A moving target:
the developing
regulatory landscape ofsustainable investing
December 2022

First Sentier MUFG
Sustainable Investment InstituteContents
About the Institute and its sponsors

01

Key observations

02

Appendix15

Please note that this publication is subject to specific restrictions that limit its use and distribution, as described in thedisclaimer section, an integral part of the publication. Restrictions apply to use and distribution in its entirety or in extract.
If you reproduce excerpts of any material within the publication, you must attribute First Sentier MUFG Sustainable
Investment Institute including the full title of the publication.

About the Institute and its sponsors
About the Institute

The First Sentier MUFG Sustainable Investment Institute(the Institute) provides research on topics that can advancesustainable investing. As investors, both First Sentier
Investors and MUFG recognise our collective responsibility tosociety and that investment decisions should be made withconsideration to our communities both now and in the future.
The Institute commissions research on Environmental, Societal
and Governance (ESG) issues, looking in detail at a specific topic
from different viewpoints. The Institute recognises that investors
are now looking in far greater depth, and with far greater focus,
at issues relating to sustainability and sustainable investing.
These issues are often complex and require deep analysis tobreak down the contributing factors. If as investors we can better
understand these factors, we will be better placed to consider
our investment decisions and use our influence to drive positivechange for the benefit of the environment and society.
The Institute is jointly supported by First Sentier Investors(FSI) and Mitsubishi UFJ Trust and Banking Corporation,a consolidated subsidiary of MUFG. Representatives of bothorganisations provide input to the activities of the Institute.
An Academic Advisory Board advises the Institute on
sustainability and sustainable investment research initiatives.
The Academic Advisory Board comprises prominent leadersfrom academia, industry and nongovernmental organisationsin the fields of Responsible Investment, climate science andrelated ESG endeavours. The Board provides independent
oversight to ensure that research output meets the highest
standards of academic rigour.

Contact

institute@firstsentier.com
www.firstsentier-mufg-sustainability.com
www.mufg-firstsentier-sustainability.jp
01

About First Sentier Investors

About MUFG

First Sentier Investors (formerly First State Investments) is a
global asset management group focused on providing highquality, long-term investment capabilities to clients. We bring
together independent teams of active, specialist investors whoshare a common commitment to responsible investment andstewardship principles. These principles are integral to ouroverall business management and the culture of the firm.

MUFG Mitsubishi UFJ Financial Group, Inc. (MUFG) is oneof the world’s leading financial groups. Headquartered inTokyo and with over 360 years of history, MUFG has a global
network with approximately 2,400 locations in more than
50 countries. The Group has about 170,000 employees andoffers services including commercial banking, trust banking,securities, credit cards, consumer finance, asset management,
and leasing. The Group aims to “be the world’s most trusted
financial group” through close collaboration among ouroperating companies and flexibly respond to all of the financial
needs of our customers, serving society, and fostering sharedand sustainable growth for a better world. MUFG’s shares tradeon the Tokyo, Nagoya, and New York stock exchanges.

All our investment teams – whether in-house orindividually branded – operate with discrete investment
autonomy, according to their investment philosophies.
https://www.firstsentierinvestors.com

https://www.mufg.jp/english

About the Trust Bank

Mitsubishi UFJ Trust and Banking Corporation, as a core
member of MUFG, provides its customers with a wide range ofcomprehensive financial solutions leveraging unique and highly
professional functions as a leading trust bank. Such financial
solutions include real estate, stock transfer agency, asset
management and investor services, and inheritance related
services, in addition to banking operations. We aim to realize
our vision to be the trust bank that creates “a safe and affluent
society” and “a bright future with our customers together”.
We support our customers and societies through theirchallenges with Trust, and thus we build on a new key concept:“Create a Better Tomorrow”. First Sentier Investors was
acquired by the Trust Bank in August 2019.
https://www.tr.mufg.jp/english

