Sustainability Community

An insightful podcast with Josina Kamerling talking to Patrik Karlsson about the role of ESMA in the development and evolution of regulation around SFDR. Touches on jurisdictional alignment issues and the primacy of good disclosure and transparency to establish and maintain trust in financial product claims in the market place. A few thoughts and questions arising.

🤔 Explains how legislation and regulation flow down through to enforcement at national level with an outline of how the EU Structure works through Levels 1,2,3... From the EC and parliament
🤔 The friction between definitions and scope that exist within the EU projects for SFDR and EU Green Taxonomy and the difference in detail and approach among financial centers individual regulators ESMA, FCA and SEC.
🤔 The establishment of a more dynamic regulation. Certainly the changing understanding of interdependence that exists between issues and an evolving set of metrics and measurement methodologies to support disclosure and transparency.
🤔 An emerging road map to expand regulation and guidance from environmental (climate centric) disclosure to other sustainability issues like human, social and nature issues where legislation and public policy is also evolving and at present SFDR includes a rather general concept of do no harm.
🤔 The FCA is already looking at how rating agencies and Index providers should be included given their role as data and analysis suppliers into regulatory scope. Seems that this may be a necessary move for other regulators.
❓ Will regulation be able to evolve rules and guidance fast enough to reflect the dynamic nature of a complex set of related issues and rapidly changing understanding of economic impacts and dependence with progressive improvements in metrics and measurement to report exposure, risks and outcomes.
❓ Can regulators enforce their rules to contain both intentional green washing and unintentional green washing arising from ignorance or poor understanding.
❓ For a global industry can the regulatory and disclosure obligations be sufficiently aligned to allow products to be sold and managed easily or will there be a complex task of translating analysis, reporting and decision making into similar but in places awkwardly different detail.
❓ Can the myriad of approaches and opinions around what is and isn't sustainable be debated constructively and the process of maturing regulation, industry practice and systemic understanding be done co-operatively and in away that builds trust in the outcomes and will therefore deliver sustainable change and outcomes.

#sustainability #finance #environmental #ESMA #SFDR #regulation #sustainablefinance #sustainableinvestment

‎The Sustainability Story: Patrik Karlsson: Unraveling the EU's Sustainability Regulations on Apple Podcasts

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‎The Sustainability Story: Patrik Karlsson: Unraveling the EU's Sustainability Regulations on Apple Podcasts Discover the ins and outs of sustainability regulations in the EU with Patrik Karlsson, a senior policy officer at the European Securities and Markets Authority (ESMA), and Josina Kamerling, head of regulatory outreach for CFA Institute for the Europe, Middle East, and Africa (EMEA) region at CFA In... View this on Apple Podcasts >

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David Manuel
Partner
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Thank you for sharing the podcast, David!

Some of my thoughts on your 3rd question about the alignment of the regulatory and disclosure obligations across countries: based on my experience in the ESG regulatory field, there are no signs of global regulatory alignment. Instead, there is a clear trend for regulatory misalignment, which may mislead the final users of ESG disclosures. Green Taxonomies are a good example. For instance, the EU Taxonomy classifies an economic activity as environmentally sustainable only if all technical screening criteria and "do no significant harm" requirements are met. An economic activity is either fully sustainable or not sustainable (there is no partiality). At the same time, ASEAN Taxonomy allows partial compliance with environmentally sustainable criteria. A company that conducts the same operations both in the EU and Asia will be able to classify its economic activities as environmentally sustainable under ASIAN Taxonomy and not environmentally sustainable under the EU Taxonomy. Such a discrepancy does not assist in decision making but instead creates confusion (particularly for those without sufficient regulatory knowledge). Inconsistency across ESG regulations eliminates their value for the decision makers. This problem will not be resolved in the near future, in my opinion. We are likely to see the introduction of more and more mandatory ESG disclosures that differ across countries. Although this will result in the regulatory burden for multinational companies and financial institutions, it will also create opportunities for businesses that provide regulatory reporting solutions, as more companies will probably decide to outsource their complex reporting task to external vendors. 

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Anastasia Kuznetsova
Associate Business Analyst
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Thanks David - excellent insight.  For info - on the EU side, the European Commission published an update to its Sustainable Finance Package recently, and also ESMA's recent Progress Report on Greenwashing, key drivers and definition as:  "a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants."

Further details on the update Sustainable Finance package (June): Proposals to strengthen the EU's sustainable finance agenda (europa.eu).  A useful overview is provided in the Factsheet and related Q&A sustainable finance . Proposals include:

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James Doyle
Director, Green Finance, Investment Management
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More on Doughnut Economics for those interested. (Links at bottom of this post.)

Short of time an excellent seven minute clip, part of a longer video of Kate Raworth nailing it in conversation with Nate Hagens

To dig deep the full 100 minute discussion explores the philosophy and growing adoption of the frameworks developed by the Doughnut Economics Action Lab

Six top Takeaways that chime with my own thinking…

🙂 Realise we are a part of nature dependent on a finite planet and a healthy biosphere

🙂 Reframe how we think about economics - think doughnut

🙂 Create a positive narrative of the future based on human values

🙂 Acknowledge that life ruled by growth is unsustainable

🙂 Life ruled by growth ignores so many human values and needs

🙂 Replace linear systems of consumption with circular systems

For those looking for a visual trick to have more impact watch for the use of props replacing slides.

Excellent seven minute clip

Doughnut Economics deeper dive -100 minutes of Kate Raworth nailing it in conversation with Nate Hagens discussing her approach to a more human economics and her set of economic thinking for the 21st Century and a thriving rather than growth goal at the centre and a map for monitoring success shaped like a doughnut.

Also checkout Doughnut Economics Action Lab (DEAL) for more of Kate's work.

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David Manuel
Partner
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Great news for harmonizing sustainability disclosures came on June 24!

The IFRS Foundation will take charge of the Transition Plan Taskforce (TPT) framework and its disclosure resources!

This marks a significant milestone in harmonizing sustainability disclosures and advancing the creation of high-quality transition plans worldwide.

The valuable resources developed by the TPT will be incorporated into the International Sustainability Standards Board (ISSB)'s resource hub, enhancing learning and knowledge-sharing initiatives!

More in this IFRS article.

How do you feel about this? How does that impact your work?

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Aya Pariy
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