Sustainable Finance in Asia PacificRegulatory State of Play
3 March 2020

Disclaimer
The information and opinion commentary in this ASIFMA White Paper (Sustainable Finance in Asia
Pacific: Regulatory State of Play) was prepared by the Asia Securities Industry and Financial Markets
Association (ASIFMA) to reflect the views of our members. ASIFMA believes that the information in
the Paper, which has been obtained from multiple sources believed to be reliable, is reliable as of thedate of publication. As estimates by individual sources may differ from one another, estimates for
similar types of data could vary within the Paper. In no event, however, does ASIFMA make any
representation as to the accuracy or completeness of such information. ASIFMA has no obligation to
update, modify or amend the information in this Paper or to otherwise notify readers if any
information in the Paper becomes outdated or inaccurate. ASIFMA will make every effort to include
updated information as it becomes available and in subsequent Papers.

Page 2

ASIFMA is an independent, regional trade association with over 125
member firms comprising a diverse range of leading financial institutions
from both the buy and sell side including banks, asset managers, law firms
and market infrastructure service providers. Together, we harness theshared interests of the financial industry to promote the development ofliquid, deep and broad capital markets in Asia. ASIFMA advocates stable,
innovative and competitive Asian capital markets that are necessary tosupport the region’s economic growth. We drive consensus, advocate
solutions and effect change around key issues through the collective
strength and clarity of one industry voice. Our many initiatives include
consultations with regulators and exchanges, development of uniform
industry standards, advocacy for enhanced markets through policy papers,
and lowering the cost of doing business in the region. Through the GFMA
alliance with SIFMA in the US and AFME in Europe, ASIFMA also provides
insights on global best practices and standards to benefit the region.

Page 3

Contents
1

OVERVIEW ........................................................................................................................................ 72

CHALLENGES FOR POLICYMAKERS AND REGULATORS .................................................................... 8
2.1 Consistent and Representative Taxonomy .................................................................................. 9
2.2 Reliable Data and Harmonised Disclosure ................................................................................ 10
2.3 Common Approach to Prudential Risk Assessment and Stress Testing .................................... 11
2.4 Interplay between Industry-developed Initiatives and Policy................................................... 11
2.5 Concluding Remarks .................................................................................................................. 123

KEY POLICY SUMMARY ................................................................................................................... 13
3.1 Taxonomy/Classification Systems for Green Assets or Products .............................................. 13
3.2 ESG Disclosure ........................................................................................................................... 13
3.3 Integration of Climate-related Risk in Supervisory Mandates of Central Banks ....................... 14
3.4 Matrix of Key Themes by Jurisdiction........................................................................................ 15

4

INTERNATIONAL REGULATORY DEVELOPMENTS ........................................................................... 16
4.1 Initiatives by the International Organization of Securities Commissions (“IOSCO”)................. 16
4.1.1 Disclosure of ESG Matters by Issuers ................................................................................ 16
4.1.2 Recommendations for Emerging Markets and the Role of Securities Regulators ............ 16
4.1.3 Sustainable Finance Network............................................................................................ 17
4.2 Initiatives by the FSB ................................................................................................................. 17
4.2.1 TCFD Final Recommendations .......................................................................................... 17
4.2.2 TCFD 2019 Status Report .................................................................................................. 18
4.2.3 Work programme for 2020 ............................................................................................... 18
4.3 ISO standard .............................................................................................................................. 19
4.4 NGFS Initiatives.......................................................................................................................... 19
4.4.1 A Call for Action: April 2019 Recommendations ............................................................... 19
4.4.2 Technical Document on SRI Approaches .......................................................................... 20
4.4.3 Next Steps for NGFS .......................................................................................................... 20
4.5 International Green Bond Standards or Certifications .............................................................. 20
4.5.1 Green Bond Principles (“GBP”), Social Bond Principles (“SBP”) and Sustainability Bond
Guidelines (“SBG”) (all together, “the Principles”) ................................................................... 20
4.5.2 Climate Bonds Initiative .................................................................................................... 21
4.5.3 ASEAN Green Bond Standards .......................................................................................... 22

Page 4

4.6 Green Loan Market.................................................................................................................... 22
4.6.1 Green Loan Principles ....................................................................................................... 22
4.6.2 Sustainability Linked Loan Principles (“SLLPs”)................................................................. 23
4.7 Further International Regulatory Initiatives .............................................................................. 23
4.8 European Commission Initiatives .............................................................................................. 24
4.8.1 EU Taxonomy Regulation .................................................................................................. 25
4.8.2 EU Disclosure Regulation .................................................................................................. 26
4.8.3 Climate-related Benchmarks............................................................................................. 27
4.8.4 EU Green Deal ................................................................................................................... 28
4.9 Prudential Regulation ................................................................................................................ 29
4.9.1 Prudential Regulation Authority ....................................................................................... 29
4.9.2 Stress Testing .................................................................................................................... 30
4.9.3 European Prudential Regulation ....................................................................................... 31
5

ASIA PACIFIC REGULATORY DEVELOPMENTS ................................................................................. 32
5.1 Asia Pacific Regional Bodies ...................................................................................................... 32
5.1.1 Association of Southeast Asia Nations ("ASEAN") ............................................................ 32
5.1.2 Asian Development Bank ("ADB") .................................................................................... 32
5.1.3 Asia Infrastructure Investment Bank ("AIIB") ................................................................... 33
5.2 Developed Markets ................................................................................................................... 33
5.2.1 Mainland China ................................................................................................................. 33
5.2.2 Hong Kong ......................................................................................................................... 34
5.2.3 Singapore .......................................................................................................................... 35
5.2.4 Japan ................................................................................................................................. 36
5.2.5 Australia ............................................................................................................................ 37
5.2.6 New Zealand ..................................................................................................................... 38
5.3 Emerging Markets ..................................................................................................................... 39
5.3.1 Indonesia ........................................................................................................................... 39
5.3.2 Malaysia ............................................................................................................................ 40
5.3.3 India................................................................................................................................... 41
5.3.4 Thailand ............................................................................................................................. 41
5.4 Other Asia Pacific Jurisdictions .................................................................................................. 43

APPENDIX A: SURVEY OF OTHER INTERNATIONAL BODIES .................................................................. 44

Page 5

ASIFMA would like to extend its gratitude toHerbert Smith Freehills and its Indonesian associate firm
Hiswara Bunjamin & Tandjung for assistancein drafting this paper

Page 6

1

OVERVIEW

The transition to sustainable finance is increasingly a high-priority business issue for firms, with global
bodies and local policymakers rapidly developing initiatives to support and incentivise investment in
low-carbon businesses and activities, as well as enable corporates, institutional investors, and banks
to take account of climate-related risks.
At the same time, Environmental, Social and Governance (“ESG”) issues are increasingly taking centre
stage as institutional investors exert their influence and channel funds towards investments thatdeliver measurable non-financial benefits along with improved long-term financial returns.
In the last five years we have seen the signing of the 2015 Paris Agreement, publication of the United
Nations 2030 Agenda which includes 17 Sustainable Development Goals (“SDG”), the European
Commission’s (“Commission”) publication of its Action Plan on Sustainable Finance, the launch of the
UN Principles for Responsible Banking, and other major international initiatives focusing onsustainability within the financial sector.
With increasing global attention and momentum building across various markets, including those in
Asia Pacific, there is a proliferation of related initiatives. Notwithstanding their positive intent,
fragmented approaches introduce challenges that may ultimately undermine the development ofsustainable finance, through increased complexity and lack of coordination.
Today, firms are navigating a confusing landscape of disclosure frameworks, incentive structures, datacollection methods, and external assessments developed and implemented in various markets andjurisdictions by both the public and private sectors. Convergence to common frameworks is needed,whilst still allowing flexibility for nuance and differences between different economies’ paths tosustainability.
This paper is intended to positively support progress towards shared sustainability objectives. It
provides an overview of developments to date in major Asia Pacific jurisdictions, as well as the broader
evolving international policy environment, examining practical implications for industry participants
and policymakers, and calling for greater coordination at this critical early stage of defining
international policy settings in relation to sustainability. It also shines light on variances in approachand emphasis within different jurisdictions and frameworks. Finally, it calls for the voice of Asia Pacific
to be heard more prominently in international discourse on these critical international policy issues
to boost the effectiveness.
We commend efforts to date in tackling what is an extremely complex, multidimensional issue.

Page 7

2

CHALLENGES FOR POLICYMAKERS AND REGULATORSThe industry strongly supports the transition to a sustainable global economy. In addition to industryled initiatives, we also recognise the important role policymakers and regulators play in scaling up
sustainable finance in capital markets, and that coordination and commitment by all major
jurisdictions are needed to ensure cohesion and clear policy direction. Equally, industry participants
have a role to play in further developing capabilities and market structures to support the growth ofsustainable finance and the transition to a low-carbon economy.
To achieve this, policymakers and regulators are encouraged to:• Engage directly with the private sector in their own markets through transparent consultation
processes during the development stage of taxonomy, prudential requirements, and ESG
reporting and disclosure requirements; and• Ensure that they take a coordinated regulatory approach internationally, with commitment
from regulators in all major jurisdictions to achieve greater international consistency, ranging
from approaches towards taxonomies and corporate disclosure to measurement of climaterelated risks and use of incentives and other mechanisms to prevent market failure.
Not only would a coordinated and holistic approach catalyse innovation and incentivise greater
participation from the private sector, but also support continued growth and development ofsustainable finance in markets. Indeed, a key objective of this paper is to draw attention to the variety
of approaches and frameworks being implemented, and to highlight the need for greater consistency
and compatibility between regimes, including with respect to economies at different stages ofdevelopment.
ASIFMA encourages policymakers in Asia Pacific jurisdictions to coordinate with each other and apply
the following principles:
1. Avoid requirements that are unduly complex or prescriptive, while being aware of unintended
consequences of regulation such as market distortion and fragmentation;
2. Strive for consistency and compatibility whilst allowing for the variation of economic andcapital markets development, a key feature of the Asia Pacific region;
3. Where possible, align policies and frameworks with international standards to avoid
unnecessary complexity and unlevel-playing-field issues for market participants operating
globally; and4. Where international standards are not yet under development, seek to encourage andcatalyse development of such standards, particularly as Asia Pacific jurisdictions have uniqueperspectives in not only being significant recipients of sustainable finance, but also being mostimpacted by sustainability challenges.
Global coordination is essential because like climate change, investing and financing do not take place
within the bounds of clear borders, and cross-border capital flows are so vital. Indeed, while most of
the investment needed to achieve the Paris Agreement’s goals will come from developed economies,
emerging markets, including those in Asia, are often most in need of investment and will be impacted
heavily by regulation impacting investment decisions. This must be taken into account during policy
design, which should support the appropriate flow of funding to maximise investment in sustainability.

Page 8

We encourage Asia Pacific policymakers to engage actively with their international counterparts, andto represent this region’s perspective prominently in global fora.
The European Union (“EU”) is today at the forefront of international policy development and, while
such leadership is to be commended, it is not prudent for the industry and policymakers to leavestandard-setting to any one jurisdiction alone, or for standards to be established without due
consideration of unintended consequences and potential market distortions.
By actively sharing perspectives with others and contributing to policymaking elsewhere, this can also
help to ensure compatibility and interoperability between regimes. Active and early-stage
participation in international coordinating forums such as the Network for Greening the Financial
System (“NGFS”) by regulators in the Asia Pacific region are highly welcome.
In addition, Asia Pacific regulators may also consider forming a specific regional task force with subgroups targeting specific issues such as regulatory disclosure, ESG scoring, risk management, etc., or
working through other existing industry structures and in order to achieve the level of coordinationneeded for an effective regional approach to sustainability, and engagement globally.