Key observations
The growing popularity of sustainable investments has
spurred an increasing volume of regulatory responses globally– from monitoring market developments to new regulations
and guidelines. In the context of this paper, ‘sustainable
investments’ refers to any investment products with somesustainability-related considerations in the investment
decisions, such as environmental or social considerations.
As investors navigate an ever changing regulatory landscape,it is helpful to take a step back and reflect on the purpose
and intentions of the various regulatory activities. Without
oversimplifying the complexity of financial markets regulation,
the ultimate concern for many regulators is how to ensure that
financial markets can respond to new developments, such assustainable investing, without compromising investors’ trustin the market. In this context, sustainable investing could be aconcern in a number of ways.
• Investors’ ability to take informed investment decisions– The complexity of sustainability-related issues andthe lack of their common understanding could result ininvestors’ inability to understand or compare investment
products, which could in turn impair their ability to makeinformed investment decisions. It can also give rise tofalse or unsubstantiated claims on product credentials(‘greenwashing’).
• Systemic risks – Many sustainability-related issues, suchas climate change for example, could also give rise to
more systemic changes whose economic impact is still
difficult to understand, quantify and/or is far into the future.
Such issues could nonetheless have a material impact on
the financial system as a whole.
• Value for money for investors – The proliferation ofsustainable investment products also poses the question towhat extent such products deliver value for their investors,
both in terms of asset management costs and performance.
02

With this context in mind, most regulatory responses andactions to date could be viewed within four broad categories
based on the regulator’s concern and purpose of action:• standardisation and market transparency (to support
investor understanding) – a large share of regulatory actions
with respect to sustainable investment aim to provide
more or better comparability of information and investment
products, and thus minimise the risks of greenwashingor investor confusion. Understandably, the majority of
regulatory actions in this respect either aim to standardise
definitions or investment product development, or require
more disclosures.
• industry resilience – in this respect regulators are
increasingly asking financial market participants to consider
if and how sustainability-related issues may pose a risk totheir operations.
• value for money for investors –some regulators review towhat extent sustainability-related products deliver value for
their investors, in terms of asset management costs andperformance• other – this covers any other purposes/ outcomes that
financial regulators may want to pursue, such as promoting
market innovation or upskilling their own competencies in
the area of sustainable investing.
In addition, such regulation can also support a broader
sustainable development policy agenda, such as in theEuropean Union's Sustainable Development Action Plan.

03

Exhibit 1: Regulatory responses with respect to sustainable investment grouped by regulatory purpose

Standardisation

Taxonomies

Product labels

Sustainablebenchmarkguidelines

Transparency

Disclosure

Sustainability
data and ratings
providers

Sustainability
data quality
and availability

Industry
resilience

Sustainability
governance

Doublemateriality

Climatechange/sustainability
as a risk

Investor value
for money

Monitor market
developments

Other

Regulatory
capacity andknowledge

Investment
stewardshipMarketinnovation

Sustainabilitylinked financeguidelines

Stress tests
and scenario
analysis

This paper brings together the recent sustainability-related
regulatory developments (from 2020 to November 2022)
aimed at the asset management industry with the purpose tohighlight the main approaches used by regulators.
The review covers the European Union (the ‘’EU’’), the United
Kingdom (the ‘UK’), the United States (the ‘US’), Australia,
Singapore, Hong Kong and Japan which together accountfor over a US$100 trillion of the global US$130 trillion assets
under management as of end 2021). It is structured alongside
a number of regulatory focus areas and/or outcomes in orderto provide context for the purpose and role of those regulationsin the market. The regulatory focus areas and outcomes havebeen internally developed in order to provide structure forthe analysis and are not necessarily in line with regulators’
categorizations or descriptions.

Exhibit 2: A snapshot of current and planned regulations and regulatory actions
Mandatory regulation
Regulatory focus

Apart from definitions and disclosures, investment productlabels and sustainability-related data provision appear to be theareas with developing regulatory response.

