Climate change and sustainability issues have gained unprecedented importance globally, with growing concern among society and consumers. On the one hand, investors are demanding greater transparency regarding ESG (Environmental, Social and Governance) risk management and, on the other, the market for green and sustainable products is growing rapidly. These changes are driven by government agendas and initiatives from regulators and supervisors to meet the commitments of the Paris agreement and to issue regulation that addresses these new needs and provides certainty and transparency for investors.
Sustainability: Regulatory Landscape
Executive summary
Growing concern about climate change has driven climate change regulation in recent years. Some industry-wide regulations stand out, such as climate change laws, disclosure standards or the Climate and Environmental Taxonomies. In addition, other regulatory trends that are specific to the financial industry also stand out, notably supervisory stress tests, supervisory expectations or the developments in risk transparency standards (Pillar 3 ESG).
Main Content
This Technical Note aims to provide an updated overview of the regulatory landscape and international standards that constitute the regulatory framework for sustainability. Cross-industry regulations in this area include the following:
- Climate change laws, establishing the national framework for climate change mitigation and adaptation actions and disaster risk management.
- Disclosure standards, requiring the publication of regular reports on the social and environmental risks faced by companies and on the impact of their activities on people and the environment.
- Climate and Environmental Taxonomies, setting out uniform criteria for the classification of operations, with the aim of avoiding greenwashing.
In addition to the above, the main trends for the financial industry are in the area of:
- Supervisory stress tests, which aim to examine banks' resilience to transition risks as well as physical risks.
- Supervisory expectations on how banks should prudently manage and disclose climate and environment-related risks under current prudential rules.
- Disclosure standards, such as Pillar 3 ESG proposing tables, templates and associated instructions that banks should use to disclose relevant qualitative information on ESG risks, as well as quantitative information on climate change related risks and mitigation measures.
Download the technical note on Sustainability: regulatory landscape.