2.1

Consistent and Representative Taxonomy

Currently, there exist a wide range of taxonomies developed by different jurisdictions, organisations,and individual firms with substantively differing interpretations of what makes a product or activity‘sustainable’. In September 2019, the industry, through ASIFMA’s sister organisation Association for
Financial Markets in Europe (“AFME”), responded to the European Commission Technical Expert
Group’s (“TEG”) June 2019 Technical Report on developing an EU Taxonomy.
The industry appreciates progress made by the EU to establish an EU-wide taxonomy andacknowledges it as a step forward in scaling and driving green finance forward; however, there is
uncertainty as to how this, which has been constructed from a European perspective, may impact the
Asia Pacific region if it were to become the de facto global standard. We note that the EU taxonomy
is tailored specifically to a European perspective, while certain areas would not fit in the context ofmarkets of this region. For example, agriculture related criteria, as outlined in the EU taxonomy,
focuses more on greenhouse gas reduction rather than sustainable farming practices such as reduced
use of pesticides, biodiversity-friendly techniques and water conservation, which may be priorities inother markets.
In its current form, the EU taxonomy and disclosure regulations have been described by some as binary
in approach, classifying economic activities as ‘green’ and ‘non-green’ and this characterisation is true
at one level, but it should be borne in mind that the terms of debate are framed under the regulations
as “ environmentally sustainable” or not; and a short spectrum is recognised with activities/products
meeting this highest standard at one end and those that do not at the other. Sitting somewhere in
between are those activities that comprise investments in products that “promote” “environmental
characteristics”. The industry believes that it is important to avoid strictly binary approaches toclassifying sustainable finance activities. This is because sectors and companies that do not meet‘green’ principles can still have the potential to become significant contributors to sustainability andhelp transition to a green economy. Specifically, this may disincentivise investment in transition
activities which may be critical in other regions. For example, large company groups with both ‘green’and ‘brown’ assets may be prevented from receiving funding on all their projects under the taxonomy,
with a further potential consequence being that over time ‘brown’ assets, despite potential totransition to ‘green’, may become concentrated in the hands of those less concerned with

Page 9sustainability. We thus urge policymakers and regulators to bear in the mind that supporting‘greening’ is also incredibly important and to ensure no disincentives for investment in areas that
could become ‘green’. In addition, we once again stress the importance of international coordination
on taxonomies, acknowledging the important dialogue that has been taking place to date between
the European Investment Bank and People’s Bank of China to align the two definitions of green
finance, for example.
We urge Asia’s policymakers to work with the EU and other jurisdictions to develop a common global
framework for taxonomies whilst ensuring flexibility for regional specificities, including the different
needs of developed and emerging markets, and flexibility for different interpretations ofsustainability, provided there is sufficient transparency for informed comparisons by investors andmarket participants.
Considerations for transition and enabling activities to achieve compliance with taxonomies should
also be included to avoid unintended carbon lock-in effects and limiting funding for sustainable
investments by banks and investors. On cross-border issues, policy considerations should include theenablement of deference between jurisdictions as a means of minimising regulatory driven market
fragmentation.
Notably, the International Organisation of Securities Commissions’ (“IOSCO”) Growth and Emerging
Markets Committee (“GEMC”) published recommendations in June 2019 for how market regulatorsin emerging markets can support sustainable finance. We note that the IOSCO recommendations,while not overly technical or prescriptive, suggest a framework in which individual regulators shouldbe able to define lists of eligible projects and activities relevant to their local market. Furthermore,
the Organisation for Economic Co-operation and Development (“OECD”) is currently working to
produce an overview report on taxonomies including comparisons of the European and Chineseversions, as well as other definitions of sustainable finance later in 2020.
The industry recommends Asia Pacific’s policymakers carefully consider such recommendations andengage assertively in open dialogue with other jurisdictions in international and regional fora such as
the International Platform on Sustainable Finance, NGFS, Financial Stability Board (“FSB”), the IOSCO
Asia-Pacific Regional Committee (“APRC"), and ASEAN.

2.2

Reliable Data and Harmonised Disclosure

Sustainable finance cannot exist in isolation from the broader economy. It requires a coherent
disclosure framework on the key material factors connecting all segments of the investment cycle –from companies to investment management companies, to their shareholders and clients. This will
ensure transparency and comparability between sustainability metrics throughout the economy.
There remain considerable challenges regarding the consistency of ESG today. ESG data is difficult toobtain, and most firms rely heavily on third-party providers. While we acknowledge the growing
number of ESG data providers and improvements in the quality of corporate ESG reporting anddisclosure, there is still a lack of robust and reliable ESG and climate-related data for a wide range ofinvestee companies’ activities and practices.
Additionally, individual ESG metrics vary not only between industries and markets, but also between
companies of the same industry, with quality of company disclosures differing widely. ESG scoring
between different data providers also varies. Through dialogue with industry, regulators can play a

Page 10role in establishing robust frameworks for better, more consistent and comparable ESG data
disclosure.
We note that certain bodies within this region, such as Hong Kong Exchange (“HKEX”), have alreadyenhanced their listing requirements. However, sustainability and non-financial reporting bycorporates is still developing. It is important that requirements placed on the financial sector do not
outpace the ability of the corporate sector to provide the required information.
Where data is not available in relation to certain ESG criteria, there is a risk of under-representationof certain environmentally sustainable sectors, with potential to distort markets and skew investment
decisions at this important early stage. ESG data reporting and disclosure requirements should beenhanced to help address data availability and comparability issues, and consideration should be given
to align private and public taxonomies for transparency and better usage of data. ASIFMA
recommends policymakers and regulators work closely together with the industry to advance mutual
understanding of data requirements and reporting standards needed to enable actionable, reliable,
harmonised disclosure standards to support informed, long term investment decision making.

2.3

Common Approach to Prudential Risk Assessment and Stress Testing

We note divergence between developing risk management standards in terms of their scope (e.g. UK
focuses on climate in its supervisory statement, Singapore and Hong Kong focus on environment, andGermany focus on sustainability risk management standards) as well as general expectations.
We also note emerging divergences in the design of climate-change scenario analysis and stresstesting exercises and encourage those jurisdictions that have announced tests, or have plans to, tonot only align with the planned NGFS scenarios, but also to align on key aspects of the test design
around the timeframes, scope of examined exposures, and granularity of analyses. Climate-related
stress tests may not fully simulate the complete impact of climate risk on balance sheets with thesame granularity as standard credit or market stresses. There may also be challenges to aligningapproaches for multi-national institutions.
The industry recommends policymakers and regulators ensure that a clear and consistent causal
relationship between the sustainability classification and risk profile of an asset can be demonstrated,
and appropriate methodologies for cross-border scenario analysis and green stress-testing beestablished before imposing requirements of climate-related stress tests and differentiated prudential
treatment of ‘green’ and ‘brown’ assets.
The industry welcomes global initiatives aimed at establishing such a causal relationship and working
to establish shared methodologies for green stress-testing, such as the NGFS’s work on scenario
testing.

2.4Interplay between Industry-developed Initiatives and Policy

Where possible, policymakers and regulators are encouraged to be mindful of overly prescriptive
policy measures, which risk stifling market-led initiatives that have supported the development ofsustainable finance to date. Global financial institutions typically align their sustainability practices,
including product and service development, to industry-developed frameworks and best practices,which can be valuable in ensuring consistency in a market where consistent global regulatory andsupervisory approaches have yet to be developed. Such industry-developed frameworks have thePage 11

flexibility to be updated when markets mature and innovation in products and services necessitateschange in approach.
The industry, as noted earlier, recognises there is a critical role for policymaking and regulatory
guidance on common definitions, frameworks, and taxonomies, particularly to prevent‘greenwashing’ and to provide clarity to investors through consistent market standards.

2.5

Concluding Remarks

ASIFMA and its members appreciate the work being done by policymakers and regulators in this region
with the financial sector to transition the region’s economy and markets to a more sustainable footing.
We reiterate the need for policymakers and regulators to establish a coordinated approach totaxonomies, disclosure requirements, and other policies both at a regional and global level,
recognising the fact that any one financial system cannot work in isolation. We also encourage,
wherever possible, dialogue and engagement between the private and public sectors to meet thecomplex and multifaceted process of transitioning the economies’ sustainability, and ensuring theinternational financial system is well placed to efficiently serve this challenge.
The rest of the paper provides a state-of-play overview of sustainable finance developments at aninternational and regional level, relevant to Asia Pacific, to form as a basis for industry, policymakers
and regulators to benchmark their efforts and contemplate greater future coordination.
We are at a critical early stage of defining international policy in relation to sustainability. As new
developments in sustainable finance emerge, we will continue to refine our analysis of these issues
and recommendations, and engage across the region in support of the principles outlined above.

Page 123

KEY POLICY SUMMARY

There are a number of topics of cross-jurisdictional importance. Three core issues are explained here
given their significance in the international regulatory dialogue.

3.1

Taxonomy/Classification Systems for Green Assets or Products

A classification system provides the basis for determining whether an economic activity isenvironmentally sustainable. Currently, there is no binding global taxonomy, but international
regulatory bodies, such as the Climate Bonds Initiative, have developed a voluntary taxonomy forgreen bonds. Classification systems for green assets or products, therefore, differ across jurisdictions.
The NGFS also emphasised the need to “exploit potential synergies” in different jurisdictions toharmonise green taxonomies.
In Europe, the EU Taxonomy Regulation sets out a general framework for what can be classified as“environmentally sustainable economic activity”. It identifies six environmental objectives. An
economic activity will be environmentally sustainable if it complies with four specified requirements.
The Regulation recognises three types of economic activities, namely sustainable activity, enabling
activity and transitional activity, but explicitly excludes power generation activities that use solid fossil
fuels, such as coal, as a sustainable activity.
In China, the Green Bond Endorsed Project Catalogue defines six main categories and 31 subcategories of projects that are eligible for green bond financing. The Chinese taxonomy differs fromthe EU’s, in that the Chinese taxonomy allows clean coal projects to be included on the list of projects
financed by green bonds. Noting the different standards in the two jurisdictions, the European
Investment Bank and the People's Bank of China (“PBOC”) have been liaising with each other to alignthe two jurisdictions’ definition of green finance.
The Bank Negara Malaysia in December 2019 issued a discussion paper on “Climate Change andPrinciple-based Taxonomy” for public consultation. The discussion paper aims to provide an overview
on climate change and its impact to the financial system as well as serve as guidance to facilitate
financial institutions identifying and classifying economic activities that could contribute to climatechange objectives.

3.2

ESG Disclosure

In recent years, investors’ preferences have been shifting towards interest in financial products thatincorporate ESG factors. These factors now have a material impact on investors’ decisions or the valueof an investment. As such, disclosure of these factors can be viewed as a way to improve transparency
and address information asymmetries between investors and companies on sustainability issues. As
part of the EU’s Sustainable Finance Action Plan, the EU Disclosure Regulation was introduced, settingout how financial market participants and financial advisors must integrate ESG risks andopportunities in their process, procedures, and policies. The Regulation also provides uniform rules
on how financial market participants should inform investors about their compliance with the
integration of ESG risks and opportunities.
Similar developments can be found in Asia Pacific. China, Australia, Malaysia and India have recently
updated their respective listing requirements or provided further guidelines on disclosing ESG

Page 13

information. For example, Bursa Malaysia’s listing requirements mandate that a listed issuer include
in its annual report a narrative statement of its management of material economic, environmental
and social risks and opportunities. This statement must contain information in accordance with Bursa
Malaysia’s Sustainability Reporting Guide.
In Hong Kong, the HKEX concluded that, subject to certain modifications or clarifications, theproposals outlined in its 2017 consultation paper on enhancements to its ESG reporting guide andrelated-listing rules should be adopted. The proposals include a requirement to include a statementfrom the company’s board setting out its consideration of ESG issues. In Singapore and New Zealand,a “comply or explain” regime for sustainability reporting has been implemented, where listedcompanies are required to disclose and explain their sustainability practices.

3.3

Integration of Climate-related Risk in Supervisory Mandates of Central BanksThe Task Force on Climate-related Financial Disclosures ("TCFD") identifies two categories of climate
related risks namely, physical and transition risks. The former refers to risks relating to the physicalimpacts of climate change, such as floods or sea level rise. The latter refers to risks arising fromadjustment to a lower-carbon economy; risks that are legal, policy-related or technological in nature.
The UK’s Prudential Regulation Authority (“PRA”) is one of the leading actors in integrating climate
issues into prudential regulations. The PRA expects firms to embed the consideration of climaterelated risks into their governance and risk management arrangements, and, where proportionate,
use scenario analysis to inform strategy setting and risk assessment. In December 2019, the PRA issued
a discussion paper confirming the Bank of England’s intention to use its 2021 Biennial Explanatory
Scenario to stress test the resilience of the banks, insurers and UK financial system to climate-relatedrisks. The European Banking Authority (“EBA”) is investigating whether green assets are less risky thanbrown or non-green assets. The EBA will also develop the work on the incorporation of ESG factors
into risk management and supervision as well as a dedicated climate change stress test.
Similar developments can also be found in some of the jurisdictions in Asia Pacific The PBOC has
incorporated green finance into its macro prudential assessment system. On 31 December 2019, theHong Kong Monetary Authority ("HKMA") carried out a consultation on the “Common Assessment
Framework on Green and Sustainable Banking”, which covered risk management and stress testing
and referred to the policy implemented by the PRA of the UK.
In early 2020, the Australian Prudential Regulation Authority (“APRA”) outlined its plans to develop a
prudential practice guide focused on climate-related financial risks, as well as a climate change
vulnerability assessment in a letter to all APRA-regulated institutions and update its superannuation
Prudential Practice Guide SPG 530 Investment Governance, which covers ESG investments.
The Bank of Thailand ("BOT") also encouraged financial institutions to comply with its Sustainable
Banking Guidelines – Responsible Lending. The guidelines have four main objectives: (i) to promotecommitment on issuing loans responsibly; (ii) to promote awareness of stakeholder engagement; (iii)
to promote internal implementation mechanisms to improve efficiency and productivity; and (iv) topromote transparency.

