of a nature transition plan; (ii) an overview of related initiatives; (iii) guidance on what a nature transition plan should include; (iv) guidance on how a plan should be presented and disclosed; and (v) areas of further work needed to support development and assessment of nature transition plans. TNFD aims for the discussion paper to inform the development of TNFD guidance on the content and disclosure of nature transition plans, stimulate further work and collaboration to support nature transition plans including on transition pathways and transition finance categories and encourage organizations to pilot test the TNFD draft guidance. The deadline for comments is February 1, 2025 and the Taskforce plans to publish final TNFD guidance on nature transition plans in 2025. -
Draft UK Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024 Published
October 22, 2024
The draft U.K. Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024 have been published, together with an explanatory memorandum. The Order makes changes to the U.K. Emissions Trading Scheme, including the following: (i) to include carbon dioxide venting from installations in the 'upstream' oil and gas sector as a regulated activity under the U.K. ETS and to introduce a new activity group for the verification of carbon dioxide venting emissions; (ii) to introduce two new penalties – firstly, where installations and aircraft operators fail to surrender allowances by the relevant deadline, a U.K. ETS regulator will be able to issue a "deficit notice". Should the operator not comply with the deficit notice, they will be liable to a penalty equivalent to the carbon price for each allowance they are in deficit for, multiplied by a factor of 1.5. Operators who continue not to pay this may be liable for a daily penalty. Secondly, a new penalty of £5000 will be introduced for certain operators failing to provide information in breach of article 27A of the Greenhouse Gas Emissions Trading Scheme Order 2020; and (iii) reducing the U.K. ETS cap on how many allowances can be created over the trading period and in each year (subject to certain exceptions) to bring it in line with the U.K.'s net zero commitments. The number of allowances auctioned from 2024 onwards has already been reduced in line with this new cap through amendments made to Auctioning Regulations in late 2023. The government considers that this reduction of around 30% in the cap for the trading period supports a smooth transition for the scheme's participants whilst sending a strong signal to decarbonize.Topic : Climate & Sustainable Finance -
UK Transition Finance Market Review Publishes Recommendations
October 17, 2024
The U.K. Transition Finance Market Review published its report for scaling transition finance. The report sets out the TFMR's recommendations on how to scale a high-integrity transition finance market that can support both U.K. and global net zero ambitions.
Read more.Topic : Climate & Sustainable Finance -
UK Climate Financial Risk Forum Publishes Guides on Climate Risk
October 10, 2024
The U.K. Climate Financial Risk Forum (CFRF) has published three guides to help the financial sector develop its approach to climate-related financial risks and opportunities. The CFRF is a financial services industry forum established jointly by the U.K. Financial Conduct Authority and Prudential Regulation Authority and is comprised of senior representatives from across the financial services industry. The three guides are: (i) Nature-related Risk: Handbook for Financial Institutions - this provides an introduction for financial institutions to help frame nature as a risk, and discusses emerging practices in incorporating nature into financial risk management; (ii) Short-Term Scenarios - this discusses the use cases of short-term scenarios for banks/asset managers/insurers to provide more guidance to firms; and (iii) Mobilising Adaptation Finance to Build Resilience - this provides guidance for the industry to assess the physical risks they face and to facilitate increased levels of investment into climate adaptation to respond to those risks as an opportunity. -
European Securities and Markets Authority Publishes First Annual Report on EU Carbon Markets
October 7, 2024
The European Securities and Markets Authority has published its first annual report on EU carbon markets. The report delivers insights into the functioning of the EU Emissions Trading System market. Key findings highlighted by ESMA relate to:- prices and volatility - the price of EU emission allowances declined in 2023, driven in part by lower demand for emission allowances from weak industrial activity, falling natural gas prices which led to a reduction in coal-based power generation and an increase in renewable energy, along with increased supply following the decision to auction additional allowances to finance the REPowerEU plan;
- auctions - the volume of emission allowances increased in 2023, and the primary emission allowance market remains considerably concentrated, with ten participants buying 90% of auctioned volumes in 2023, reflecting a preference by most EU ETS operators to source allowances from financial intermediaries; and
- trading and positions - the vast majority of emission allowance trading in secondary markets takes place through derivatives, reflecting the annual EU ETS compliance cycle where non-financial sector firms hold long positions (for compliance purposes) while banks and investment firms hold short positions.
