The pace of developments in ESG regulation is not letting up as we draw to the end of 2022.
Globally, regulatory efforts have been focusing in on managing climate-related financial risk and preventing greenwashing, according to ISS ESG, part of Institutional Shareholder Services. The group also said the agenda is now beginning to encompass nature-related risks and social issues.
In its report The Depth & Breadth of Sustainable Finance Regulatory Initiatives: Global Developments in 2022, ISS ESG used a regulation breadth and depth index to compare sustainable finance regulation across countries.
EU countries and the UK led in this index for both 2021 and 2022. France – scoring 96 and 108, respectively – ranked highest followed by Netherlands, Germany, Sweden, Austria and UK.
In 2021 Japan was the next country in the index with a score of 35. This year, despite climbing to a score of 40, it had been surpassed by Malaysia, Singapore and India. Australia and Thailand were some of the biggest climbers over the 12 months.
And, of course, 2022 is the year we have seen big moves forward with a genuinely global project for regulating sustainable finance – the International Sustainability Standards Board, or ISSB, which is in the process of drafting international rules on general sustainability-related disclosure requirements and climate-related disclosure requirements ready for implementation in 2023.
As the ISS ESG rankings show, there has been no slowing of growth and innovation of ESG regulation across the Asia Pacific (APAC) region.
Region wide, 13 countries now have or are developing green taxonomies in addition to the regional sustainable finance taxonomy published by the Association of Southeast Asian Nations (ASEAN).
On the disclosure front, there has been notable progress in Singapore, Malaysia and Japan. The Monetary Authority of Singapore (MAS) is planning to require asset managers to make climate-related financial disclosures align with the ISSB. It also intends to require disclosures on funds’ investment strategies, criteria, and metrics.
Malaysia has developed a TCFD application guide for Malaysian financial institutions and the country’s Securities Commission has mandated fund managers to consider ESG risks in investment processes and active ownership.
Over to Japan, the Japanese Financial Services Agency (FSA) has outlined principles for ESG funds – ISS ESG said now when a firm claims a fund has ESG characteristics, it must strengthen its investment approach and processes on a continuous basis and provide clear, consistent explanations around this.
Standards are also being ramped up for ESG data providers in the Japanese FSA’s draft Code of Conduct for ESG Evaluation and Data Providers published in July. A final version is due to come out by the end of 2022.
Climate and environmental risks are being included in regulation across APAC too. The Monetary Authority of Singapore (MAS) issued its environmental risk management (EnRM) guidelines for banks and finance companies earlier this year while Hong Kong, Taiwan and the Philippines have committed to climate risk stress tests.
The Australian Competition and Consumer Commission, meanwhile, made greenwashing – or “consumer and fair trading issues in relation to environmental claims and sustainability” – its top enforcement priority for 2022-23. Alongside this the Australian Securities and Investments Commission issued guidance on how to avoid greenwashing when offering or promoting sustainability-related products.