Page 14

3.4

Matrix of Key Themes by Jurisdiction

Jurisdiction

Taxonomy Disclosure
framework

LendingGreen
stresstesting

Prudential
regulations

Green
bonds

Investment
practices(e.g. guidance
to assetmanagers
relating to ESG
investments, orcentral bank
ESG investment
policies)

Developed Markets
EU

√

√

•

√

√

√

√

UK

√

√

•

√

√

√

√

Mainland
China

√

√

√

√

√

√

•

√

√

√

√

√

√

•

Hong Kong√

Singapore

√

Japan

√

Australia√

New Zealand

√

√

√

•

√

√

√

√

√

√

√

√

√

√

Emerging Markets
Indonesia
Malaysia

•

India

√

Thailand

√

√
√

√

√ = Policy or rules have already been implemented• = Proposals still under consideration (rules that are expected to come into force)

Page 15

4

INTERNATIONAL REGULATORY DEVELOPMENTS

4.1

Initiatives by the International Organization of Securities Commissions (“IOSCO”)

4.1.1

Disclosure of ESG Matters by Issuers

In January 2019, IOSCO released a Statement on Disclosure of ESG Matters by Issuers whichemphasises the importance of considering ESG matters in their disclosures and filings. The statement
refers to IOSCO Principle 16 which requires issuers to provide full, accurate and timely disclosure offinancial results, risk and other information which is material to investors’ decisions and notes that,
although characterised as non-financial, ESG matters may also have material impacts on investors’decisions.
The statement encourages issuers to consider the materiality of ESG matters to their business, assess
the risks and opportunities and, where such factors may have a “material impact”, make disclosures.
Such disclosures should include:• the impact or potential impact on their financial performance and value creation;• any insights on the governance and oversight of ESG-related material risks; and• the risk assessment methodologies and frameworks used in preparing any material ESG
disclosures.
4.1.2

Recommendations for Emerging Markets and the Role of Securities Regulators

On 5 June 2019, IOSCO published its final report on sustainable finance in emerging markets and therole of securities regulators. Drawing upon analysis by IOSCO’s GEMC and dialogue with market
participants, the report sets out 10 recommendations for consideration by IOSCO members whenissuing regulations and guidance on sustainability-themed capital market products and ESG disclosure
requirements. These recommendations aim to foster transparency, facilitate the development ofsustainable finance and promote the harmonisation of international securities guidance onsustainable instruments.
The recommendations fall into the following categories:• Integration of material ESG-specific issues in overall risk assessment and governance byissuers and other regulated entities, including at the Board level (Recommendation 1);• Integration by institutional investors (including asset managers and asset owners) of ESGspecific issues into their investment analysis, strategies and overall governance(Recommendation 2);• Requirement by regulators for disclosure of material ESG-specific risks (including transition
risks), reporting and adequate data quality (Recommendation 3);• Definition and classification of the sustainable instruments (Recommendation 4);• Specific requirements regarding sustainable instruments, including offering document
requirements and external review (Recommendations 5 to 9); and• Building capacity and expertise for ESG issues across regulators and market participants, andimplementation of appropriate monitoring mechanisms (Recommendation 10).

Page 16

In applying the recommendations, IOSCO encourages regulators and market participants to maintainan open dialogue and consider local conditions, the level of market development in a particular region
and any global or regional efforts in the area of sustainable finance.
4.1.3

Sustainable Finance Network

IOSCO confirmed sustainable finance as a key priority of its 2019 work programme. To that end, it has
recently established a Sustainable Finance Network of securities regulators1 to encourage exchanges
among members on initiatives and regulatory approaches in relation to sustainable finance. The
Network held its first stakeholder meeting in June 2019 and its first objective will be to undertake asurvey of national initiatives taken by securities regulators and other international organisations. In
its 2020 work programme published on 30 January 2020, the IOSCO reiterated their endeavour tocontinue addressing issues related to Sustainable Finance Network and Grown and Emerging Markets.

4.2

Initiatives by the FSB

The FSB established a TCFD in December 2015. The objective of the TCFD is the development of a setof voluntary, consistent, climate-related financial risk disclosures for use by companies in providing
information to investors, lenders, insurers and other stakeholders. On 17 December 2019, the FSB
published its work programme for 2020 stating that it would continue to assess vulnerabilities the inglobal financial system, coordinated by the FSB Standing Committee on the Assessment ofVulnerabilities (“SCAV”). In particular, the SCAV would examine the financial stability implications ofclimate change.
4.2.1

TCFD Final Recommendations

Following a period of public consultation, the TCFD published its final report in June 2017. The Reportconsists of 11 recommendations on climate-related financial risk disclosures for use by organisationsin their financial filings (“Recommendations”).
The Recommendations canvass four key themes:• Governance: disclosure of an organisation’s governance around climate-related risks andopportunities;• Strategy: disclosure of the actual and potential impacts of these risks and opportunities on anorganisation’s business, strategy and financial planning, where material;• Risk Management: disclosure of the processes used by an organisation to identify, assess andmanage climate risk; and• Metrics and Targets: disclosure of the metrics and targets used to assess and manage climaterelated risk and opportunities.
The recommended disclosures are adoptable by all organisations across jurisdictions and sectors(including the financial sector and non-financial industries most impacted by climate change);
supplemental sector-specific guidance is also provided.

1

The Sustainable Finance Network is chaired by Erik Thedéen, the Director General of the Finansinspektionenof Sweden.

Page 17

The Recommendations set out seven principles for effective disclosure, whereby, disclosure should(1) represent relevant information; (2) be specific and complete; (3) be clear, balanced andunderstandable ; (4) be consistent over time; (5) be comparable among companies within a sector,
industry, or portfolio; (6) be reliable, verifiable and objective; and (7) be provided on a timely basis.
In defining “climate-related risk”, the Recommendations identify two categories:• “Physical risks” are those risks related to the physical impacts of climate change; and• “Transition risks” are those arising from the adjustment to a lower-carbon economy. Theserisks may be legal, policy-related, reputational, market or technological in nature.
The TCFD also recommends that organisations use “scenario analysis” as a tool for appropriately
incorporating the potential and uncertain effects of climate change into their strategic planning
processes.2 This involves the development of hypothetical constructs designed to assess how bothtransition and physical risks may impact the business, strategies, and financial performance over time.
The Recommendations refer to the “2°C scenario” as a common and meaningful scenario to be
applied, although it is worth noting that since the Recommendations were issued, an increasing
number of companies are also applying 1.5°C scenario.3
4.2.2

TCFD 2019 Status Report

The TCFD issued Status Reports in June 2018 and 2019 which summarised the extent to which
companies’ annual filings and reports align with the Recommendations.
The 2019 Status Report identified the following key themes and findings:• Disclosure has increased since 2016 but is insufficient for investors;• Further clarity is required on the potential financial impact of climate-related issues on
businesses;• Where companies use scenario analysis, the majority do not disclose information on theresilience of their business strategies; and• The involvement of multiple functions of organisations (including risk management, financeand executive management), rather than only sustainability and corporate responsibility
functions is required to mainstream climate-related issues in organisations.
4.2.3

Work programme for 2020

In addition to publishing another Status Report in 2020, the TCFD intends to undertake additional work
to clarify elements of its supplemental guidance, develop process guidance on introducing andundertaking scenario analysis and identify business-relevant and accessible climate-related scenario.

2

The FSB issued supplemental technical guidance on The Use Of Scenario Analysis in Disclosure of ClimateRelated Risk and Opportunities in parallel to the Final Report.

3

See for example, an example cited by TCFD of a TCFD-aligned disclosure: 2019 Status Report, page 20.

Page 18

4.3

ISO standard

A Technical Committee 322 (ISO) on sustainable finance was set up for supporting the alignment ofinternational language around sustainable finance. The committee is chaired by British Standards
Institution and is expected to start working soon. It is expected that any future ISO standard on
sustainable finance will likely include a transition element.

4.4

NGFS Initiatives

The NGFS is a voluntary international platform comprised of 42 member central banks andsupervisors4. It was established in December 2017 with a stated mission of (i) defining and promoting
best practices to be implemented within and outside of the NGFS membership and (ii) conducting orcommissioning analytical work on green finance. In September 2019, the New York Department of
Financial Services became the first U.S. state financial regulator to join the NGFS. The US Federal
Reserve has signalled that it is considering joining the NGFS.
4.4.1

A Call for Action: April 2019 Recommendations

In April 2019, NGFS published the report A Call for Action: Climate Change as a Source of Financial Risk(the “Report”)which recognised that while it was likely that climate-related risks were a source offinancial risk, such risk was not fully reflected in asset valuations. The Report therefore sets out 6
recommendations for central banks, policymakers, supervisors and financial institutions to foster
collective leadership and globally coordinated action on climate-related risk. Although therecommendations are not binding, they reflect best practice identified by NGFS members infacilitating the role of the financial sector in achieving the goals of the Paris Agreement.
Most relevantly, Recommendation 1 focuses on the integration of climate-related risks into financial
stability monitoring and micro-supervision. NGFS highlights scenario analysis as an important tool for
authorities, which could be used to assess how climate change will impact the macro-economy,
financial system, and safety and soundness of financial firms. As a result, the report considers how it
could be implemented into authorities' toolkits. The recommendation refers to all three pillars of Baselin the framework for integrating climate-related factors into prudential supervision.

4

The members of the NGFS are as follows: Abu Dhabi Financial Services Regulatory Authority, Banco Central de
Costa Rica, Banca d’Italia, Banco de España, Banco de México, Banco de la República (Central Bank ofColombia), Banco de Portugal, Bank Al-Maghrib, Bank Indonesia, Bank Negara Malaysia (Central Bank of
Malaysia), Bank of Canada, Bank of England, Bank of Finland, Bank of Greece, Bank of Japan, Bank of Korea,
Bank of Thailand, Banque Centrale de Tunisie, Banque centrale du Luxembourg, Banque de France, Bank of
Russia, Bundesanstalt für Finanzdienstleistungsaufsicht, Central Bank of Hungary, Central Bank of Ireland,
Central Bank of Malta, Comision Nacional Bancaria y de Valores (Mexico), Comisión para el Mercado
Financiero de Chile, Commission de Surveillance du Secteur Financier (Luxembourg), Danmarks
Nationalbank, De Nederlandsche Bank, Department of Financial Services (DFS) of the State of New York,
Deutsche Bundesbank, Dubai Financial Services Authority, European Banking Authority (EBA), European
Central Bank (ECB), European Insurance and Occupational Pensions Authority (EIOPA), Finansinspektionen(Swedish FSA), Finanstilsynet (Norwegian FSA), Guernsey Financial Services Commission, Hong Kong
Monetary Authority, Japan FSA, Monetary Authority of Singapore, National Bank of Belgium, Národná banka
Slovenska, Norges Bank, Oesterreichische Nationalbank (OeNB), People’s Bank of China, Reserve Bank ofAustralia, Reserve Bank of New Zealand, South African Reserve Bank, Superintendencia Financiera De
Colombia, Sveriges Riksbank, Swiss Financial Market Supervisory Authority (FINMA) and Swiss National Bank.

Page 19

In addition, Recommendation 6 encourages the development of a green taxonomy for defining andclassifying green financial assets to promote transparency around economic activity contributing to
the transition to a low-carbon economy. Noting China’s Green Bond Endorsed Project Catalogue5 andthe European Commission’s Action Plan on Sustainable Finance6, the report emphasises the need to“exploit potential synergies” in different jurisdictions to harmonise green taxonomies.
On 23 July 2019, NGFS published a Technical Supplement to its Report providing an overview ofexisting approaches for quantitatively assessing climate-related risks and identifying key areas forfurther research.
4.4.2

Technical Document on SRI Approaches

On 17 October 2019, NGFS published an SRI investment guide encouraging central banks to lead byexample and adopt sustainable and responsible investment practices in their portfolio management
to mitigate sustainability risk, whilst acknowledging their unique challenges relating to their legal
policy mandates. Central banks are encouraged to apply the TCFD framework to their own disclosures.
4.4.3

Next Steps for NGFSNGFS intends to develop (i) a handbook on climate and environmental risk management and (ii)voluntary guidelines on scenario-based risk analysis. It also intends to perform an exploratory datacollection from selected banks in 2019 as part of a more in-depth study of non-climate variables which
may affect the default rates and performance of green assets.

4.5

International Green Bond Standards or Certifications

4.5.1

Green Bond Principles (“GBP”), Social Bond Principles (“SBP”) and Sustainability Bond
Guidelines (“SBG”) (all together, “the Principles”)

The Principles are a set of voluntary guidelines which aim to promote transparency and integrity inthe development of the green, social and sustainability bond market. The Principles are intended forbroad use by market participants. The GBP were established by a consortium of investment banks in2014 and were last updated in June 2018. The Principles are governed by an Executive Committeethat consists of issuers, underwriters and investors with the Secretariat being provided by theInternational Capital Market Association (“ICMA”).
The Principles consist of four core components:•

Use of proceeds: issuances aligned with the Principles should provide an investment
opportunity that has transparent green and/or social credentials. The Principles provide ahigh-level and non-exhaustive list of “eligible” project categories. For GBP, the list includes for
instance renewable energy, energy efficiency, pollution prevention and control,
environmentally sustainable management of living natural resources and land use, terrestrial

5

The Catalogue is an official list of green projects eligible for financing via green bonds. It covers climate change
mitigation and adaptation projects, and broader environmental projects such as projects addressing air
pollution.

6

For more information on the European Commission initiatives, see paragraph 4.8 below.

Page 20and aquatic biodiversity conservation, clean transportation, sustainable water andwastewater management, climate change adaptation, eco-efficient and/or circular economy
adapted products, production technologies and processes, and green buildings.
•

Process for project evaluation and selection: the Principles require an issuer to clearlycommunicate the environmental or social sustainability objectives, the process fordetermining how a project fits within eligible categories and any related eligibility criteria,
including, if applicable, exclusion criteria or any other process applied to identify and manage
potentially material environmental and social risks.