Topic : Climate & Sustainable Finance -
Net-Zero Banking Alliance 2024 Publishes Progress Report
October 1, 2024
The United Nations Environment Programme Finance Initiative has published a 2024 progress report produced by the Net-Zero Banking Alliance. Launched in 2021, the NZBA is a bank-led alliance of 144 banks globally voluntarily committed to aligning their financing activities with routes to net zero emissions by 2050. The progress report summarizes information received from 122 member banks and offers insights into members' progress on target setting and transition planning. Overall, the report shows that most NZBA banks are taking significant steps towards meeting their climate goals. In the report, the NBZA identifies areas where more work is required, such as setting decarbonization targets for banks, which remains a challenging exercise due to the quality of client greenhouse gas emissions data, unclear decarbonization pathways, and a lack of a supportive policy environment. Insights gained from the progress will inform the steps NZBA will take to support emerging market banks that need more time to meet milestones. Following the vote earlier this year by member banks to reinforce and update the NZBA target setting guidelines, NZBA banks with significant capital markets activities are due to update their targets to include related emissions by November 2025.Topic : Climate & Sustainable Finance -
UK Department for Energy Security and Net Zero Publishes Update on Extension of UK Emissions Trading Scheme First Free Allocation Period to 2026
September 26, 2024
The U.K. Department for Energy Security and Net Zero published an update in relation to an extension of the U.K. Emissions Trading Scheme's first free allocation period. The U.K. ETS Authority is consulting operators in the scheme on a proposal to move the start of the second allocation period from 2026 to 2027, extending the current allocation period to include 2026. Operators will receive the consultation from their scheme regulator and have until October 11, 2024 to submit responses. The change aims to align changes to free allocation with the introduction of the U.K. Carbon Border Adjustment Mechanism in 2027. The Authority received a significant number of responses to the Free Allocation Review consultation indicating a preference for this alignment to ensure a consistent approach to carbon leakage mitigation. The Authority will ensure that any changes made to free allocation rules under the Free Allocation Review will be published by the end of 2025, with implementation in 2027.Topic : Climate & Sustainable Finance -
Euopean Commission report on the future of European competitiveness
September 10, 2024
The European Commission has published a report on the future of European competitiveness, prepared by Mario Draghi, former President of the European Central Bank. The report aims to set out a new industrial strategy for Europe to overcome barriers to the EU's competitive strength. It sets out priority proposals in the short and medium term in key strategic sectors. For financial regulation, the report focuses on the completion of the Capital Markets Union and the Banking Union.
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UK Financial Conduct Authority Publishes Temporary Measures for Firms on Naming and Marketing Sustainability Rules
September 9, 2024
The U.K. Financial Conduct Authority has set out temporary measures to offer firms flexibility to comply with the naming and marketing rules under the Sustainability Disclosure Requirements (SDR) regime, which come into force from December 2, 2024. It has taken longer than expected for some firms to make the required changes to comply with the new regime, so the FCA is offering limited temporary flexibility, until 5pm on April 2, 2025, for firms to comply with the naming and marketing rules set out in ESG 4.3.2R to ESG 4.3.8R.
