Quick Take: Global Sustainability Regulation Developments for March 2023

Regulatory Compliance March 27, 2023 Tom Willman

A summary overview of recent sustainable finance developments across Asia-Pacific, Europe, and the Americas

There are several regulatory developments in sustainability to highlight this month that cross country lines and impact Europe, the Americas and Asia Pacific.

The UN member countries have reached a historic agreement to protect the world’s oceans. The High Seas Treaty will designate 30% of the world’s oceans as protected areas by 2030 and it is envisaged that the agreement will secure and restore marine ecosystems in the world’s oceans. This agreement came about after nearly 40 hours of discussion and is the culmination of a conversation that began in earnest in 2004.

The European Parliament and Council reached a provisional agreement on the European Green Bond Standard (EUGBS), which will standardize the issuance of green bonds and offer investors more certainty that proceeds from green bonds are truly being used to fund green projects. The EUGBS is expected to increase investment in sustainable technologies and businesses, and will establish a reporting process for bond proceeds, standardize external verification, and reduce greenwashing by clarifying which economic activities can be undertaken with the bond’s proceeds. It is expected that the EUGBS will enter into force in late 2024 or early 2025.

The EU Commission has unveiled a proposed directive on Green Claims, which aims to provide consumers in Europe with reliable and verifiable information on the sustainability of products within the European Union. The proposed rules will apply to any company making voluntary environmental claims and the claims will need to be independently verified using scientific evidence. The rules also seek to limit the proliferation of green labels within the bloc by limiting the ability of private companies to establish labels.

The UK’s Transition Plan Taskforce (TPT) has launched working groups on nature, adaptation, and just transition. TPT was launched in April 2022 as a joint private and public sector initiative developing a gold standard for transition plans. The TPT recently closed a consultation on its framework for transition plans.

The Office of the Superintendent of Financial Institutions in Canada announced new rules aimed at federally regulated financial institutions. As part of the guidelines, financial institutions, including banks and insurers, will be required to make climate-related disclosures, including to disclose on an annual basis their physical and transition risks from October 2024. The requirements also include reporting on governance, strategy, and Scope 1,2 and 3 greenhouse gas emissions.

The Mexican finance ministry published the first edition of the Mexican sustainable finance taxonomy, which aligns closely with the EU Taxonomy and covers the same six objectives. It is initially being launched on a voluntary basis and is notable for the inclusion of social objectives, including contribution to gender equality, access to basic services related to sustainable cities, health, education, and financial inclusion.

The Securities Commission (SC) Malaysia has recently published guidelines for sustainable and responsible investment funds, applicable to issuers of any SRI fund. These guidelines require the fund’s name to reflect its sustainability policies, strategies, and features. Additionally, at least two-thirds of the fund must be invested accordingly. SRI funds must also adopt one of the specified strategies such as ESG integration, ethical and faith-based investing, impact investing, negative screening, positive screening, thematic investment, or any other ESG strategy. Furthermore, the guidelines mandate annual reporting disclosures for SRI funds and requirements for funds that comply with the ASEAN Sustainable and Responsible Fund Standards.

The Hong Kong government has issued a tokenized green bond worth $100m, which is notable as the first government-issued green bond entirely on a private blockchain. The proceeds will be used to finance or refinance green projects under the HK government’s Green Bond Framework. This could be an important means for green financing going forward, as it represents a prominent example of a government employing blockchain technology.

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