Featured Product

    ISDA on Principles for US Transition to Sustainable Low-Carbon Economy

    February 18, 2021

    The U.S. Climate Finance Working Group, which comprises ISDA and 10 other trade associations, published principles for a U.S. transition to a sustainable low-carbon economy. The principles are intended to serve as a useful framework, offering perspectives from the full spectrum of the financial services industry including banks, investment banks, insurers, asset managers, investment funds, pension funds, and other financial intermediaries. The key principles include fostering international harmonization of taxonomies, data standards, and metrics; promoting more robust climate disclosure and international standards; and ensuring that climate-related financial regulation is risk-based.

    The principles are as follows:

    • Set science-based climate policy goals that align with the Paris Agreement. Climate goals should be based on the best available science and climate scenarios. Goals should have a clear timeline. Policies and standards should be data-driven, based on available and accessible information and supported by rigorous research and analysis, which will provide certainty to market players across industries.
    • Increase and strengthen US international engagement. The U.S. should engage proactively through international forums that are shaping global climate policy and frameworks to help orient the financial system’s response to climate risks.
    • Provide clear long-term policy signals that foster innovation in financial services. Effective long-term policy will enable development of the new financial and environmental commodity products sought by our customers—including for example environmental, social, and governance (ESG) bonds and green mortgages. Harmonization of definitions and labels, including recognition of market-based standards and principles, would help achieve the necessary scale in climate investment.
    • Price carbon and leverage the power of markets. Deep and liquid U.S. capital markets are critical to mobilize the cross-border capital flows needed to finance lower-carbon solutions and climate-resilient infrastructure. To drive capital investment, the Working Group supports the use of market-based mechanisms, including a price on carbon that supports long-term decision-making.
    • Foster international harmonization of taxonomies, data standards, and metrics. Widely accepted standards for data and climate risk metrics across sectors will support sound risk assessment and effective disclosure. Shared standards are also key to supporting the market-based solutions that will properly account for the costs of climate change. However, alignment of standards should allow for a degree of regional variation, where needed, to accommodate differences in economic structure, policy goals, and pace of transition in different jurisdictions.
    • Promote more robust climate disclosures and international standards. Good disclosures are critical for effective climate risk mitigation and capital allocation from the financial services industry.  Information about risk and opportunity allows lenders and investors to effectively price and manage risk and allocate capital to achieve desired financial returns.
    • Ensure climate-related financial regulation is risk-based. Financial regulation should remain dedicated to ensuring the resilience and stability of the financial sector.
    • Build capacity on climate risk modeling and scenario analysis. While good progress has been made, climate risk assessment and scenario analysis efforts are still at early stages worldwide. Financial regulators and industry risk professionals should work together to develop climate risk modeling—supported by rigorous analysis—that can be flexible across different jurisdictions but aligned in approach to avoid fragmentation, with a common set of broad climate risk assumptions, scenarios, and guidelines such as those being developed by the Network for Greening the Financial System or NGFS.
    • Strengthen post-disaster recovery, risk mitigation, and adaptation. Risk finance instruments that strengthen climate resilience and enable better disaster recovery for customers and local communities are a critical channel through which the insurance sector can help mitigate physical climate risks. Market-led, customer-centric innovative financial solutions from insurers and reinsurers, lenders, and investors should be paired with a policy and regulatory environment that supports associated commercial opportunities. Additionally, development of ESG derivatives will enable better hedging of climate-related risks.

     

    Related Links

    Keywords: Americas, US, Banking, Insurance, Securities, Climate Change Risk, Low-Carbon Economy, Taxonomy, Disclosures, ESG, Sustainable Finance, NGFS, ISDA

    Featured Experts
    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697