The temporary relief applies in exceptional circumstances in relation to a U.K. authorised investment fund caught by the regime where the firm: (i) has submitted a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5pm on October 1, 2024; and (ii) is currently using one or more of the terms 'sustainable', 'sustainability' or 'impact' (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund. Where firms can comply with the rules without requiring this flexibility, they should do so. The FCA also expects firms to comply with the rules as soon as they can, without waiting until April 2, 2025. The FCA has received queries about the authorisation of mergers, wind-ups or terminations before December 2, 2024 and will take a supportive, proportionate and outcomes-based approach in these circumstances. Firms with questions should contact their supervisor or usual supervisory contact to discuss on a case-by-case basis. -
EU Guidelines on Funds' Names Using ESG or Sustainability-Related Terms
August 21, 2024
The European Securities and Markets Authority has published the official translations of its guidelines on funds' names using ESG or sustainability-related terms. The objective of the guidelines is to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names, and to provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names.
The guidelines establish that to be able to use these terms, a minimum threshold of 80 percent of investments should be used to meet environmental, social characteristics or sustainable investment objectives. The guidelines will start applying on November 21, 2024. The transitional period for funds existing before the application date is six months after that date, on May 21, 2025. Any new funds created on or after the application date are expected to apply the guidelines immediately. -
European Commission Provides Further Clarifications on EU Corporate Sustainability Reporting Rules
August 7, 2024
The European Commission has published a draft Commission Notice on the interpretation of certain legal provisions in the Accounting Directive, Audit Directive, Audit Regulation, Transparency Directive, Regulation (EU) 2023/2772 (which contains the first set of European Sustainability Reporting Standards), and the Sustainable Finance Disclosure Regulation as regards sustainability reporting. The notice contains a set of replies to FAQs clarifying the interpretation of certain provisions introduced by the Corporate Sustainability Reporting Directive with the aim of facilitating their implementation by undertakings. They aim to support stakeholders in the implementation of the EU corporate sustainability reporting rules.
The FAQs include (among others) questions addressing:- sustainability information reporting under Articles 19a and 29a of the Accounting Directive;
- sustainability information reported under Article 40a of the Accounting Directive;
- assurance of sustainability reporting;
- key intangible resources disclosures;
- additional FAQs on requirements for third-country undertakings; and
- the correlation between indicators published under CSRD and those published under SFDR.
Topic : Climate & Sustainable Finance -
Financial Conduct Authority Consults on Rules for Admission of Securities to UK Trading Platforms
July 26, 2024
The Financial Conduct Authority has opened a consultation on proposed rules for companies seeking to admit securities to a U.K. regulated market or "primary" multilateral trading facility under the new Public Offers and Admissions to Trading Regulations. The Public Offers and Admissions to Trading Regulations, which were published in January, provide a new framework to replace the U.K. Prospectus Regulation. The FCA proposes to create a new Prospectus Rules: Admission to Trading on a Regulated Market sourcebook, removing the Prospectus Regulation Rules sourcebook. The FCA will also add a new chapter to the Market Conduct sourcebook.
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European Securities and Markets Authority Opinion on the Functioning of the Sustainable Finance Framework
July 24, 2024
The European Securities and Markets Authority has published an Opinion on the sustainable finance regulatory framework, setting out possible long-term improvements. ESMA acknowledges that while the EU sustainable finance framework is already well developed and includes safeguards against greenwashing, it does believe that, in the longer-term, the framework could further evolve to facilitate investors' access to sustainable investments and support the effective functioning of the sustainable investment value chain. The opinion builds on ESMA's progress report on greenwashing and the joint opinion of the European Supervisory Authorities on the review of the EU Sustainable Finance Disclosure Regulation. The opinion also represents the last component of ESMA's reply to the Commission's request for input related to greenwashing, next to the final report on greenwashing.
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International Stocktake of Regulatory and Supervisory Initiatives on Nature-Related Financial Risks
July 18, 2024
The Financial Stability Board has published a stocktake of its member financial authorities' initiatives related to the identification and assessment of nature-related financial risks. The stocktake, which will be delivered to the July 25-26 meeting of G20 Finance Ministers and Central Bank Governors, describes both supervisory and regulatory initiatives, and also central banks' and supervisors' analytical work on whether and how nature degradation, including loss of biodiversity, is a financial risk.