•Management of proceeds: the net proceeds of the green, social or sustainability bond, or an
amount equal to these net proceeds should be credited to a sub-account, moved to a subportfolio, or otherwise tracked by the issuer in an appropriate manner, and attested to by theissuer in a formal internal process linked to the issuer's lending and investment operations forgreen and/or social projects.

•

Reporting: issuers should make, and keep, readily available up to date information on the useof proceeds to be renewed annually until full allocation, and on a timely basis in case ofmaterial developments. The Principles also recommend the reporting of expected or achieved
impact.

The Principles also recommend that issuers engage in an external review process to obtain “outside
input” confirming the alignment of an issuer’s bond or bond programme with the four components
above. The Executive Committee of the Principles has recently established two separate working
groups to examine the emerging sustainability/KPI-linked bond and climate transition finance.
4.5.2

Climate Bonds Initiative

The Climate Bonds Initiative (“CBI”) is an international, investor-focused, not-for-profit which provides
sector-specific eligibility criteria for green assets and projects. CBI’s climate bonds standard can beapplied to climate bonds and green bonds. An issuer can apply for certification of a bond prior its
issuance using CBI’s “Climate Bonds Certification” mark.
The CBI has developed a Climate Bonds Taxonomy as a guide for issuers, investors, governments andmunicipalities in determining whether investments will deliver a low carbon economy. The taxonomy
identifies eight broad categories of assets and projects: energy, transport, water, buildings, land use& marine resources, industry, waste and ICT. It also provides greenhouse gas emissions screening
criteria consistent with the 2°C global warming target set by the Paris Agreement: a traffic light systemdetermines compatibility of identified assets and projects with a 2°C decarbonisation trajectory.
CBI’s ongoing work falls into three workstreams:•

market intelligence (reporting on green bond market evolution, sizing the climate bonds
universe and demonstrating green infrastructure pipelines);•developing a trusted standard; and•providing policy models and advice.

Page 21

4.5.3ASEAN Green Bond Standards

The ASEAN Capital Markets Forum (“ACMF”) has developed the ASEAN Green Bond Standards as atool for assisting ASEAN capital markets to drive growth and meet investors’ interest for green
investments. They are intended to enhance transparency, consistency and uniformity of ASEAN green
bonds.
The ASEAN Green Bond Standards are a product of collaboration with ICMA. They are based on the
GBP. However, ACMF’s standards aim to provide more granularity on how to apply the GBP’s broad
standards across ASEAN markets.
The ASEAN Green Bond Standards are aligned with the GBP’s four core components, with key
additional features including:•Eligible issuers;•

Ineligible projects;•

Continuous accessibility to information;•

Encouraging more frequent reporting; and•Disclosure of external review.

4.6

Green Loan Market

4.6.1

Green Loan Principles

In March 2018, the Asia Pacific Loan Market Association (“APLMA”), a pan Asian-association dedicatedto promoting growth and liquidity in the primary and second loan markets in the Asia Pacific region,
proposed the Green Loan Principles (“GLPs”). The GLPs provide a framework of standards andvoluntary guidelines for the green loan market and for market participants to apply on a deal-by-dealbasis. It is modelled on the GBP of the ICMA so as to ensure consistency across financial markets.
“Green Loan” is defined as any type of loan instrument made available exclusively to finance (or refinance) new or existing eligible Green Projects. Green Loans must align with the core components of
the GLPs canvassed below: •••Use of Proceeds: the loan proceeds must be utilized for eligible Green Projects. The GLPs set
out a non-exhaustive list of categories of “eligible” green projects, with the objective ofaddressing key areas of environmental concern such as climate change, natural resources
depletion, loss of biodiversity, and air, water and soil pollution.
Process for Project Evaluation and Selection: the GLPs require borrowers to clearlycommunicate the environmental sustainability objectives of a project, the process fordetermining how a project fits within an eligible category and any related eligibility criteria.
Management of Proceeds: the net proceeds of the Green Loan should be credited to a
dedicated account or otherwise tracked by the borrowers in an appropriate manner.

Page 22

•

Reporting: borrowers should make, and keep, readily available up to date information on theuse of proceeds to be renewed annually until fully drawn, and on a timely basis in case ofmaterial developments.

The GLPs also recommend borrowers to engage in an external review process to obtain outside input
on the green loan process and confirm the alignment of a borrower’s green loan framework with thefour components above.
4.6.2

Sustainability Linked Loan Principles (“SLLPs”)

In March 2019, APLMA launched the SLLPs to promote the development of and preserve the integrityof the sustainability linked products by providing a set of voluntary recommended guidelines. The
sustainability linked loan differs from a green loan, in that, the use of proceeds of the loan is not a
determining factor. It allows lenders to incentivise the sustainability performance of borrowers byaligning the loan terms to the borrower’s performance against the predetermined sustainability
performance targets (“SPTs”).
The SSLPs consist of four core components:
•

•

•

•

4.7

Relationship to Borrower’s Overall Corporate Social Responsibility (“CSR”) Strategy: theborrower must clearly communicate its sustainability objectives as set out in its CSR strategy
and how these align with its proposed SPTs;
Target Setting – measuring the sustainability of the borrowers: the SPTs must be negotiatedand set between the borrowers and lenders for each transaction. The SPTs must be ambitious
and meaningful to the borrower’s business and tied to a sustainability improvement, in
relation to a predetermined performance target benchmark;Reporting: borrowers should make, and keep, readily available up to date information relating
to their SPTs and this information should be provided to institutions participating in the loan
annually. SPPLs also encourage borrowers to publicly report information relating to their SPTs
and to include this in their annual or CSR reports; andReview: the need for external review should be negotiated and agreed between borrowers
and lenders on a transaction by transaction basis. In the event that no external review isagreed, it is still strongly recommended that a borrower should demonstrate or develop theinternal expertise to validate the calculation of its performance against SPTs and to thoroughly
document such expertise. Such documentation should be communicated to the lenders andwhere appropriate, be made publicly available.

Further International Regulatory Initiatives

In addition to the above, a number of other international bodies have increased their focus onsustainable finance. The table in Appendix 1 sets out a summary of these developments. However,the following are of particular note:•

The World Bank Group’s Climate Change Action Plan 2016-2020 aims to provide concrete
actions to support countries in translating their Nationally Determined Contributions (“NDCs”)

Page 23

•

•
•

•

•

•

4.8

under the Paris Agreement into climate policies and investment plans. In January 2019, it also
launched an Action Plan on Climate Change Adaptation and Resilience which promised todevelop a new rating system to create incentives for, and improve the tracking of, global
progress on climate change adaptation and resilience.
The International Monetary Fund published its Global Financial Stability Report: Lower forLonger in April 2019. Chapter 6 of the report addresses sustainable finance and recommends
some policy changes to foster further development in this area.
In October 2018, the World Federation of Exchanges published 5 Sustainability Principles formember exchanges to assist them in promoting the sustainable finance agenda.
The Coalition of Finance Ministers for Climate Action was set up to foster cohesion between
global and domestic action on climate change. It has endorsed the Helsinki Principles which
are designed to promote climate action through fiscal policy and public finance.
The UNEP Finance Initiative launched its Principles for Responsible Banking in September
2019, which help banks to align their businesses with the goals of the Paris Agreement andthe UN Sustainable Development Goals.
The Equator Principles are a framework for determining and managing environmental andsocial risk; Equator Principle 4 was issued in November 2019. The International FinanceCorporation has also released a Green Bond Market Development Toolkit to help regulators
foster local green bond markets.
The United Nations Principles for Responsible Investment (“UNPRI”) issued guidance in late
2018 to assets owners on implementing the TCFD Recommendations. In February 2019, it
announced that its strategy and governance risk indicators were to become mandatory toreport for its signatories from this year (i.e.2020). There are approximately 2,300 corporate
signatories to the UNPRI as of 2019.

European Commission Initiatives

The Commission published its Action Plan on Sustainable Finance (the "Action Plan") in March 2018,
which has become the primary legislative umbrella under which various sustainable finance-focused
initiatives across Europe are being pursued.
The three main initiatives being pursued by the Commission under the Action Plan are:• Establishing a unified EU classification system on what can be considered an environmentally
sustainable economic activity;• Imposing consistent sustainability-related disclosure requirements on all financial market
participants (which include institutional investors and asset managers); and• Creating a new category of benchmarks comprising low-carbon and positive carbon impact
benchmarks to provide investors with better information on the carbon footprint of theirinvestments.
On 6 December 2019, the EBA published its Action Plan outlining plans, deliverables and mandates tocover ESG-related factors and ESG risk between 2020 and 2025. EBA will work on incorporating ESG
factors into risk management and supervision, and develop a dedicated climate change stress test.

Page 24

Alongside the Action Plan, the Commission is also working on proposed amendments to existing EU
legislation, such as the AIFM Directive ("AIFMD") and the MiFID II Regulation ("MiFID II") with a viewto streamlining the relevant provisions with the proposals set out in the Action Plan.
4.8.1

EU Taxonomy Regulation

On 18 December 2019, the European Parliament (“Parliament”)and the European Council (“Council”)
reached political agreement on the proposal on “Establishment of a framework to facilitatesustainable investment” (the "EU Taxonomy Regulation").
The political agreement set out a general framework for what can be classified as an “environmentally
sustainable economic activity”. It lists the six environmental objectives (climate change mitigation,
climate change adaptation, sustainable use and protection of water and marine resources, transition
to a circular economy, pollution prevention and control and protection and restoration of biodiversity
and ecosystems) and sets out the four requirements that economic activities need to comply with inorder to qualify as "environmentally sustainable". The four requirements are as follows:•

Provide a substantial contribution to at least one of the six environmental objectives above;•“No significant harm” to any of the other environmental objectives;•

Compliance with robust and science-based technical screening criteria; and,•Compliance with minimum social and governance safeguards.

The other key points to note at this stage are:•After considerable debate between the European Parliament and the European Council, theTaxonomy Regulation will not only apply to sustainable financial products, but also sets out
requirements for "mainstream" financial products that are not using the taxonomy as well asreporting requirements for large firms already subject to the Non-Financial Reporting
Directive (“NFRD”). The NFRD requires certain large companies to include a non-financial
statement (e.g. on environmental or social issues) as part of their annual public reporting
obligations. However, the corporate level disclosures may facilitate those required to be madeby financial market participants pursuant to the Regulation on sustainability-related
disclosures in the financial services sector (“EU Disclosure Regulation”).

•

The Taxonomy Regulation recognises three different types of environmentally sustainableeconomic activities: (i) sustainable activities; (ii) transition activities (for which there are notechnologically and economically feasible low-carbon alternatives, but that support thetransition to a climate-neutral economy); and (iii) enabling activities (that enable others tomake a substantial contribution to one or more of the objectives). Significantly, the EU
Taxonomy Regulation creates a review clause which would allow the Commission toinvestigate the creation of a "brown" taxonomy in due course.

The final legislative text is yet to be published and, consequently, there is lesser clarity on the form of
the EU Taxonomy Regulation than there is in relation to the EU Disclosure Regulation or the Regulation
on indices used as benchmarks in financial instruments and financial contracts or to measure theperformance of investment funds (“EU Benchmarks Regulation”), both of which have now been

Page 25

published in the Official Journal. The taxonomy will be developed through delegated acts, expected tobe published as follows:•

The delegated act on the first two climate-related objectives (i.e. climate change mitigationand climate change adaptation) is expected to be adopted by the Commission by 31 December
2020 (to start applying from 31 December 2021); and•The delegated act on the remaining four environmental objectives is expected to be adopted
by the Commission by 31 December 2021 (to start applying from 31 December 2022).

