Sustainability: regulatory landscape

Climate change and sustainability issues have gained unprecedented prominence around the world, with growing concern among society and consumers. At the same time, investors are demanding greater transparency on ESG risk management, and the market for sustainable products is growing rapidly. These changes are being driven by government agendas and initiatives from regulators and supervisors to meet the commitments of the Paris agreement and to issue regulations that address these new needs and provide certainty and transparency for investors.


Sustainability: Regulatory Landscape

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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 climate and environmental taxonomies. Other regulatory trends are specific to the financial industry, such as risk management and supervisory expectations, regulatory stress testing, and developments in industry transparency standards.

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 regulatory trends can be grouped as follows:

  • Climate change laws. These laws, while varying in their specific approaches, share the common goal of mitigating the effects of climate change and promoting environmental sustainability.
  • Taxonomy. Classification system that defines technical screening criteria to enable a common understanding of activities that contribute to ESG objectives.
  • Transparency. Standards on corporate disclosure requirements, both qualitative and quantitative.

In addition to the above, current industry trends in sustainability regulation are as follows:

  • Risk management and supervisory expectations. Regulatory requirements, guidelines and expectations on how institutions should integrate ESG risks into their risk management frameworks.
  • Regulatory stress tests. Climate stress tests look at banks’ resilience to transition risks from new policies and technologies, as well as physical risks from acute and chronic extreme weather events.
  • Transparency. Prudential disclosures such as the BCBS’s Pillar III and those specific for the financial services sector (e.g. investment funds, green and social bonds principles).

Download the technical note on Sustainability: regulatory landscape.