The findings include:- Financial authorities are at different stages of evaluating the relevance of biodiversity loss and other nature-related risks as a financial risk, with approaches varying, in part due to differing mandates.
- Financial authorities categorize nature-related risks into the same two types of risks typically used in climate-related financial risk analysis: physical and transition risks. However, analytical work faces major data and modelling challenges. Authorities' work to date indicates that financial institutions face large exposures to physical risk via their investments and financing activities, but that analytical work needs to be further developed to better translate estimates of financial exposures into measures of risk. Authorities recognize the strong connections between climate risk and nature, and that more needs to be done to develop a more holistic approach that considers interdependencies between climate- and nature-related financial risks.
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EU Final Report on Guidelines on Enforcement of Sustainability Information
July 5, 2024
The European Securities and Markets Authority has published a final report on the guidelines on enforcement of sustainability information and a public statement on the first application of the European Sustainability Reporting Standards. The documents aim to support the consistent application and supervision of sustainability reporting requirements introduced under the EU Corporate Sustainability Reporting Directive.
The Guidelines were mandated under the EU Transparency Directive as amended by CSRD and are designed to build convergence on supervisory practices on sustainability reporting. ESMA has aimed to align them with the existing Guidelines on Enforcement of Financial Information, to ensure that enforcement of sustainability information is consistent with enforcement of financial information and is held to be on a par with such information.
The Standards specify the information that firms subject to the EU Accounting Directive, as amended by CSRD, should report in accordance with sustainability reporting requirements. Through the public statement on the first-time application of the Standards, ESMA intends to support large issuers with the implementation of these new reporting requirements. ESMA will continue to monitor the sustainability reporting practices in 2025 as well as the application of the Guidelines. ESMA will translate the Guidelines into all EU languages and make these translations available on its website. In addition, ESMA will release in Q4 recommendations on the sustainability statements of listed companies in its public statement on the 2024 European Common Enforcement Priorities.Topic : Climate & Sustainable Finance -
Network for Greening the Financial System Reports on Nature-Related Risks
July 2, 2024
The Network for Greening the Financial System has published two complementary reports on nature-related risks. The first report is the final version of the Conceptual Framework for nature-related financial risks, which aims to guide policies and action by central banks and financial supervisors. The aim of the framework is to create a common science-based understanding of, and language for, nature-related financial risks among NGFS members that provides greater clarity on the meaning of key concepts and the way these interrelate. The report includes two illustrative cases, which demonstrate how this framework can be applied in practice. The NGFS encourages central banks and supervisors to identify, assess and, where relevant, act on material economic and financial risks stemming from dependencies and impacts on nature and their nexus with climate change. The second report outlines the key emerging trends related to nature-related litigation, including cases concerning biodiversity loss, deforestation, ocean degradation, carbon sinks and plastic pollution. This report argues that nature-related legal actions will likely evolve and grow, taking inspiration from successful climate-related litigation cases, and benefiting from an increasing awareness of the nature crisis. The NGFS considers that, in the coming years, two key categories of nature-related litigation might be expected to develop in particular: (i) an increase in the number of rights-based nature cases against states and public entities; and (ii) an increase in the number of cases based on corporate responsibility. The NGFS encourages central banks, supervisors and financial institutions to closely monitor developments in nature-related litigation.Topic : Climate & Sustainable Finance -
UK Financial Conduct Authority Update on Notification of Use of Investment Labels Under Sustainability Disclosure Requirements Regime
July 1, 2024
The U.K. Financial Conduct Authority has provided an update on how firms should notify the FCA when they are using an investment label under the sustainability disclosure requirements and investment labelling regime. Firms must notify the FCA when using an investment label through the form available on Connect. The labels can be displayed from July 31, 2024 and firms must meet the naming and market EU rules from December 2, 2024. The FCA notes that it does not approve labels, but firms are still required to notify it when they use, revise or stop using a label. The FCA provides the specific steps for notification in relation to four scenarios: (i) an authorized fund that the fund manager considers meets the criteria for a label without the need for changes to the pre-contractual disclosures; (ii) an authorized fund that the fund manager considers requires changes to the pre-contractual disclosures to meet the label criteria; (iii) a new fund that the fund manager considers will meet the label criteria; and (iv) an in-scope unauthorized alternative investment fund looking to use an investment label.Topic : Climate & Sustainable Finance -
European Supervisory Authorities Publish Final Reports on Greenwashing In Financial Sector
June 4, 2024
The European Supervisory Authorities have published their final reports on greenwashing in the financial sector. Each ESA provides a stocktake of the current supervisory response to greenwashing risks under its remit and notes that national competent authorities are already taking steps in the area of supervision of sustainability-related claims. The quantitative analysis of greenwashing in the EU shows a clear increase in the total number of potential cases across all sectors.