The TEG, which is providing input into the development of these delegated acts, is expected to finalise
its recommendations by February 2020. The EC has further extended the mandate of the TEG until 30
September 2020 in order to retain the knowledge of the TEG in an advisory role until the Platform on
Sustainable Finance becomes operational.
4.8.2

EU Disclosure Regulation

In April 2019, an inter-institutional agreement was reached between the European Parliament and theEuropean Council in relation to the text of the EU Disclosure Regulation. The EU Disclosure Regulation
was published in the Official Journal on 27 November 2019, and will apply with effect from 10 March
2021 (with the periodic reporting obligations applying from 1 January 2022).
The EU Disclosure Regulation introduces additional disclosure requirements for financial market
participants, which not only relate to the integration of sustainability risks into investment decisionmaking and the provision of investment advice, but also extend to the disclosure of the impact ofinvestment decisions and investment advice on the basis of proportionality and, in particular, therequirement to disclose sustainability impacts will not apply to smaller asset managers or institutional
investors.
Other key proposals set out in the EU Disclosure Regulation (as supplemented by corresponding
amendments being proposed to MiFID II and the AIFMD) are as follows:• Financial market participants will be required to take into account the principal adverse
impact of investment decisions on sustainability factors as part of fulfilling their due diligenceobligations and to develop engagement strategies including for the exercise of voting rights,
where available, with a view to reducing the principal adverse impact of investee companies
on sustainability factors;• Entities in scope of the regulation will have to provide a range of disclosures on their websites,in pre-contractual documentation, and through periodic reporting; and• Investment firms providing investment advice or portfolio management services will be
required to have a reasonable basis for determining that the specific transaction being
recommended or entered into meets the investment objectives of the client in question, theclient’s risk tolerance and any preferences, including “ESG preferences”, where relevant.
The EU Disclosure Regulation also proposes additional disclosure obligations for financial products
which either: (i) have as their objective "sustainable investment" or (ii) promote environmental andsocial characteristics and whose investee companies follow good governance practices. For these
purposes, "sustainable investments" have been defined as investment in economic activities that

Page 26

contribute to an environmental objective or a social objective, do not significantly harm either of thoseobjectives and whose investee companies follow good governance practices. It is not yet clear what itmeans to be a financial product that promotes environmental or social characteristics.
European supervisory authorities are expected to develop regulatory technical standards on thedetails of the presentation and content of the required disclosure, with drafts of these standards tobe submitted to the Commission by 30 December 2020. On 6 February 2020, the European Securities
and Markets Authority (“ESMA”) set out its Strategy on Sustainable Finance. It committed to placing
sustainability at the core of its activities and embedded ESG factors into its work. It set out ESMA’s
central priorities, which included transparency obligations, risk analysis on green bonds, ESG investing,convergence of national supervisory practices on ESG factors, taxonomy, and supervision. ESMA will
work with the EBA and European Insurance and Occupational Pensions Authority to produce themandated technical standards. It expects to deliver its first set of regulatory technical standards in thesecond half of 2020 and its second set in 2021. Given that the EU Disclosure Regulation applies from
10 March 2021, the short period available after the drafts become available is a cause for concern
amongst financial market participants.
4.8.3

Climate-related Benchmarks

In March 2019, the European Parliament in its plenary session approved the agreement on low-carbon
benchmarks as part of the broader EU Benchmarks Regulation, with the text being published in the
Official Journal on 27 November 2019.
Two new categories of voluntary low-carbon benchmarks are being created, which are:
• EU climate transition benchmarks, where the underlying assets are selected, weighted or
excluded in such a manner that the resulting benchmark portfolio is on a decarbonisation
trajectory and which is also constructed in accordance with certain minimum standards – forthese purposes, a “decarbonisation trajectory” means a measurable, science-based and timebound trajectory to reduce scope 1, 2 and 3 carbon emissions towards the alignment with thelong-term global warming target of the Paris Climate Agreement; and• EU Paris-aligned benchmarks, where the underlying assets are selected in such a manner thatthe resulting benchmark portfolio’s carbon emissions are aligned with the long-term global
warming target of the Paris Agreement and which is also constructed in accordance withcertain minimum standards.
Only administrators that comply with the requirements laid down by the EU Benchmarks Regulation
will be eligible to use the labels of “EU Climate Transition Benchmark" or "EU Paris-aligned
Benchmark" when marketing benchmarks in the Union. However, there is no obligation on asset
managers to use these benchmarks for financial products being marketed as environmentally
sustainable.
Additional disclosure obligations have been imposed on administrators of benchmarks on whether or
not their benchmarks pursue ESG objectives and to what extent their benchmarks ensure an overall
degree of alignment with the target of reducing carbon emissions, or, attaining the long-term global
warming targets of the Paris Climate Agreement. On 20 December 2019, the TEG published a
Handbook on climate benchmarks and benchmarks’ ESG disclosures. The handbook follows
publication of TEG’s final Report on climate benchmarks on 30 September 2019. The aim of thehandbook is to clarify the recommendations put forward by TEG and to respond to frequently asked
questions from the market.
Page 27

4.8.4

EU Green Deal

On 11 December 2019, the EU Commission set out a European Green deal, which expressed an
ambition to achieve climate neutrality objective by 2050 and to mainstream sustainability in all EU
policies and to make the EU the global leader in driving sustainability.
The intention to mainstream sustainability is supported by the following legislative or policy initiatives:
Proposal for a Just Transition Mechanism, including a Just Transition
Fund – as part of Sustainable Europe Investment Plan

January 2020

Review of the NFRD
(Consultation on the possible reform or improvements that could bemade to NFRD was launched on 22 February 2020)

2020

Renewed sustainable finance strategy

Autumn 2020

Initiatives to screen and benchmark green budgeting practices of theMember States and of the EU

From 2020

Review of the relevant State aid guidelines, including the environment
and energy State aid guidelines

2021

Align all new Commission initiatives in line with the objectives of theGreen Deal and promote innovation

From 2020

Stakeholders to identify and remedy incoherent legislation that reduces
the effectiveness in delivering the European Green Deal

From 2020

Integration of the SDG in the European Semester

From 2020

Other proposals forming part of the EU Green Deal include:•A ‘Climate Law’ to be presented in March 2020;•

A new circular economy action plan will be tabled in March 2020;•

A new biodiversity strategy will be presented in March 2020;•

The new strategy will aim for a “green and healthier agriculture” system, to be tabled in Spring
2020; and•Electric vehicles will be further encouraged with an objective of deploying 1 million publiccharging points across Europe by 2025.

Page 28

4.9

Prudential Regulation

4.9.1

Prudential Regulation Authority

The UK's PRA has been one of the leading actors in integrating climate issues into prudential
regulation. It published Policy Statement 11/19 in April 2019 in order to consult the industry on
proposed approaches to managing financial risks from climate change. The PRA provided feedback to
responses to a Consultation Paper concerning banks' and insurers' approaches to managing thefinancial risks from climate change. The respondents generally welcomed the PRA's proposals andurged the PRA to move quickly on climate change issues.
The key highlights from the Policy Statement were:• The PRA proposed that firms address the financial risks from climate change through their
existing risk management framework, in line with their board-approved risk appetite, while
recognising that the nature of financial risks from climate change required a strategic
approach;• Firms should liaise with their supervisors to develop an appropriate approach to incorporate
climate considerations into the Internal Capital Adequacy Assessment Process (“ICCAP”) or
Own Risk and Solvency Assessment ("ORSA"). The PRA expected this to be an iterative process
and approaches would mature over time as methodologies develop;• The PRA also proposed that firms use scenario analysis to assess the impact of the financial
risks from climate change on their current business strategy, and to inform the risk
identification process; and• Many respondents requested further guidance on issues relating to scenario analysis,
including (i) how best to overcome the lack of data, (ii) developing and publishing reference
scenarios and key assumptions, and (iii) how to build expertise within and outside firms toundertake scenario analysis. The PRA responded by saying that it was not in a position toprovide any further guidance but would aim to do so in the future.
The Policy Statement was accompanied by Supervisory Statement SS3/19, which set out the PRA's
expectations of firms in the face of what it recognised were unique challenges of climate change. Firms
should:• Embed the consideration of the financial risks of climate change into their governance andrisk management arrangements;• Where proportionate, use scenario analysis (both long-and-short term) to inform strategy
setting and risk assessment;• In addition to their existing requirements to disclose information on material risks under their
Pillar 3 disclosures, consider whether further disclosures were necessary to enhancetransparency; and• Have an initial plan in place to address the expectations and submit an updated Senior
Management Function form in mid-October 2019.
The PRA has also established a Climate Finance Risk Forum ("CFRF"), co-chaired with the Financial
Conduct Authority, which will share best practice and build capacity across financial regulators andindustry to respond to the financial risks from climate change. Four working groups have been tasked
with producing guidance on risk management, scenario analysis, disclosure and innovation. Draft

Page 29

practical guidance and recommendations were presented at the November 2019 meeting of the CFRF,
and its intention is to publish final versions in Spring 2020 with a view to obtaining wider industry
input on them.
On 23 January 2020, the PRA published a policy statement, providing feedback to responses to theconsultation paper on updating its Pillar 2 capital framework. It has decided to add a reference to its
existing policy on managing climate-related financial risks.
4.9.2

Stress Testing

The PRA's Policy Statement 11/19 noted the value in considering climate change as part of the PRA's
stress testing exercises, in particular whether it could be part of a future Biennial Exploratory Scenario("BES"). The PRA noted that scenario analysis would be exploratory and conducted proportionately as
firms’ expertise developed, which should reduce resource costs. It emphasised that firms should not
wait to initiate scenario analysis as this was important in understanding the risks each firm faced fromclimate change. ICAAP for banks was considered to be useful frameworks within which to consider thefinancial risks from climate change. The PRA also expected firms to conduct scenario analysis on a
sufficiently regular basis to ensure the results could feed into the board-approved strategy for
managing the financial risks from climate change.
As part of its regulation of insurance firms, the PRA has begun to use stress-testing exercises. In 2019,
insurers were requested to consider the impact of three greenhouse emission scenarios on theirbusiness models and asset valuations. The PRA also asked firms who had already developed climatechange scenarios to provide the assumptions behind those scenarios to assist the PRA to understandthe range and parameters currently considered by insurers.
In December 2019, the Financial Policy Committee ("FPC") and Prudential Regulation Committee("PRC") of the Bank of England issued a Discussion Paper confirming the Bank's intention to use its
2021 BES to stress test the resilience of the largest banks, insurers and the UK financial system to thephysical and transition risks from climate change.
In its Discussion Paper, the Bank of England noted that the 2021 BES will contain certain differencesfrom traditional stress-testing methodologies to reflect the distinct characteristics of climate-related
financial risks:•

The BES will test resilience by reference to three different climate scenarios embodying therisks of earlier and later policy action to reach the Paris Climate Agreement target, and a 'no
additional policy action' scenario where that target is not met and more severe physical risks
result;•

The BES will use a 30-year modelling horizon reflecting the longer period over which climatechange will occur and policies will seek to mitigate it. It is proposed that participants in the
BES will assume the nominal size and composition of their balance sheets (as at 30 June 2020)
will remain static and will run projections at 5-year intervals over the 30-year horizon;•

The Bank is proposing to publish pathways for temperature, emissions and climate policies,
together with a defined set of macro-financial and financial market variables to be used in the
BES; and•Firms will be expected to assess the vulnerability of individual counterparties' business models
to the underlying climate-related risks in each scenario.

Page 30

The Bank envisages the BES to be carried out in two parts: (1) BES participants to quantify the change
in the value of their balance sheets over time in the different scenarios, in order to understand thevulnerability of their current business models to climate change; and (2) participants to assess how
they would change their business models in response to the risks identified in each scenario, forexample, by reducing their exposures to sectors at risk and redeploying capital to capture
opportunities identified.
The Bank is seeking feedback on its Discussion Paper and the design of the BES by 18 March 2020, andanticipates launching the BES in the second half of 2020 and publishing results of the exercise in 2021.

4.9.3

European Prudential Regulation

At a European level, prudential regulatory engagement with sustainable finance is at an early stage,
but initial steps are being taken. The Commission's Action Plan proposed exploring the feasibility ofintegrating climate-related risks in banks' capital requirements framework. A key assumption, which
the EBA is investigating, is whether green assets are less risky than brown or non-green assets.

On 6 December 2019, the EBA published its Action Plan on Sustainable Finance outlining its approachand timeline for delivering mandates related to ESG factors as set out in the revised Capital
Requirements regulation (“CRR II”) and Capital Requirements Directive (“CRD V”). The first phase of
its plan will focus on strategy and risk management, as well as key metrics and disclosure. In thesecond phase, the EBA will develop a climate change stress test. The third phase will focus on studying
the prudential treatment of “green” exposure.

Page 31

5

ASIA PACIFIC REGULATORY DEVELOPMENTS

5.1

Asia Pacific Regional Bodies

5.1.1

Association of Southeast Asia Nations ("ASEAN")

The ACMF, a high-level grouping of capital market regulators from all 10 ASEAN jurisdictions,developed the ASEAN Green Bond Standards, the ASEAN Social Bond Standards and the ASEAN
Sustainability Bond Standards in 2017 and 2018 to create a sustainable asset class in ASEAN, inparticular to meet the region’s infrastructure and social development financing needs. The standards
were developed based on the ICMA’s Principles. It provides more specific guidance on how the ICMA's
guidance is to be applied across ASEAN. They are intended to enhance transparency, consistency anduniformity of ASEAN green, social and sustainability bonds, which will reduce due diligence cost andassist global investors in making informed investment decisions.
The key principles under the standards relate to use of proceeds, process for project evaluation andselection, management of proceeds and reporting to investors. As of 8 November 2019, the ACMF
had on its record 98 issuances of ASEAN green/social/sustainability bonds or sukuks, totalling over
USD2.6 billion. The issuances originated from Malaysia, the Philippines, Singapore and Thailand to
fund a variety of projects such as those relating to green buildings, renewable energy, sustainable
water management and affordable housing.
The ACMF is currently developing the Roadmap for ASEAN Sustainable Capital Markets to outline key
strategies and mechanisms to strengthen capital markets as a driving force for sustainable
development. The roadmap will address key areas such as ESG information or disclosure standards,
analytical tools, and stakeholder awareness and engagement. Feedback has been gathered fromstakeholders such as issuers, institutional investors, information providers, regulators, and ESGrelated organisations through the ACMF Industry Consultative Panels.
5.1.2

Asian Development Bank ("ADB")The ADB was the first multilateral development bank to make a climate financing commitment at theUnited Nations Climate Change Summit in September 2015. In December 2019, it announced that it
had achieved a key commitment to double its annual climate investments, one year ahead of time,from USD3 billion in 2014 to over USD6 billion in climate-related financing in 2019. The ADB has
indicated that it is ready to step up as the climate bank for Asia and the Pacific, in terms of bothfinancing and technical assistance. The ADB is committed to helping its developing member countries
meet their targets under the Paris Agreement, enabling them to transition to a low-carbon, climateresilient growth and development path, as reflected in its Strategy 2030.
Some of the other initiatives the ADB has been involved in include the ASEAN Catalytic Green Finance
Facility launched in April 2019 in conjunction with Southeast Asian governments and major financiers,
to mobilise USD1 billion to provide loans and necessary technical assistance for sovereign green
infrastructure projects such as sustainable transport, clean energy, and resilient water systems. In
May 2019, the ADB also launched its Action Plan for Healthy Oceans and Sustainable Blue Economies(designed in collaboration with the World Wide Fund for Nature) to support the efforts of its

Page 32

developing member countries to achieve sustainable development goals. The action plan will expand
financing and technical assistance for ocean health and marine economy projects to USD5 billion from2019 to 2024, including co-financing from partners.
5.1.3

Asia Infrastructure Investment Bank ("AIIB")

The AIIB was established in 2016 after the United Nations adopted the 2030 Agenda for Sustainable
Development, which included 17 sustainable development goals. Its Environmental and Social
Framework therefore gives recognition to and aligns with such goals. As at the end of 2018, the AIIB
had invested in over 34 projects aligned with the goals.