Regulatory response

Definitions of sustainability (taxonomies)
Sustainability disclosures
Definitions of sustainable investment/ESG funds
Guidance on regulation implementation
Monitor regulation implementation and enforcement
Standardisation andmarket transparency

Monitor and analyse market developments
Product specific guidance/standards
Product labels
Sustainability-linked finance (e.g. bonds)
Sustainability-related benchmarks
Sustainability-related data and ratings quality
Sustainability-related data (availability and quality)
Relevant governance
Climate change as investment risk

Industry resilience

Sustainability as investment risk
Investment risk vs. impact of investments (double materiality)
Stress tests and scenarios analysis

Value for money for investors

Market trends review
Investment stewardship

Other

Regulators’ capacity and knowledge
Support market innovation

Source: First Sentier MUFG Sustainable Investment Institute analysis as of November 2022
04

Voluntary guidance

Generally applicable

The regulatory response across the reviewed jurisdictions isstill evolving. Some jurisdictions, such as the EU and the UK,
are more advanced with some regulatory response covering
almost all identified regulatory concerns or outcomes.
Still, even in those jurisdictions certain elements are either
in draft and consultation (such as product labels) or on
the regulator's watch list (such as availability and qualityof sustainability-related data). Regulation, where it exists,
is generally through mandatory regulation, except for Japan,
where majority of sustainability-related regulatory guidanceis voluntary.

Draft/in consultation

Some action by Regulator
EU

UK

US

AUS

HK

SG

JP

Standardisation and market transparency
Given the lack of a commonly-agreed definition of ‘sustainable’
and the high susceptibility to 'greenwashing', it is perhaps
unsurprising that product standardisation and market
transparency are among the first areas that regulators seek toaddress. Defining ‘sustainable investment’ or ‘sustainable
activities’ (through national or multilateral taxonomies), as
well as minimum disclosure requirements for investors withregard to sustainability-related indicators or risks are among
the first tools that regulators have looked to develop.
• Adoption of the domestic and international climate
and sustainability-related disclosure initiatives –the UK and Hong Kong are mandating TCFD-aligned
disclosures, while Australia and Singapore support voluntaryalignment of climate change risk reporting following the
TCFD-developed framework. In addition, the EU, UK, US,
and Hong Kong have either already introduced or in theprocess of development of sustainability-related disclosure
requirements for financial institutions.
• Sustainability-related disclosure requirements
are increasing in complexity and depth – investors arebeing asked to report against specific climate- and/or
sustainability-related metrics (e.g. carbon emissions orcarbon emissions intensity).
Enforcement actions are still rare. Across the reviewed
jurisdictions, only two greenwashing-related enforcement
actions against asset manager firms were identified – inthe US and Germany. Regulators at this stage appear
to focus primarily on monitoring of market practices
with respect to greenwashing and compliance with theregulatory requirements.
Sustainability product labels for investment products arebeing discussed in the EU and the UK.

05

Sustainability-linked debt instruments are also being
addressed through guidance – Japan and Hong Kong haverecently introduced sustainability-related bond frameworks,
while the EU is in the process of developing its Green
Bond Standard.
In recognition of the variability and unstructured nature ofsustainability-related data, some regulators are also assessing
the levels of intervention needed with respect to such data
providers (including ESG ratings provision).
• Most of the reviewed jurisdictions (the EU, UK, Singapore
and Japan) are focusing on improvements in the availability
and quality of sustainability-related data
• Japan is the only jurisdiction, from those reviewed, witha draft Code of Conduct applicable to ESG ratings andsustainability data providers• The EU and the UK regulators could bring the ESG data
providers within their oversight.
ESG governance
ESG governance is gradually raising on the agenda for thefinancial regulators (the EU, UK, Singapore and Japan sofar). To date, the explicit regulatory involvement has been
restricted to setting specific expectations with regard toclimate risk management and/or organisational integrationof sustainability concerns. Some jurisdictions (such as theUK) are in the process of developing a regulatory view onsustainability governance.
Industry resilience
A developing consideration is also the investment industry’s
resilience to risks stemming from sustainability-related factors(such as climate change). Climate change-related risks are aconsideration across most of the reviewed jurisdictions, while