Each report provides recommendations for market participants, NCAs, the ESAs and the EC in relation to greenwashing. The recommendations include that market participants: (i) take all necessary steps to ensure that sustainability information provided is fair, clear, and not misleading; (ii) review and adapt their governance arrangements and internal processes to build safeguards against greenwashing, take a proactive approach in addressing data challenges, and consider the extent to which external verification and alignment with market guidance would support credibility of green or sustainable products and/or targets; and (iii) take a series of measures at both the entity level and the product level to ensure that sustainability claims are accurate, substantiated, up to date, that they fairly represent the institution’s overall profile or the profile of the product, and are presented in an understandable manner.
While the ESAs’ reports focus on the EU’s financial sector, they acknowledge that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures. Building on the preliminary regulatory remediation actions identified in ESMA’s June 2023 progress report, ESMA will publish an opinion with views on how the EU regulatory framework for sustainable finance could further facilitate the investor’s journey.Topic : Climate & Sustainable Finance -
UK Consultation on the Emissions Trading Scheme’s Free Allocation Methodology
01/08/2024
The U.K. Emissions Trading Scheme Authority has launched a consultation on its approach to free allocations. The ETS is proposing options to amend the free allocation methodology, focusing on its approach to accounting for activity levels, benchmarking and the manner in which carbon leakage risk is assessed. Carbon leakage occurs when production and associated emissions are transferred from one country to another by a business in order to benefit from lower carbon pricing and climate regulation in other jurisdictions. The free allocation policy is intended to reduce a firm's exposure to the carbon price in the U.K.
Responses to this consultation may be submitted until March 11, 2024. A government response is expected to be published in 2024, with changes implemented in the lead up to the next free allocation period in 2026. The ETS Authority is also consulting on changes to the U.K. ETS markets policy.Topic : Climate & Sustainable Finance -
UK Consultation on Revisions to Emissions Trading Scheme Markets Policy
01/08/2024
The U.K. Emissions Trading Scheme Authority has launched a second consultation on the review of the ETS markets policy. Feedback to the first consultation has been taken into account to prepare the proposals discussed in this second consultation. Responses to this second consultation may be submitted until March 11, 2024. The ETS Authority is also consulting on changes to the U.K. ETS free allocation framework.
The ETS Authority identifies the most significant risks to effective market functioning and proposes various policy options to address those risks as well as how individual market stability policies could address market risks while minimizing intervention and disruption in the market. The ETS Authority is proposing to: (i) introduce a quantity-triggered Supply Adjustment Mechanism to mitigate the risk of demand shift with long-term market impacts; (ii) retain a re-designed Auction Reserve Price, as well as possible additional mechanisms, to alleviate the risk of sudden, significant and sustained price decreases; and (iii) retain the Cost Containment Mechanism to mitigate against sudden, significant and sustained price increases, including whether to maintain the use of discretion to act upon the trigger or whether some automation could be introduced.Topic : Climate & Sustainable Finance -
Basel Committee Report on 2023 Banking Turmoil
10/20/2023
The Basel Committee on Banking Supervision published a press release in early October in which it announced:- That it would consult on disclosure frameworks for climate-related financial risks (in November 2023) and banks' cryptoasset exposures (soon).