In early 2019, the AIIB board of directors approved USD500 million for the Asia ESG Enhanced Credit
Managed Portfolio which aimed to develop infrastructure as an asset class, develop debt capital
markets for infrastructure and promote the integration of ESG principles in fixed income investmentsin emerging Asia.

5.2

Developed Markets

5.2.1

Mainland China

China is a signatory to the 2015 Paris Agreement and has pledged to source 20% of its energy fromlow-carbon sources by 2030 and to cut emissions per unit of GDP by 60-65% of 2005 levels by 2030.
Mainland China has placed a high priority on sustainable finance, which it views as key to its continued
economic development. Since 2007, the financial authorities and the environmental protection
authority have promulgated a series of official circulars and guidelines on use of financial tools andproducts to support sustainable economic development. On 31 August 2016, seven ministerial
agencies, including the PBOC, jointly promulgated guidelines which set out the definition of green
finance, incentives, disclosure requirements, a development plan for green financial products, and risk
mitigation. Mainland China is the world’s second largest green bond market with green bond issuancesin 2018 at roughly USD 43 billion.
Beginning in 2017, the European Investment Bank and the PBOC have had discussions to align the twojurisdictions' definition of green finance. Currently, the PBOC allows clean coal projects to be includedin the list of projects financed by green bonds, a taxonomy that differs from the EU's. Other
developments include Mainland China's December 2017 launch of the world's largest nationwide
carbon trading scheme and the March 2019 supplementary agreement between the Luxembourg
Stock Exchange ("LuxSE") and the Shanghai Stock Exchange ("SSE") allowing Chinese investors to
obtain information about green bonds listed on the LuxSE.
On the regulatory front and in furtherance of Mainland China's 13th Five Year Plan (2016-2020), the
PBOC issued in June 2017 a standardisation plan, which sought to develop standards for financial
institutions' green products, information disclosure for green credit, and green credit ratings. The
PBOC has also incorporated green finance into its macro prudential assessment system. In June 2017,
China launched a green finance pilot zone in 5 provinces. In July 2018, the PBOC issued a performance
evaluation plan which provided the basis by which banking financial institutions would be assessed inrelation to their green credits.

Page 33

The PBOC and the China Securities Regulatory Commission ("CSRC") jointly released additional green
bond certification guidelines in December 2017. These guidelines are broadly modelled on the Climate
Bonds Standard. On 6 November 2019, the China’s National Development and Reform Commission
also updated the Catalogue for Guiding Industry Restructuring.
In September 2018, the CSRC updated its corporate governance code providing a framework for listedcompanies' disclosure of ESG information, a requirement that is anticipated to become mandatory by
2020. In April 2019, the PBOC issued a joint circular supporting the issuance of debt financing
instruments in Mainland China's five green finance pilot zones. Finally, the SSE has taken an active rolein supporting green finance in the stock market, as demonstrated by its Green Vision Finance andAction Plan (2018-2020).
In December 2019, the China Banking and Insurance Regulatory Commission (“CBIRC”) published theguidance opinion for promoting high-quality development of the banking and insurance industries.
One of the key areas was promoting green finance, and CBIRC purported to actively develop green
bonds, green credit-asset backed securitisation, establish a green development fund and explore new
green financial products, such as carbon finance, climate bond, climate insurance, blue bond, etc.
5.2.2

Hong Kong

Hong Kong is a major green finance hub, with USD11 billion in green bonds issued and arranged in2018, a significant increase from USD3 billion in 2017. Issuers include multilateral development banks
as well as local, Mainland and international private sector entities. In May 2019, the Hong Kong
government issued its inaugural USD1 billion 5-year green bond, which attracted a strong demand
from investors globally. In February 2020, the Hong Kong government announced its plan to issue
green bonds totalling HKD66 billion within the next five years.
The SFC announced its Strategic Framework for Green Finance in September 2018. Among the key
action items are enhancing disclosure by listed companies of environmental information (in particularclimate-related disclosure), conducting a survey of asset managers and asset owners on theirsustainable investment practices and engaging with the industry to formulate appropriate policies andguidance, facilitating the development of a wider range of green-related investments, supporting
investor awareness in green finance, and participating in international initiatives.
With regards to the SFC’s first action item above, the HKEX published in December 2019 conclusions
to its consultation on proposed enhancements to its ESG reporting guide and related listing rules,
including a requirement to include a statement from the company board setting out its considerationof ESG issues. As for the second action item, the SFC published a circular in April 2019 to provide
guidance to management companies of SFC-authorised funds with an ESG investment focus, andreleased the results of its survey of asset managers in December 2019, indicating that it plans todevelop standards and provide practical guidance on the management of climate change risks in asset
management, and establish an industry group to exchange views amongst the SFC and experts onenvironmental and climate risks and on sustainable finance. As at the end of 2019, there were around
30 SFC-authorised funds with a green or ESG focus.
In May 2019, the HKMA announced three measures to support green finance development. Firstly,
the HKMA would promote green and sustainable banking by developing a common framework toassess the "greenness" of banks. In late December 2019, the HKMA launched an industry consultation
on its proposed framework, which consists of six elements – (1) governance, (2) corporate planningand tools, (3) risk management process, (4) business policies, products and services, (5) performance

Page 34

and resources and (6) disclosure and communication. Secondly, as the manager of the Exchange Fund,the HKMA would give priority to green and ESG investments if the long-term return is comparable toother investments on a risk-adjusted basis. Thirdly, the HKMA would establish the Centre for Green
Finance under its Infrastructure Financing Facilitation Office, to serve as a platform for technicalsupport and experience sharing for the green development of the banking and finance industry. This
centre has now been established. The HKMA also participates in international initiatives, such as the
NGFS.
The Hong Kong Quality Assurance Agency (“HKQAA”), established by the Hong Kong government, hasoperated the Green Finance Certification Scheme since 2016. The scheme provides third-party
conformity assessments for green finance issuers and incorporates a variety of certification standards,
including the Green Bond Principles, PBOC guidance on green bonds, Clean Development Mechanism
under the U.N. Framework Convention on Climate Change and ISO 26000 Guidance on Social
Responsibility.
5.2.3

Singapore

Singapore is a signatory to the 2015 Paris Agreement and committed to reduce its emission intensity
by 36% by 2030, compared to 2005 levels. Singapore is a founding member of the NGFS and has
pushed for the adoption of industry best practices to promote a strong sustainability focus. Banks in
Singapore are to assess their clients’ ESG risks as part of credit evaluation processes. In the asset
management industry, the Singapore Stewardship Principles for Responsible Investors were launchedin 2016. In the capital markets, the Singapore Exchange ("SGX") has implemented a “comply or
explain” regime for sustainability reporting in 2018, where listed companies are required to discloseand explain their sustainability practices. The reason for the sustainability reporting requirements is
to enhance the visibility of SGX-listed companies among investors who seek sustainable investment
and want to review a company’s ESG efforts. In insurance, key players are factoring ESG into
investment and underwriting processes and supporting climate risk resilience solutions fromSingapore.
Singapore has also taken steps to nurture the growth of the green bond market. The Monetary
Authority of Singapore ("MAS") introduced the Green Bond Grant scheme in 2017 to encourage theissuance of green bonds. In 2019, the MAS expanded the Green Bond Scheme to include social andsustainability bonds, and renamed the scheme as “Sustainable Bond Grant Scheme”. In order to takeadvantage of the scheme, proceeds of bonds issued by qualified issuers must be used to fund projects
that deliver environmental and social benefits. The bonds must meet criteria as prescribed by MAS,
such as a minimum principal issue amount of SGD200 million. The implementation of the scheme
highlights the strategic focus of MAS to promote sustainable financing in Singapore’s financial sector
and attract both international and domestic issuers to issue their bonds in Singapore and to list themon the SGX.
MAS is pushing for deeper ESG integration within Singapore’s financial institutions by engaging thesenior management and boards of local banks to promote effective adoption of industry standards
and enhancement of ESG disclosures. MAS has also included the banks’ sustainability practices in its
supervisory assessments.
In November 2019, MAS announced that it had set up a USD 2 billion green investments programme
to invest in public market investment strategies that have a strong green focus. It would place fundswith asset managers who are committed to drive regional green efforts out of Singapore andPage 35contribute to MAS’s other green finance initiatives, including developing green markets and managing
environmental risks.
MAS has co-drafted a set of draft Environment Risk Management Guidelines with the Investment
Management Association of Singapore to provide guidance to asset managers on soundenvironmental risk management practices for funds and segregated mandates. The guidelines will be
issued in the first quarter of 2020 for public consultation.
In November 2019, MAS announced the implementation of the Green Finance Action Plan which
aimed to build a financial system that would be more resilient to environmental risks, develop green
finance solutions and market. The plan will be articulated through actions in six areas: • Setting Environmental Risk Management Guidelines across the banking, insurance, and asset
management sectors;• Developing grant schemes to support mainstreaming of green and sustainability linked loans;• Launching a USD2 million Green Investment Programme;• Supporting expansion plans of external reviewers and rating agencies;• Anchoring Centres of Excellence with world-class research institutions and leading universities
to contribute Asia-focused climate research and training programmes; and• Featuring Green Finance as a key theme in the 2020 Fintech Hackcelerator.
5.2.4

Japan

Japan is a signatory to the 2015 Paris Agreement and committed to reduce its emission by 26% on
2013 levels by 2030. The Japanese sustainable finance market has experienced a huge growth in thelast few years, expanding from USD0.5 trillion in 2016 to USD2.1 trillion in 2018. The Tokyo Stock
Exchange ("TSE") currently offers 10 ESG indices and has established platforms for various ESG-related
products such as green bonds.
On 28 March 2017, the Ministry of the Environment issued the “Green Bond Guidelines, 2017”. The
guidelines establish standards for green bond issuances in accordance with the Green Bond Principles.
The Government Pension Investment Fund has played an important role in the promotion ofsustainable finance. It added descriptions on ESG in its investment principles in October 2017, and has
continuously encouraged asset managers to consider ESG factors in their investment decisions.
On the policy side, the Japanese Cabinet agreed on the Long-term Strategy under the Paris Agreementin June 2019, recognising the importance of sustainable finance and proposing measures for further
promotion.
Although the amended Stewardship Code states that institutional investors may consider ESG factors
in their investment decisions, it does not impose a binding obligation on institutional investors.
Similarly, the amended Corporate Governance Code requires listed companies to take appropriate
measures to address sustainability issues on a comply-or-explain basis, but there are currently no
detailed requirements on the disclosure of ESG information.
Nonetheless, the situation may change quickly in the next few years. The Japan Exchange Group("JPX"), which operates the TSE, joined the Sustainable Stock Exchanges Initiative in December 2017.
As a partner exchange in the initiative, the JPX is expected to voluntarily commit to promoting longterm sustainable investment and improving ESG disclosure and performance among listed companies.
Page 36

In view of the increased awareness on corporate disclosure and use of climate-related information
highlighted by the TCFD, the TCFD Consortium was launched in Japan in May 2019 as a platform fordiscussion on effective disclosure of climate-related information. The Ministry of Economy, Trade andIndustry, the Financial Services Agency and the Ministry of the Environment participate in the
consortium as observers, raising momentum for addressing ESG disclosure requirements. 239
Japanese companies and organisations have expressed their support for the TCFD as of 1 February
2019. In November 2019, the Bank of Japan joined the NGFS as a member.
5.2.5

Australia

Australia is a signatory to the 2015 Paris Agreement and has committed to a 26 to 28% reduction inemissions by 2030 on 2005 levels. In Australia, the focus of regulatory developments in this area has
been management and disclosure of the risks of climate change to the financial world, including
decreased asset values and potential business disruption.
In 2018, the Australian Accounting Standards Board and Auditing and Assurance Standards Board
issued joint guidance on assessing climate-related risks in the context of financial statements. The
guidance signals to report preparers, assurers and auditors that they must approach climate changerelated issues with the same degree of rigour as any other financial variable.
Earlier in 2019, the Australian Securities and Investments Commission published updates to clarify theapplication of its guidance on disclosure of climate change-related opportunities and risks, which it
described as "systemic". Similarly, the 2019 edition of the Australian Securities Exchange (“ASX”)
Corporate Governance Council’s Corporate Governance Principles and Recommendations includes
commentary on how the environmental risks of climate change should be disclosed. Recommendation
7.4, in particular, states that “a listed entity should disclose whether it has any material exposure toenvironmental or social risks and, if it does, how it manages or intends to manage those risks”.
In February 2020, the Governance Institute Australia issued a “Practical Guide to Reporting against
ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations”,
referring to a legal opinion written by Noel Hutley SC and Sebastian-Harford Davis on directors’ duties
and climate change. The legal opinion was first issued in 2016 and was later revised in early 2019 andopined on the extent to which the law permitted or required Australian company directors to respondto climate change risks. In short, the opinion highlighted the need to (a) understand directors’ duties
relating to risk to business from climate change and (b) ensure adequate disclosure relating to material
risks from climate change. It advised that if company directors consider climate change risks actively,
disclose them properly and respond appropriately, it would reduce their exposure to liability.
In 2018 the APRA conducted a climate change survey, which is to be followed by a deeper supervisory
assessments of entities that participated in 2018 by mid-2020. The APRA’s 2019 review of its
superannuation prudential framework observed that attention could be given to reviewing andupdating the guidance on consideration of ESG factors in formulating an investment strategy.
Australia's financial services regulators have also commented on the financial and economic
significance of climate change. The Australian government has indicated an increased focus ondeveloping the social impact investing market and has released principles articulating its role in thatdevelopment. In early 2020, the APRA outlined its plans to develop a prudential practice guidefocused on climate-related financial risks, as well as a climate change vulnerability assessment in a
letter to all APRA-regulated institutions and intends to update its superannuation Prudential Practice
Guide SPG 530 Investment Governance, which includes paragraphs related to ESG investments.