the EU and the UK adopt a wider approach by considering
sustainability risks more broadly. The majority of the regulatory
response to date has been to mandate risk-related
disclosures, as well as plans to conduct scenario analysis
or stress testing for the investment industry (primarily withrespect to climate change-related risks).
Most reviewed jurisdictions are so far focused on the financiallymaterial sustainability risks, with the EU and the UK being theonly proponents of double materiality (although the UK’s
regulation is still in the developmental stage).
Value for money for investors
The cost and relative financial performance of investment
products with some sustainability features is still not widely
considered by financial regulators and where regulatory action
exists, it is mainly in the form of market analysis and monitoring.
The European Securities and Markets Authority (ESMA)
published two market studies examining the characteristics
and performance of ESG funds, while the Financial Services
Authority in Japan (JFSA) and the Financial Conduct Authority(FCA) in the UK briefly mention performance-related concerns
in their market reviews.
Other
In most of the reviewed jurisdiction there is some guidancewith respect to investment stewardship. Stewardship Codesin the UK, Singapore, and Japan have all been reviewed andupdated in the past two years.
Regulators in most of the reviewed jurisdictions are also
actively working on building sustainability-related skills andcapacity within the regulator and the financial industry as awhole (through multi-stakeholder collaborations, training andqualification programs, and communications).

Category definitions

Classification of sustainable activities (taxonomies)– Sustainability, or ‘green’ Taxonomies refer to regulatory
frameworks providing a common classification system of
economic activities that can be considered sustainable
based on science-based criteria (e.g. the EU Taxonomy).
Sustainability disclosures (by financial institutions)– Disclosure guidance or regulations typically refer tosustainability-related disclosures to be made by market
participants. This paper focuses on sustainability disclosure
requirements applicable to asset management firms at theentity and product level.
Sustainable fund definitions – Definitions of what
could be considered a sustainable investment fund orclassifications for funds depending on how/to what extent
they incorporate sustainability considerations are also being
developed. For fund classifications in particular, the aim is
to allow investors to distinguish between different types ofsustainability-focused funds based on characteristics suchas fund objective, the degree of integration of sustainability
considerations into investment strategy.
Guidance on regulation implementation – Guidance on
the application of the recently introduced and existing
regulatory requirements.
Monitor regulation implementation and enforcement– This category covers regulatory approaches tomonitoring and enforcing industry compliance withexisting or newly introduced requirements applicable tosustainable investments.

06

Monitor and analyse market developments –This category refers to the regulators’ efforts to collect data
and analyse market practices in the field of sustainable
investment. Market monitoring could be from a purely
informative purpose or a tool to identify areas that could
require future regulatory response.
Product/fund labels – Labels for investment products provide
a framework which obligates the investment product to meet
pre-designated specifications (for example regarding theportfolio construction or investment strategy). The requirements
for a sustainable investment product label can include a
specific proportion of the portfolio invested in sustainable
activities, exclusions, and engagement among others.
Sustainability-linked finance – Guidance or standards forsustainability-linked finance (e.g. sustainability-linked bonds
or sustainability-linked loans) usually include some productdesign requirements which should be satisfied if a financial
instrument is to be marketed as sustainability-linked. The
requirements primarily focus on the sustainability featuresof the instrument, for example suitability of features and how
those should be communicated or measured through theuse of key performance indicators.
Sustainability-related benchmarks – Benchmark regulations
in general aim to address concerns in relation to the accuracy
and integrity of benchmarks referenced in financial instruments.
Sustainability-related benchmark regulations set out specificrequirements for the benchmark administrators where an
administrator develops a benchmark which incorporates
sustainability criteria in its development, for example alignment
with the Paris Agreement decarbonisation goals, maximum
carbon emission levels, environmental and social exclusions.

