ESG Regulation

The European Union has adopted the European Green Deal, which aims to make Europe climate neutral by 2050. ated initiatives include: 

• A Disclosure Regulation requiring financial institutions to disclose how they build sustainability into the products they provide. 
• A Taxonomy Regulation establishing the criteria to determine if an activity is sustainable or not. This is to stop ‘greenwashing’ of investment products. 
• Other regulations including UCITS, AIFMD and MiFIDII are being updated to take into account sustainability measures.
• Regulatory Technical Standards are being finalised and are expected to be published soon. 
• A Green Bonds Regulation is expected to be released in the coming months.
  

There is currently no major regulation in the US overseeing the implementation of ESG-related practices.

The main standard setters for ESG reporting include:

• Global Reporting Initiative
• Sustainability Accounting Standards Board 
• Task Force on Climate Related Financial Disclosures 
• IFRS Foundation (considering its own ESG standard)
  

In September 2020, the World Economic Forum and International Business Council announced standards (which have the backing from the ‘Big Four’ accounting firms) creating a list of standardised “Core” and “Expanded” metrics, aligned with the SDGs with “the aim of amplifying the rigorous work already done by standard-setters instead of reinventing the wheel”. In October 2020, the United Nations Development Programme released its own set of voluntary ESG related standards aimed at private equity, venture capital and debt funds.

Assessment

Measures aimed at ESG regulation in financial markets is still at a fairly early, developmental stage. There are, however, a range of ‘big names’ behind the development of ESG related regulations and the pace of development is really quite rapid. In addition to the above countries are also developing their own regulatory or compliance mechanisms – too numerous to mention. This is clearly a fast moving and burgeoning field (soon to be, if it is not already, filled with specialists proffering advice).