IOSCO-GEMC Publishes Recommendations Related to Sustainable Finance
Growth and Emerging Market Committee (GEMC) of IOSCO published a report that sets forth recommendations related to the development of sustainable finance in emerging markets and the role of securities regulators in this area. Among other things, the recommendations include requirements for reporting and disclosure of material Environmental, Social, and Governance (ESG) risks, aimed at enhancing transparency.
The report provides the background of the GEMC project on sustainable finance, includes an overview of the regulators’ initiatives in emerging markets, and describes market trends and initiatives. The report identifies the prerequisites for creating an ecosystem that facilitates sustainable finance, such as an appropriate regulatory framework and fit-for-purpose market infrastructure, reporting and disclosure requirements, governance and investor protection guidelines, and mechanisms to address needs and requirements of institutional investors. Finally, the report details the GEMC recommendations (a list of the recommendations can be found in the Appendix) on development of sustainable finance.
Given the global nature of sustainable instruments, GEMC believes that its recommendations will benefit both issuers and investors by improving the consistency of regulation of sustainable finance in emerging markets. It encourages its members to consider implementation of this guidance in the context of their legal and regulatory frameworks, given the significance of the associated risks and opportunities. The key recommendations include the following
- Integration by issuers and regulated entities of ESG-specific issues in their overall risk assessment and governance. Issuers and other regulated entities should integrate ESG-specific issues, where these are material, in the overall risk assessment and governance of these entities including at the Board level.
- Integration by the institutional investors of ESG-specific issues into their investment analysis, strategies, and overall governance. Consistent with their fiduciary duties, institutional investors, including asset managers and asset owners, are encouraged to incorporate ESG-specific issues into their investment analysis, strategies, and overall governance and to take into account material ESG disclosures of the entities in which they invest.
- ESG-specific disclosures, reporting, and data quality. Regulators should require disclosure with regard to material ESG-specific risks (including transition risks) and opportunities in relation to governance, strategy, and risk management of an issuer.
- Definition and taxonomy of sustainable instruments. Sustainable instruments should be clearly defined and should refer to the categories of eligible projects and activities that the funds raised through their issuance can be used for.
- Specific requirements regarding sustainable instruments. Regulators should establish ongoing disclosure requirements regarding the use of the funds raised through the issuance of sustainable instruments including the extent of unutilized funds, if any. Regulation should provide for measures to prevent, detect, and sanction the misuse of funds raised through the issuance of sustainable instruments.
- Building capacity and expertise for ESG issues. Regulators should analyze the gaps in capacity and expertise with regard to ESG-related issues mentioned in the recommendations and consider targeted capacity building to address these gaps.
Related Links
Keywords: International, Securities, Banking, Insurance, Pension Funds, Sustainable Finance, ESG, Reporting, Disclosure, Recommendations, GEMC, IOSCO
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous Article
ESMA Issues Schema and Validation Rules for Securitization ReportingRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