Sustainability-related data and rating providers –This category covers regulatory focus on the providers ofsustainability data and/or ratings. Regulatory concerns in thisarea include quality of the data, methodological transparency,
and conflicts of interest.
Sustainability-related data quality and availability –This category refers to the initiatives promoting greater
data quality and accessibility. The current regulatory
concerns include data quality, as well as availability, cost,transparency, etc.
ESG governance – Financial regulators are beginningto look at the governance of ESG (environmental, social,governance)/sustainability issues and concerns within
financial institutions themselves. This could include, forexample, integration of sustainability into the existingorganisational and accountability structures – suchas governance of environmental risk, or responsible
investment governance.
Sustainability as an investment risk – This category
covers regulatory measures requiring financial institutions to
consider, or report, if any sustainability issues could result ininvestment risks, as well as how those risks are managed.
Climate change as an investment risk – This categoryrefers to the regulatory initiatives requiring financial
institutions to consider potential investment risks stemmingfrom climate change, as well as related risk management
and reporting.

Stress tests and scenario analysis – Financial regulators
are increasingly using scenario analyses and stress tests toassess the financial industry’s resilience to climate changerisks (for example using varying transition pathways). Suchanalysis is more commonly applicable to larger banks
and insurers, but asset managers have fallen in scope insome jurisdictions.
Market trend reviews – Many regulators perform andpublish market studies on the development of sustainable
investment products. The studies focus on a variety of
topics, including new product developments or productperformance. Product performance could include
comparison of financial performance of sustainabilityfocused products vs. a benchmark without sustainability
features or performance of sustainability-focused products
against relevant sustainability indicators (for example carbon
emissions or water use).
Double materiality – While many regulatory and industry
initiatives focus on the financially material sustainability
risks (potential financially material negative impacts
that sustainability factors can have on a company orinvestments), the double materiality concept also considers
the adverse impact that business activities or investments
can have on the environment or society in general (outsidein & inside-out view). Different frameworks and regulators
are taking different views in this regard.

07

Investment stewardship – Regulatory initiatives in thisarea focus on promotion of sustainability through investor
stewardship. As a result some stewardship codes are being
updated to incorporate sustainability concerns.
Regulatory capacity and knowledge – This categoryrefers to the regulatory initiatives aimed at developing andfacilitating the regulators’ knowledge of sustainability andsustainable investment more generally.
Supporting market innovation – This category covers
the financial regulators’ drive to support sustainabilityrelated innovation in finance, through training andstakeholder collaboration.

Abbreviations

AIFMD: The Alternative Investment Fund Managers Directive (EU)
ARA: Australian Retailers Association

ASIC: Australian Securities and Investments Commission
CGT: Common Ground Taxonomy

ESMA: European Securities and Markets Authority
FCA: Financial Conduct Authority (UK)IOSCO: International Organisation of Securities Commissions
ISSB: International Sustainability Standards Board
JFSA: Japanese Financial Services Agency
MAS: Monetary Authority Singapore

NCA: National Competent Authorities (EU)
RBA: Reserve Bank of Australia

SDR: Sustainability Disclosure Requirements (UK)
SEC: US Securities and Exchange Commission

SFC: Securities and Futures Commission (Hong Kong)

SFDR: Sustainable Finance Disclosure Regulation (EU)TCFD: Task Force on Climate-Related Financial Disclosures

Exhibit 3: Summary of regulatory responses across selected jurisdictions (standardisation and market transparency)
Notes: Unless otherwise stated, the summary captures regulatory provisions, which could include legislative acts, regulatory guidelines, voluntary industry codes, etc.
Regulatory
concern

Regulatory
response

Generally
applicableprovisions

Definitions ofsustainable
activities(taxonomies)

European Union

United Kingdom

EU Taxonomy – provides a classification ofenvironmentally sustainable economic
activities, along six categories – climate change
mitigation and adaptation, pollution, water stress,
biodiversity and resource use circularity

UK Taxonomy for sustainable activities– will provide activity classification
along the same categories as under the EU
taxonomy

United States

Australia

Hong Kong

Singapore

Sustainable
Finance Taxonomy(by the Australian
Sustainable FinanceInstitute)

Action: consider how the
adoption of the Common
Ground Taxonomy (CGT) could
complement existing regulation.