- The publication of its report on the banking turmoil of 2023, which assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The Basel Committee states that it will be undertaking some follow-up work, including prioritizing work to bolster supervisory effectiveness globally and assessing whether any aspects of the Basel Framework did not function as intended during the turmoil.
- That by mid-2024 it would publish a report on developments in the digitalisation of finance and their implications for banks and supervisors.
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EU Publishes New Sustainable Finance Package
07/11/2023
The EU published a new Sustainable finance package 2023 on June 13, 2023. The package includes:- A Proposed Regulation on the transparency and integrity of ESG rating activities, which aims to enhance the quality of ESG ratings. The Regulation will introduce an authorization and ongoing supervision regime for ESG rating providers along with certain obligations, e.g., disclosures on ratings methodologies. The proposal does not intend to harmonize the methodologies for the calculation of ESG ratings, but to increase their transparency. Third-country ESG rating providers may be able to offer their services in the EU under either equivalence, endorsement or recognition. The U.K. is currently consulting on making the provision of ESG ratings a regulated activity.
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UK Government Publishes 2023 Green Finance Strategy
03/30/2023
The U.K. Government has published the 2023 Green Finance Strategy, its latest plan for mobilizing finance to support the shift to a greener financial system. The U.K. has committed to becoming a net zero economy by 2050.
The action points in the Strategy are based on two pillars: ‘Align’, which focuses on aligning financial markets with U.K. and global climate targets; and ‘Invest’, which encourages green investment. The proposals will have significant implications for corporates, financial institutions and investment firms, asset managers and financial market infrastructure providers.
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UK Government Consults on Regulation of ESG Ratings Providers
03/30/2023
As part of its new Green Finance Strategy, HM Treasury has published a consultation paper on proposals to regulate providers of environmental, social and governance ratings. Such ratings providers offer assessments on a firm’s exposure to ESG risks or a firm’s impact on ESG matters. HM Treasury has found that these assessments increasingly trigger responses in financial markets and should therefore be subject to regulation. Responses to the consultation should be submitted by June 30, 2023.
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UK Independent Review of Net Zero Recommendations for Carbon Markets and Financial Services
01/13/2023
The final report of the independent review of net zero has been published: "Mission Zero: Independent Review of Net Zero". The review was established in September 2022 to assess the government's approach to achieving its target of net zero greenhouse gas emissions by 2050. The government published its Net Zero Strategy in October 2021. The review's report makes numerous recommendations across a variety of sectors. Below are those most relevant to the financial services sector.
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Edinburgh Reforms: Changes to the Laws of the UK Financial Services Sector
12/09/2022
The U.K. Government has announced on a series of initiatives, billed as the Edinburgh Reforms, to reform the laws for the U.K. financial services sector. The proposals cover:- Reforms to Ring-Fencing Regime;
- Implementation of Post-Brexit Financial Regulatory Framework;
- Growth and Competitiveness Remit for U.K. Regulators;
- Reforms to Wholesale Markets;
- Faster Settlement;
- Senior Manager's and Certification Regime;
- Changes to Promote Investment and Growth in Financial Services;
- Sustainable Finance;
- FinTech and Digital Assets; and
- Consumer Credit.