Page 37APRA will also be seeking to undertake a climate change financial risk vulnerability assessment. The
assessment will begin with Australia’s largest authorised deposit-taking institutions (“ADIs”).
Beginning with the ADI industry will provide helpful insights on the impact of a changing climate on
the broader economy, which will be analysed in conjunction with the Reserve Bank of Australia. The
ADI vulnerability assessment will be designed in 2020 and executed in 2021, with other industries tofollow.
The increasing involvement of industry bodies may shift the regulatory focus from disclosure of risks
to the promotion of "ethical" finance – including green financial products.
The Australian Sustainable Finance Initiative, whose membership includes leaders from across thefinancial sector, civil society and academia, aims to design a roadmap for realigning the finance sector
to support greater social, environmental and economic outcomes for Australia. Impact Investing
Australia and the Australian Advisory Board on Impact Investing, comprised of leaders across businessand not-for-profit sectors, are working to establish an independent financial institution to accelerate
development and achieve scale for impact investing.
Stewardship codes are also increasingly common, including rules on how fund managers engage withand influence ESG factors. The Australian Council of Superannuation Investors (“ACSI”) launched avoluntary code in 2018 emphasising its members' commitment to incorporating ESG considerations
into their investment strategies. In 2019, the ACSI Governance Guidelines were revised. The
Guidelines now recommend the use of the TCFD Recommendations and articulate an expectation that
entities materially exposed to climate change risk will use the TCFD recommended disclosure.
5.2.6

New Zealand

New Zealand is a signatory to the 2015 Paris Agreement and has committed to reduce its emission by
30% on 2005 levels by 2030, which translates to an 11% reduction on 1990 levels. Three sustainablefinance products are currently available in New Zealand: green bonds, sustainable linked loans, andgreen loans. The Auckland City Council has used green bonds for its electric train fleet and property
company Argosy for its green building portfolio. Between 2012 and 2018, the green bond was themost common form of sustainable finance used, but the sustainable linked loan is rising in popularity
due to its flexibility. The sustainable linked loan works by applying a discount to the base lending
margin proportionate to how successfully a company adheres to its environmentally driven targets. In
October 2019, ANZ bank entered into New Zealand’s first sustainable linked loan, agreeing to a four
year NZD 50 million ESG linked loan with Synlait Milk company. This encourages Synlait to improve its
performance against independent ESG criteria. By contrast, the green loan refinances a specific projector asset. A recent example of this is Contact Energy’s Green Borrowing Programme.
At the end of 2018, the New Zealand government pledged NZD 100 million towards green investment
finance, with a particular focus on reducing New Zealand’s greenhouse gas emissions. The New
Zealand Green Investment Finance Ltd (“NZGIF”) was established as the vehicle for dispersing thesefunds. The overall aim of NZGIF is to accelerate low emissions investment in New Zealand. New
Zealand intends to transition towards a net-zero-emissions economy by 2050.
Changes to New Zealand’s Emissions Trading Scheme (“ETS”) have also been proposed to assistalignment with New Zealand’s emissions reduction targets. First established in 2008, the scheme
incentivises reduction in emissions and increased forestry. Foresters are allocated units according to
how much carbon dioxide is absorbed by their trees. One metric tonne of carbon dioxide or carbon

Page 38

dioxide equivalent is worth one New Zealand Emission Unit (“NZU”). These units can be sold on the
NZ ETS market and emitters must purchase enough of these units to cover their emissions. The unit
supply and price controls of the ETS are currently under consultation with a view to their legislation
by mid-2020.
In August 2018, the New Zealand Productivity Commission issued its Low Emissions Economy reportwhich recommended a comply-or-explain disclosure regime. In October 2019, New Zealand’s
government entered into consultations about imposing this regime which would require financial
firms and listed companies to report on the actual and potential climate-related risks posed by theirbusiness strategy and what governance and climate related risk management is in place and themetrics and targets of that management and governance. Alternatively, the company must explain
why it is not relevant for the organisation to do so.
In early 2019, the New Zealand Sustainable Finance Forum was established under the Aotearoa Circle.
The Aotearoa Circle was formed to reduce the degradation of New Zealand’s natural resources byacting as the intermediary between leaders in the public and private sector to facilitate cooperation
towards this goal. The Sustainable Finance Forum released their first report by way of interim reportin October 2019. Its key suggestions include improve the availability and quality of environmental andsocial data, price natural and social capital, clarify fiduciary duties from the ESG perspective, link
performance management and sustainable outcomes, and move towards risk-based insurance pricing
and monitor climate change and other sustainability risks in the financial sector.

5.3

Emerging Markets

5.3.1

Indonesia

Indonesia is a signatory to the 2015 Paris Agreement and has pledged to reduce its emission by 29%
by 2030. It will increase its reduction goal to 41%, conditional on support from international
cooperation. In recent years, Indonesia has seen considerable reforms relating to sustainable finance.
The Indonesian Financial Services Authority (Otoritas Jasa Keuangan ("OJK")) published acomprehensive Sustainable Finance Roadmap in 2015 to develop the sustainable finance sector. The
three main objectives of the roadmap are to increase funding from financial services institutions forgreen projects, increase demand for green financial products and services, and increase supervisionand coordination of the implementation of sustainable finance.
To strengthen the commitment to support sustainable finance and pursuant to the 2015 roadmap,
OJK issued a regulation in 2017 requiring financial services institutions, issuing companies and publiccompanies to implement sustainable finance principles (such as responsible investing, managementof social and environmental risks, and inclusivity) in their operations. The regulation also provides thatOJK may provide incentives for effective implementation of sustainable finance.
In the same year, OJK also issued a regulation setting out the requirements that have to be satisfied
when issuing green bonds, such as obtaining an opinion from an environmental expert and including
certain prescribed information in the prospectus. However, despite the government’s continuous
effort to promote green bonds, news reports have indicated that there have not been many issuancesof green bonds in Indonesia and only 29% of purchasers of green bonds are considered as “green
investors” (i.e., investors who are interested in environmental issues). Some parties, including theIndonesia Minister of Finance, have suggested that in order to attract more green investors, thePage 39

reporting format relating to green bonds will need to be simplified. It should be highlighted thatIndonesia was the first Asian country to issue sovereign green bonds in early 2018.
In February 2019, OJK appointed 8 banks to commence credit distribution based on sustainablefinance principles. The appointed banks have been involved in various sustainable finance projects,
such as those relating to renewable energy, green building and infrastructures, and eco-tourism.
5.3.2

Malaysia

Malaysia is a signatory to the 2015 Paris Agreement and has committed an unconditional reduction ofemission intensity of 35% by 2030 from its 2005 baseline, with a further 10% reduction upon receipt
of climate finance, technology transfer, and capacity building from developed countries.
Its sustainable finance ecosystem benefits from a set of guidelines particularly in the debt capital
markets space. These include the Sustainable and Responsible Investment ("SRI") Sukuk framework(2016), the ASEAN Green Bonds Standards (2017), the ASEAN Social Bond Standards (2018) and theASEAN Sustainability Bond Standards (2018). The ASEAN standards are generally more stringent asthey encourage more frequent reporting and greater transparency regarding the credentials of
external reviewers and use of proceeds. Ongoing compliance of the above frameworks is largely selfregulated.
Bursa Malaysia's listing requirements require a listed issuer to include in its annual report a narrative
statement of its management of material economic, environmental and social risks and opportunities.
Such statement must contain information that is balanced, comparable and meaningful according to
Bursa Malaysia's Sustainability Reporting Guide.
In November 2019, Bank Negara Malaysia issued the Value-based Intermediation ("VBI") Financing
and Investment Impact Assessment Framework, which aimed to facilitate the implementation of an
impact-based risk management system for assessing the financing and investment activities of Islamic
financial institutions in line with their respective VBI commitments. It also serves as a reference forother financial institutions intending to incorporate ESG risk considerations in their own risk
management system.
In December 2019, Bank Negara Malaysia issued a discussion paper on “Climate Change and Principlebased Taxonomy” for public consultation. The discussion paper aims to provide an overview of climatechange and its impact to the financial system. It is intended to serve as guidance to facilitate financial
institutions in (1) identifying and classifying economic activities that could contribute to climatechange objectives and (2) preparing and building capabilities in managing the financial risks fromclimate change.
Pursuant to the Budget 2020 speech, RM2 billion will be allocated to Bank Pembangunan Malaysia
Berhad’s Sustainable Development Financing Fund, which will provide a financing rate subsidy of 2%
to companies that demonstrate continuous contribution to the 17 SDG under the United Nations
Development Programme. In addition, the tax exemption for fund management companies managing
SRI funds and the tax deduction on the cost of issuing SRI Sukuk will be extended to 2023.

Page 40

5.3.3

India

India is a signatory to the 2015 Paris Agreement and has promised a 33-35% reduction in emission
intensity by 2030 on 2005 levels. It also pledged to raise the share of zero-carbon electricity generating
capacity to 40% of its renewable energy capacity by 2030. India intends to cover the USD2.5 trillion
cost of its pledge with both domestic and international funds.
ESG regulatory requirements in India continue to be a part of the Business Responsibility Reporting("BRR") norms issued by the Securities and Exchange Board of India ("SEBI") in August 2012, whichwere extended to the top 500 listed companies (including banks and other financial institutions) inNovember 2015. These BRR norms have been formulated in accordance with the National Voluntary
Guidelines on Social, Environmental and Economic Responsibilities of Business introduced in 2011.TheBRR norms' key principles include asking businesses to respect, protect, and make efforts to restore
the environment" and "support inclusive growth and equitable development".
The importance of sustainable financing in India's context continues to increase as India has set
ambitious renewable energy targets. The size of India's corporate bond market including green
bonds as a proportion to its GDP has been low. However, these have been increasing since May 2017
when the SEBI framed specific additional disclosure and other requirements for the issuance of green
debt securities.
The SEBI regulations are based on GBP. Under these regulations, the categories for which funds raisedby green debt securities can be used are defined broadly. Additional disclosures required in the offer
document raising sustainable financing include a statement on the environmental objectives of theissuer, brief details of the issuer's decision-making process for determination of eligibility of projects
and the procedures in place to track the deployment of the issue proceeds. The SEBI regulations also
require additional ongoing disclosures, such as those relating to utilisation of proceeds of the issueand details of the unutilised proceeds.
In 2018 and 2019, several Indian renewable energy companies successfully tapped the international
capital markets for their funding needs. On 30 July 2019, the Reserve Bank of India allowed Indian
corporates to use the proceeds from overseas borrowing to repay rupee debt while earlier offshore
funding was only permitted for incurring capital expenditure. This further fuelled raising of funds
through this route. Even after several successful fundraisings, investor’s appetite for new Indian
corporates seeking sustainable financing in the international capital markets continues to be healthy.
5.3.4

Thailand[“Section 5.3.4 Thailand” has been updated as at 15 May 2020]
Thailand is a signatory to the 2015 Paris Agreement and has pledged to reduce its emission by 20% inemissions from the projected business-as-usual level by 2030 on 2005 levels. It will increase its
reduction goal to 25%, conditional on support from international cooperation.
In October 2018, the National Council for Peace and Order announced the “20 Year National Strategy”.
The national strategy expressly provides that the country's development during the strategy’s timeframe will focus on an appropriate balance between social and economic development andenvironmental stewardship, where one of the objectives is to develop Thailand into a green andsustainable economy by promoting environmentally-friendly economic growth and improved quality