Singapore
Taxonomy forgreen and transition
activities the proposedclassification covers
green, amber, and red
economic activities,
depending on theircontribution to climatechange mitigation

Action: monitor thedevelopment ofsustainable/green
taxonomies, learn andinfluence theirdevelopment (ARA,
ASIC, RBA)

Sustainabilityrelated
disclosures

SFDR – entity and product-levelsustainability-related disclosure
requirements – e.g. sustainability risks adverse
impacts of investments on environment
ESMA action: develop minimum
sustainability criteria for financial productsthat disclose under SFDR Art 8 (ESMA Sustainable
Finance Roadmap 2022-2024)

Definitions ofsustainable
investments/ESG
funds

SFDR – this is not a formal fundclassification/ definition, but disclosure
requirements differ based on how sustainability
factors are incorporated in the fund’s investment
strategy and asset managers need to decide which
disclosures requirements are applicable to a fund(Article 6, 8, or 9 disclosures)
Guidelines on funds’ names using ESG or
sustainability-related terms (Consultation
Paper, ESMA 2022)

Mandatory regulation
08

Draft/in consultation

Entity and product-level disclosures inalignment with TCFD (FCA ESG
Sourcebook)
Sustainability Disclosure Requirements(SDR)
FCA action: to support global
standards for sustainability reporting(FCA, A strategy for positive change: our ESG
priorities, 2022)

SDR proposals suggest differentiation
between sustainable focus, sustainableimprovers, and sustainable impact funds
SDR fund naming proposals:• only funds with labels may use ‘ESG’,‘sustainable’ or ‘any other term which
implies that a… product has sustainability
characteristics’• only ‘Sustainable Impact’ funds may use‘impact’• funds with no label, should describe theirsustainability characteristic ‘factually’

Voluntary guidance

Enhanceddisclosures bycertain investment
advisers and investmentcompanies about ESG
investment practices(SEC proposal, May’22)

ASIC action:
engage withIOSCO Sustainability
Technical Experts Groupon a framework forsustainability reporting
under the International
Sustainability Standards
Board (ISSB)
encourage voluntary
TCFD-aligned climatechange-related
disclosure (ASIC
Corporate Plan 2022-26)

SEC’s proposal
defines ESG funds
depending on how
central ESG factors are toinvestment strategy(SEC, Proposals toenhance disclosures bycertain investment
advisers and investmentcompanies about ESG
investment practices,
May 2022)

Some action by Regulator

CGT is a comparison between the
EU and Chinese taxonomies.

Japan

MAS action: toparticipate in thedevelopment of othertaxonomies (ASEAN
taxonomy for sustainablefinance; CGT, etc.
mandatory alignment ofclimate-related disclosureswith TCFD across relevant sectors
by 2025pre contract and periodic
reporting for ESG funds(SFC Circular, June’21)
fund managers to consider,manage and disclosure
climate change-related risks (SFC
Circular: August’21)
SFC action: support the
ISSB initiative (SFC,
Agenda for Green and Sustainable
Finance, 2022)
ESG funds are defined as
funds which consider ESG,
climate, or sustainability factors
as key to their investment strategy(SFC Circular, June’21)

MAS action:• regulatory expectations
on how existing
requirements apply
to retail ESG funds,
including the applicabledisclosure and reporting(CFC disclosure andreporting guidelines,
MAS, July’22)• support alignmentof disclosureswith international
standards, such as
TCFD and ISSBJFSA action:
supervisory
expectations for asset
managers to provide
appropriate informationthat conforms to theinvestment process(JFSA Progress report onenhancing asset
management business,May’22)

Exhibit 3: Summary of regulatory responses across selected jurisdictions (standardisation and market transparency) – continued
Regulatory
concern

