Reporting and Governance

National supervisors and the International Organization of Securities Commissions (IOSCO) are looking at more coordinated and accelerated efforts to push forward the climate finance agenda, said Ashley Alder, chief executive officer at Hong Kong’s Securities and Futures Commission (SFC). 

Speaking at the Climate Risk and Green Finance Regulatory Forum 2021 on February 11, Mr Alder, who is also IOSCO chair, said international organisations, national authorities and the private sector now have no choice but to participate. “If they do not, they risk being left behind as investments shift in favour of those businesses which can properly describe how they are managing the strategic risks resulting from climate change,” he warned. 

He explained that there is an acute awareness for all stakeholders to converge around credible climate finance standards which are globally applicable.

However, he acknowledged a common complaint among those working in climate finance that there are big inconsistencies around the availability and quality of climate-related data. Part of the problem, he said, is that clear definitions have not been agreed at a global level, nor are there standardised methodologies. This leads to an arbitrage around green standards where some firms shop around for those that are most lax, which in turn undermines efforts to drive genuine change.

He said more adoption of the Financial Stability Board’s recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) is essential. Currently, the standard is voluntary and is widely adhered to by big listed multinationals. However, some jurisdictions, such as New Zealand, Hong Kong and the UK, are to make TCFD reporting mandatory. 

He praised efforts by the IFRS Foundation to establish a new, global sustainability standard-setting board to sit alongside the International Accounting Standards Board. The new board would focus on climate disclosure standards centred on the “enterprise value” of businesses. 

Mr Alder said the proposal builds on the Foundation’s rigorous standard-setting process for financial accounting.  

He said IOSCO is in a major drive to see asset managers make mandatory climate disclosures for their investment products. “In Hong Kong, we have already proposed mandatory climate disclosures by asset managers,” he said, adding that the SFC is setting clearer guidance in a bid to “drastically” reduce greenwashing. 

IOSCO is also looking at the whole area of environmental social governance ratings as the need for sustainability data is set to soar. Mr Ashley said IOSCO is looking at emerging risks associated with the growing role of ratings, adding that rating agencies are largely unregulated. Among areas to be examined are transparency of processes, definitions and methodologies, governance, and how agencies manage conflicts of interest. These are also areas that EU policy makers are studying carefully. 

Questions over measuring performance and capital allocation in the financial sector call for robust taxonomies. The EU and China are already advanced in this area. Mr Ashley said taxonomies are important in providing a common language for defining: “what activities are green, brown or olive.” He explained that taxonomies can indirectly mobilise investment flows towards companies transitioning to more sustainable activities. 

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