Page 41

of life. The strategy, at its core, is aimed at building Thailand into "a developed country with security,prosperity and sustainability in accordance with the Sufficiency Economy Philosophy.” A number ofkey regulators have issued policies and guidelines to encourage compliance with the national strategy
and several steps have been taken to promote responsible business conduct and sustainability in thefinancial sector as outlined in the national strategy.
The Securities and Exchange Commission of Thailand (“SEC”) encourages the offering of green bonds,
social bonds and sustainability bonds by exempting approval and filing fees for listing information fromissuers of debt securities in order to promote environmentally sustainable investment and funding.
The green bond, social bond and sustainability bond market is currently valued at approximately
THB40 billion or USD1.3 billion. The SEC is also involved in the ASEAN Low Carbon Energy Programmewith the UK Prosperity Fund and several other South East Asian countries.
The SEC had also adopted sustainability issues, in relation to corporate governance (CG), ESG,
sustainability and anti-corruption as part of the SEC Strategic Plan 2013-2015. Recently, the SEC has
been exerting effort to further enhance the capital market beyond good corporate governance andmore towards sustainability in order to propel the country to achieve the United Nations Sustainable
Development Goals (“SDGs”). The SEC Strategic Plan 2020-2022 addresses the importance ofsustainability as one of its five priorities including emphasising supports to listed companies’ efforts
on human rights consideration and low carbon which are core features linking to other SDGs.
In 2017, SEC launched the Investment Governance Codes (“I Code”) for institutional investors, whichis the first stewardship in Thailand. This is to ensure the delivery of sustainable, long-term value totheir investment owner / beneficiaries, and to strengthen their influence on the improvement of ESG
efficiency of listed companies. It sets out broad principles of effective stewardship for institutional
investors including (1) the disclosure of stewardship policies, (2) the monitoring of and engagementwith investee companies, and (3) the management of conflicts of interest. Principle 3 of the I Codeencourages institutional investors to incorporate ESG consideration into their investment analysis anddecision-making process. To date, 65 institutional investors have announced to be I code signatories.
In order to strengthen market force, the SEC continues to promote the implementation of the I Codeto institutional investors by issuing I Code implementation self-assessment form and guidelines for
asset managers, and by supporting listed companies to use ESG as one of the criteria in when choosing
fund managers to manage their provident funds. It is noted that proposal on guideline regarding asset
managers to put ESG in-process are currently under consideration. The guideline is expected to comeinto force by the end of this year (2020).
To increase the supply side, the SEC is revising the disclosure requirements for listed companies andcompanies seeking to go public by issuing new Annual Registration Statement and annual report socalled ‘One report’ which will apply to the report as of 31 December 2021 onwards. The ‘One report’will also include information on human rights policy and practices, provident fund and carbon
emissions. One Report will address the commitment of listed companies in incorporating sustainability
issues into their business practices. Moreover, SEC will provide guideline for best practices, while
supporting listed companies to develop their capacity subject to their own contexts.
The BOT also encourages financial institutions to comply with its Sustainable Banking Guidelines –Responsible Lending. The guidelines have four main objectives: (i) to promote commitment on issuingloans responsibly; (ii) to promote awareness of stakeholder engagement; (iii) to promote internal
implementation mechanisms to improve efficiency and productivity; and (iv) to promotetransparency. For example, under the guidelines, banks are required to establish internal policies andPage 42

processes to address key ESG risks in their lending activities and to publish relevant statements,
policies and processes in their annual/sustainability reports or websites. A memorandum of
understanding regarding the guidelines was entered into between the BOT, the Thai Bankers'
Association and 15 banks in Thailand on 13 August 2019.
Certified climate bonds or green bonds are also gaining ground in Thailand. The first green bond by
Thai corporates was in mind-2018 and the first that was issued in Thailand was in late 2018. It is
expected that several more will be issued in 2020 by state-owned enterprises, banking institutions
and large corporations.

5.4

Other Asia Pacific Jurisdictions

In addition to the jurisdictions discussed in this paper, it is noted that there are also developments insustainable finance in other Asia-Pacific jurisdictions, such as Taiwan and Korea. That said, some AsiaPacific countries have not yet had any development in sustainable finance. Given that this paper
intends to be a living document, further iterations will capture developments in additional jurisdictionsof the Asia Pacific in the future.

Page 43APPENDIX A: SURVEY OF OTHER INTERNATIONAL BODIESIn addition to the international bodies discussed in this Paper, a number of other international
bodies have increased their focus on sustainable finance. The table below sets out a summary ofthese developments.
International
Regulator/Body
Bank for
International
Settlements (“BIS”)

MandateRecent Developments

The BIS was established in 1930
and is owned by 60 central banks.
It assists them in their pursuit ofmonetary and financial stability.

•

The Carbon
Disclosure Project("CDP")CDP is an international non-profit
organisation that runs a global
environmental disclosure system.

•

Climate DisclosureStandards Board("CDSB")CDSB is a consortium ofbusinesses and environmental
NGOs who have devised aframework for reporting
environmental information.
The Coalition was launched in
April 2019 with the goal ofpromoting cohesion between
domestic and global action on
climate change and accelerating
action to implement the Paris
Agreement.

•

Coalition of Finance
Ministers for
Climate Action (the"Coalition")••

In September 2019, BIS launched
an open-ended fund for central
bank investments in green bonds.
In January 2020, BIS with theBanque de France published abook titled “The Green Swan:
Central Banking and financial
Stability in the Age of Climate
Change.”The CDP published its 2019
Climate Change Report which
noted that 53% of companies
reporting to CDP identified
climate-related risks which could
have a substantive financial or
strategic impact on the business.
In April 2018, the CDSB issued aframework of guiding principles
for reporting environmental
information and associatedbusiness impacts.
In April 2019, the Coalition
endorsed the Helsinki Principles
which seek to promote national
climate action through fiscal policy
and public finance.

Page 44

International
Regulator/Body
European
Sustainable
Investment Forum("Eurosif")

Global Green
Finance Council("GGFC")Group of 20 ("G20")

International CapitalMarkets Association("ICMA")

MandateRecent Developments

Eurosif is a European association
for the promotion andadvancement of sustainable andresponsible investment acrossEurope, for the benefit of its
members.

•

The GGFC was created in 2017 tobring together key global andregional associations andstakeholders involved in green
financing.
The G20 is a forum for world
leaders from 19 nations and the
EU intended to foster global
economic cooperation. Its
members comprise 85% of theworld's GDP and two-thirds of its
population.

•

ICMA is a not-for-profit
membership organisation thatserves the needs of its wide rangeof members firms with themission of promoting resilient andwell-functioning international
debt capital markets.

•

•

•

The European SRI Transparency
Code was updated in 2018 toreflect the most relevant practices
in SRI and sustainable finance,
including the TCFD, article 173 of
the French Energy Transition Law
and the European Commission’s
HLEG report on sustainablefinance.
The GGFC created the Global andEuropean Green Finance Policy
Directory.

The Sustainable Finance Study
Group's Synthesis Report sets out
recommendations, including in
relation to the creation ofsustainable assets for capital
markets.
The G20 Energy Efficiency Finance
Task Group was established in
2014. It published a stocktake
report in 2019 which sets out theirfindings from the June 2019
Global Summit and numerous
bilateral engagements conductedin its lead-up.
ICMA hosts the Green Bond
Principles, Social Bond Principles
and the Sustainability Bond
Guidelines as secretariat. The
Principles are voluntary process
guidelines that recommend
transparency and designed topromote disclosure and integrityin green , social and sustainability
bond markets.

Page 45

International
Regulator/Body
International
Monetary Fund("IMF")

MandateThe IMF was created in 1945 toensure the stability of theinternational monetary systemand comprises 189 countries.

Recent Developments••

International
Organization of
Securities
Commissions("IOSCO")Sustainable FinanceNetwork ("SFN")IOSCO set up the SFN in May 2018
to allow members to share theirexperiences and monitor ESG
developments.

•

International
Platform on
Sustainable Finance("IPSF")
Loan Market
Association ("LMA")The IPSF is a forum for exchanging
and coordinating efforts on
initiatives and approaches tosustainable finance.
The LMA was founded in 1996 to
improve liquidity, transparency
and efficiency in syndicated loan
markets in Europe, the Middle
East and Africa.

•

•

•

Chapter 6 of its Global Financial
Stability Report: Lower for Longer
addresses sustainable finance andsuggests some policy changes tofoster further development in thisarea. These include standardising
ESG investment terminology andproduct definitions, making
corporate ESG reporting moreconsistent and clarifying the roleof ESG factors in prudent
investment governance byregulators.
The report also proposes that
regulators and central banks
incorporate ESG principles andclimate-related financial risks into
financial stability monitoring andmicrosupervision.
IOSCO identified sustainablefinance as one of its Board's
priorities for 2019.
IOSCO's GEMC published a reportof recommendations for securities
regulators to help them build
regulatory frameworks forsustainable finance.
The IPSF is a new organisation andwas launched on 18 October 2019.

The LMA's Green Loan Principles
establish a framework of market
standards and guidelines for use
in the wholesale green loan
market.

Page 46

International
Regulator/Body
National Associationof Securities Dealers
Automated
Quotations System("NASDAQ")

Organisation for
Economic Cooperation andDevelopment("OECD")

MandateRecent Developments

Nasdaq is an American stock
market for trading electronic
securities around the world.

•

NASDAQ published ESG Reporting
Guide 2.0, which was intended toeliminate impractical metrics,
incorporate new developments
into the marketplace, standardise
guidance and to improve ESG
engagement for small andmedium sized businesses.

The OECD is an intergovernmentalorganisation founded in 1961 topromote economic progress andtrade.

•The OECD has established aCentre on Green Finance andInvestment, with the objective of
catalysing and supporting thetransition to a green, lowemissions and climate-resilient
global economy through effective
policies, instruments andinstitutions.
In 2018, it published a report on
Making Blended Finance Work for
the Sustainable Development
Goals.
11 leading banks, jointly
representing approximately USD
100 billion in loans, including Citi,
Crédit Agricole and Société
Générale established the Poseidon
Principles.
The Principles for Responsible
Investment are a set of opt-in
guidelines promoting thedevelopment of a sustainableglobal financial system.

•

The Poseidon
Principles
Association ("PPA")The PPA was set up in June 2019
to govern the Poseidon Principles:a framework for integratingclimate considerations into ship
finance portfolios.

•

Principles for
Responsible
Investment ("PRI")

The PRI is an international, UNbacked organisation which
promotes responsible investment.

•

Sustainability
AccountingStandards Board("SASB")The SASB was set up in 2011 toestablish industry specificdisclosure standards which enable
companies and investors to makeinformed decisions about ESG
governance issues.

•

SASB has published 77 sets ofindustry-specific standards which
identify financially importantsustainability topics and metrics.

Page 47

International
Regulator/Body
Sustainable Banking
Network ("SBN")

Thun Group ofBanks

UN Environment
Programme FinanceInitiative ("UNEPFI")

MandateRecent Developments

The IFC launched the SBN as acommunity of banking andfinancial regulatory bodies andbanking associations. Members
include the China Banking
Regulatory Commission, India
Banks Association, Central Bank ofNigeria and the Bank of
Bangladesh.

•

The Thun Group of Banks is an
informal group of banks who
focus on sharing expertise tosupport the integration of the UN
Guiding Principles on Businessand Human Rights (“UNGPS”) intobanking institutions.
UNEPFI is a partnership between
the UN and the global financial
sector to advance sustainablefinance.

•

The Thun Group of Banks has
published papers on theimplications of UNGPs 13b & 17
and on UNGPs 16-21.

•

The Principles for Responsible
Banking ("PRB") were launched in
September 2019, with 130 banks
holding USD 47 trillion in assets
signing up.
The Guide to Banking andSustainability provides guidanceon how to improve sustainability.
In 2015, UNSSE published Model
Guidance on Reporting ESG
Information to Investors forexchanges.
It has also issued a report entitled
How Stock Exchanges Can Grow
Green Finance.

••

UN Sustainable
Stock Exchanges("UNSSE")UNSSE is a partnership between
UN bodies including UNEPFI andUNPRI dedicated to building thecapacity of stock exchanges topromote sustainable investment.

••

The SBN issued their 2019
Progress Report which identifies
the essential components toimplementing a sustainablefinance framework.
The Equator Principles are a risk
management framework for
managing environmental andsocial risk in project finance.
Equator Principles 4 was issued in
November 2019.

Page 48

International
Regulator/Body
The World Bank

Mandate
The World Bank works onsustainable solutions to reducepoverty and build prosperity indeveloping countries.

Recent Developments••

World Federation of
Exchanges ("WFE")

WFE is a global industry
association for exchanges andclearing houses. Its members
include the Australian Securities
Exchange and the China Securities
Depository and Clearing
Corporation Ltd.

•The World Bank Group’s Climate
Change Action Plan aims to
support countries in translating
their Nationally Determined
Contributions (“NDCs”) under theParis Agreement/COP21 into
climate policies and investment
plans. The World Bank will help to"green" the financial sector in a
number of ways including
providing technical advice tofinancial institutions, expanding
financing for green investments,
encouraging the creation of
appropriate environmental
performance standards andpromoting the development of agreen bond market.
It also launched a new Action Planon Climate Change Adaptation
and Resilience.
In October 2018, the WEF
published 5 Sustainability
Principles for member exchanges
to assist their members topromote the sustainable financeagenda.

Page 49

UNIT 3603, TOWER 2LIPPO CENTRE
89 QUEENSWAYADMIRALTY
HONG KONG
TEL +852 2531 6500

WWW.ASIFMA.ORG

Page 50