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International Organization of Securities Commissions Publishes Consultation and Discussion Paper on Carbon Markets
11/09/2022
The International Organization of Securities Commissions has published a consultation on Compliance Carbon Markets and a separate discussion paper on voluntary carbon markets. Compliance Carbon Markets involve the issuance of carbon allowances by regional, national or state bodies. Companies are obligated to participate in the schemes to "pay" for their emissions. These markets are governed by regulations set at regional, state and international levels. The U.K., EU, Switzerland and California, for example, each have national Emissions Trading Schemes (as do some other countries or states). VCMs, on the other hand, involve participants who wish to offset their carbon emissions by buying carbon credits issued in relation to climate change mitigation or greenhouse gas reduction projects. VCMs are largely unregulated and, unlike Compliance Carbon Markets, are not mandatory. Instead, independent certification bodies usually check projects underlying credits for carbon reduction projects. Those credits can then be traded, either over-the-counter (which accounts for the majority of trades) or on exchanges.
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FCA Publishes Consultation Paper on Sustainability Disclosure Requirements
10/25/2022
Following its 2021 Discussion Paper, the FCA has published a consultation paper setting out proposals to enhance sustainability disclosure and labeling requirements for sustainability-linked investment products. The majority of the rules will apply only to fund and asset managers, although the FCA is considering expanding this to FCA-regulated asset owners in relation to their investment products and for certain rules to apply to distributors of investment products to U.K. retail investors. The proposals are directed at fund and asset managers and portfolio managers based in the U.K. The FCA will consult separately on how these proposals apply to overseas fund and asset managers. The FCA already has climate-related disclosure rules for premium listed issuers, as well as rules for standard listed issuers and certain FCA-regulated firms (asset managers, life insurers, pure reinsurers and FCA-regulated pension providers).
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FCA Publishes Policy Statements on Climate-Related Disclosures for Standard Listed Companies and FCA-Regulated Firms
12/17/2021
The FCA has published two policy statements introducing new rules and guidance on climate-related disclosures for standard listed issuers and certain other FCA-regulated firms. The Policy Statements mirror the rule imposed under the FCA's Policy Statement on climate-related disclosures for premium listed issuers.
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UK Financial Conduct Authority Publishes Environmental, Social and Governance Strategy
11/08/2021
The U.K. Financial Conduct Authority has published an environmental, social and governance strategy to support the financial sector in the transition to a "net zero", more sustainable and more inclusive economy.
The FCA's strategy is built on five themes supported by key actions that the FCA anticipates taking in the near future. U.K. regulated firms should expect significant engagement by the FCA on these issues.
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UK Announces Plans to be World's First Net Zero Financial Centre
11/03/2021
The U.K. Chancellor of the Exchequer, Rishi Sunak, has announced the U.K. Government's plans to make the U.K. the world's first net zero financial centre. Under the plans, U.K. financial institutions will need to have robust transition plans describing how they will support the transition to a carbon neutral economy. The U.K. Government intends to introduce legislative measures to make these requirements mandatory with a view to increased adoption by 2023 and will incorporate standards for these transition plans into its proposed Sustainability Disclosure Requirements, announced in October in its policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.
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UK Financial Conduct Authority Publishes Discussion Paper on Sustainability Disclosure Requirements and Investment Labels
11/03/2021
The U.K. Financial Conduct Authority has published a discussion paper on its proposed Sustainability Disclosure Requirements and sustainable investment labels. The FCA is seeking initial views on these proposals with the intention of consulting on fuller policy proposals in Q2 2022. Responses to the discussion paper may be submitted until January 7, 2022. These proposals link to the U.K. government's ambitions on climate change and green finance, detailed in its October policy paper, Greening Finance: A Roadmap to Sustainable Investing, further details of which are set out in our related client note.
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UK Financial Conduct Authority Publishes Policy Statement on Climate-Related Disclosures by Listed Issuers
12/21/2020
The U.K. Financial Conduct Authority has published a policy statement introducing a new rule and guidance on climate-related disclosures for commercial companies with a U.K. premium listing.
The new rule, which will apply for accounting periods beginning on or after January 1, 2021, will require premium-listed commercial companies to state in their annual reports whether they have made disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures and, if they have not done so, explain why that is the case. The first financial reports containing these disclosures are expected to be published in Spring 2022.
Read more.Topic : Climate & Sustainable Finance