Policy and Regulation

Regulatory Round-up: US SEC's extended consultation, ESG ratings in the UK and India, EU looks at ESG factors in securitisation products

The US Securities and Exchange Commission has extended the public comment period on it hotly-debated new proposals to toughen up climate-related disclosures for investors until June 17. The SEC released its draft rule on climate disclosures in March.  Seventy percent of US retail investors agree that the SEC should require public companies to disclose standardised information about these risks, according to a survey. But the SEC under Gensler is being drawn into a highly polarised debate about how far financial institutions should be persuaded to take ESG matters into account. 

The UK will not take a prescriptive approach on how ESG ratings should be framed but rather insist raters are transparent about their methods and governance, a senior official has suggested.  Adam Lyons, head of the Treasury’s green finance unit, said it was working with the Financial Conduct Authority to determine if the sector should now be regulated. Reuters reported Lyons as saying: "In terms of what that would look like, I think the first thing to say it's definitely not being regulation focused on what the ratings are that ratings agencies are developing. It will be much more focused on ensuring proper practice, like declarations of conflicts of interest, for example ... it's much more about transparency."

One of the first supervisors to indicate it may regulate sustainability ratings, the Securities and Exchange Board of India has set up an advisory committee on ESG topics. A new committee will work to address mis-selling and greenwashing risks and explore the introduction of prudential requirements for ESG funds. It will also develop a separate approach for ESG rating adapted to emerging markets so that the social aspect would have regard to employment generation, for example. 

The World Wildlife Fund and giant insurance group Aviva have urged the UK government to “ensure that the benefits and risks of nature” are included in mandatory private sector and government transition plans, as the country prepares to update its green finance strategy. They say “the importance of integrated nature at this junction cannot be emphasised enough”.

The European Banking Authority and other European supervisory authorities have launched a consultation on sustainability indicators for simple, transparent and standardised (STS) securitisations. One of the main aims is to facilitate disclosure by originators of the principal adverse impacts of assets financed by STS securitisations on environmental, social and governance-related factors.

Some of Europe’s biggest investment firms with combined assets of £6.5tn have backed a new framework aimed at helping investors assess the diversity credentials of their asset managers. The ACT (action, challenge and transparency) standard is designed to assess the corporate culture of asset management firms, and to help clients understand and compare their efforts to become more diverse, equitable and inclusive. 

 

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