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This month, commuters in the city have spent much of their time dodging Extinction Rebellion protesters. The real pressure for change, though, is coming from the regulators.

The EU has led the way in developing a cross border framework to encourage a more sustainable financial system. The EU Action Plan for Sustainable Finance includes a taxonomy which would establish a unified classification for what can be considered sustainable activities.

The Commission sees this as the first step towards achieving a sustainable financial system and will follow it with:

  • Disclosures and Duties: Proposed regulation on disclosures for sustainable investment. This will introduce obligations for institutional investors and asset managers to disclose how they will integrate ESG factors into risk processes.
  • Benchmarks: A new category of benchmarks comprising low carbon and positive carbon impact benchmarks to help investors better understand the impact of their investments.
  • Amending regulations: The EU is also consulting on amendments to MiFiDII and the Insurance Distribution Directive to include ESG considerations into the advice that investment firms and insurance distributors provide to their clients.

These reforms aim to foster capital flows towards sustainable investment and to mainstream sustainability into risk management processes. They hope it will lead to better integration of sustainability into ratings, and research and clarify duties for institutional investors and asset managers.

Here in the UK we have the Taskforce for Climate Related Financial Disclosures which has made a series of recommendations encouraging organisations to improve the way in which they report on sustainability issues.

Just this month the FCA signalled that it was beefing up measures to ensure financial organisations are following the recommendations with measures designed to tackle greenwashing. In a statement it promised to consult on new rules to improve disclosures.

They recognise a problem. While the green finance market is growing, it is still relatively young and suffers from a lack of clear definition. This leaves the door open for greenwashing. Definitions of what is considered green varies from investor to investor.

Regulation, therefore, is coming from both international and regional levels. There is a growing recognition that climate reporting contributes to a more resilient financial system both among authorities and individual companies. For financial institutions, an improved stance on sustainability not only improves their corporate image but it can also reduce exposure to numerous climate-related risks.

Many are making changes voluntarily, but those lagging behind should take note. Climate-related regulation is coming, whether they like it or not. There will be more clarification on reporting requirements, green products, and obligations.

Those that have made the move early benefit on multiple levels. They can be seen as positive participants in the battle against climate change, they can access the growing sustainable investment markets and they can reduce compliance risks.

Sustainability is about to become an organisation-wide priority, from the boardroom to compliance teams and the trading floor. Firms can decide to make changes now or be forced to make them later. You can find out more detail about the coming climate-related regulations on our Global Regulatory Database. Link here: https://edb.enforcd.com/dashboard


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