Regulatory
response

European Union

United Kingdom

Generally
applicableprovisions(continued)

Guidance on
regulation
implementation

ESMA action: guidance on supervision ofsustainability-related fund documents,
marketing materials, and fund naming (ESMAsupervisory briefing, May’22)

Fund’s sustainability focus has to beconsistently reflected across the
product design, delivery and disclosure(Guidance on design, delivery and disclosureof ESG investment products, FCA, 2021). The
guidance was published in response to thelack of clarity and measurable objectives in
ESG funds applications

Monitorregulation
implementationand enforcement

Monitor andanalyse market
developments

Mandatory regulation

09

ESMA actions:

Australia

Hong Kong

SingaporeJapan

Guidance on how
to avoid
greenwashing whenoffering and or promoting
sustainability-related
products (ASIC,
INFO271,2022)

SFC action: engage withstakeholders to provide
guidance and enhance investors’
awareness of ESG funds (SFC,
Agenda for Green and Sustainable
Finance, 2022)

CFC disclosureand reporting
guidelines for retail ESG
funds (in force from Jan
2023)

JFSA action:
asset
management firms
should continue tostrengthen theirinvestment approach andenhance disclosure toenable consumers tounderstand the content
of the investment
products and makeappropriate investment
decisions (JFSA,
Progress report, May’22)

SEC enforcement
actions – e.g. BNY
Mellon• assess greenwashing practices and their key
features• analyse disclosures under SFDR Article 8 and tosupport supervisory convergence efforts and theidentification of greenwashing cases (2022–24)• contribute to consistent implementations of
new regulatory requirements applicable to asset
managers (SFDR and the related Taxonomy
requirements, AIFMD, UCITS) (2022–24) (ESMA
Sustainable Finance Roadmap 2022-2024)
ESMA actions:

SEC action:
The division of
examinations conducteda review on ESG investingin 2021, the review
covered portfolio
management,
advertising andmarketing, andcompliance practices ofInvestment Advisers)(SEC, The Division of
Examinations' Review of
ESG Investing, 2021)• assess greenwashing practices and their key
features• collect data on the distribution of ESG products(2022–24) (ESMA Sustainable Finance Roadmap
2022-2024)

Draft/in consultation

United States

Voluntary guidanceSome action by Regulator

SFC action: ongoing
monitoring of the ESG
funds’ compliance with June’21
Circular (SFC, Agenda for Greenand Sustainable Finance, 2022)

SFC action:• engage with stakeholders toprovide guidance and enhanceinvestors’ awareness of ESG
funds• monitor the global regulatory
developments (SFC, Agenda forGreen and Sustainable Finance,
2022)

JFSA action:
conducts regularmarket reviews, including
with respect todevelopments insustainable investment– e.g. Progress report onenhancing asset
management business(JFSA, May’22)

Exhibit 3: Summary of regulatory responses across selected jurisdictions (standardisation and market transparency) – continued
Regulatory
concern

Regulatory
response

Product-specificguidance/
standards

Product labels

European Union

United Kingdom

EU Eco label for retail financial products (in development)
ESMA actions:• Contribute, as needed, to EC’s efforts to develop EU-wide labels,• survey the landscape of EU/national ecolables (2022–24) (ESMA Sustainable FinanceRoadmap 2022-2024)

Sustainabilitylinked finance

Proposed European Green Bond Standard – it is intended to be voluntary, to introduce
greater transparency, external review requirements and EU Taxonomy alignment
ESMA action: to develop the EU Green Bond Standard, and in the future as requested
ESG labels for instruments investment products (2022-24) (ESMA Sustainable FinanceRoadmap 2022-2024)

Sustainabilityrelated
benchmarks

The EU Benchmark Regulation• EU Climate Transition Benchmark – minimum portfolio carbon intensity reduction
requirements, decarbonisation trajectory, minimum share of green investments
requirement• EU Paris Aligned Benchmark – higher exclusion standards, higher level of portfolio
decarbonisation, greater focus on green investments)
ESMA actions:

United States

10

Draft/in consultation

Voluntary guidance

Hong Kong

SingaporeJapan

SDR proposals
include thedevelopment ofsustainable investment
labels (e.g. sustainablefocus, sustainableimprovers, andsustainable impact funds)
FCA action:highlighting theprospectus rules thatcurrently apply to ESG
use-of-proceeds
instruments andendorsed the ICMA
guidelines forsustainability bonds (FCA
Primary Market Bulletin
41, June’22)

Retained UK
equivalents of the
EU climate benchmark
regime:• UK Climate Transition
Benchmark• UK Paris Aligned
BenchmarkMAS actions:• Promote suitabilityrelated lending
frameworks – e.g.
Sustainable bondand Green andsustainability-linked
loan grant schemes• MAS Green
investments
programme• Insurance-linked
securities grantscheme (MAS Green
Finance Action Plan,
June 2022)

SEC action:
consider of
certain data providers
should be in scope forregulation by SEC(SEC, Request forComment on Certain
Information Providers
model portfolio
providers, June 2022)• Contribute to EC’s planned work to review the minimum standards for both climatetransition benchmarks and Paris-aligned benchmarks to ensure that the selection ofunderlying assets is coherent with the EU Taxonomy (2022)• contribute to planned EC assessment of the possibility to create an ESG Benchmark label (2022)• organise discussions among NCAs of new climate benchmarks and how to effectively
supervise them
• monitor trends in the use of existing EU climate benchmarks to obtain a picture of current
offer and demand (2022) (ESMA Sustainable Finance Roadmap 2022-2024)

Mandatory regulation

Australia

Some action by Regulator

Multiplevoluntarystandards available:• Social Bonds
Guidelines (2021)• Sustainability-linked
Bond Guidelines2022• Basic guidelines inclimate transition
finance 2021)
FSA action:
developsustainability-linked
bond information
platform (JFSA
Strategy on
Sustainable FinanceJuly 2021-June 2022)

Exhibit 3: Summary of regulatory responses across selected jurisdictions (standardisation and market transparency) – continued
Regulatory
concern

Regulatory
response

Product-specificguidance/
standards(continued)

Sustainability
data and rating
providers

Sustainabilityrelated data
quality andavailability

Mandatory regulation

11

European Union

United Kingdom

ESMA actions:• support the EC’s in improving the reliability and comparability of
ESG ratings, through evidence gathering (2022)• assess ESG disclosures in credit rating agency (CRA’s)press
releases (2022)• conduct assessment of how ESG factors are incorporated by
CRAs (2022) (ESMA Sustainable Finance Roadmap 2022-2024)

ESMA actions:• take into account ESG-related data reporting needs whenamending or proposing reporting requirements• assess data availability and quality for asset managers (2022-24)• discuss and consider implications for ESMA of the EC’s plans
to integrate sustainable finance data under the European Data
Strategy (ESMA Sustainable Finance Roadmap 2022-2024)

Draft/in consultation

United States

Australia

FCA action: FCA
sees ‘a clear
rationale’ for bringing
certain ESG data andratings providers under the
regulatory oversight (FCA,
Feedback statement,
June’22)

Singapore

SFC action: consider
the publication of
guidance for asset
managers on engagementof ESG ratings and data
providers (SFC, Agenda forGreen and Sustainable
Finance, 2022)

FCA action: tosupporting the
integrity and effectivenessof ESG data, ratings,
assurance and verification
services (FCA, A strategy for
positive change: our ESG
priorities, 2022)

Voluntary guidance

Hong Kong

Public consultationon the Draft Code of
conduct for ESG evaluationand data providers
JFSA action:(Setting supervisory
expectations on the use of
ESG ratings and data
products – appropriate
verification (JFSA Progress
Report on Enhancing AssetManagement Business,May’22MAS action:• MAS to improveaccessibility of ESG data
through a regulatory data
platform• Project Greenprint –partner with industry todevelop digital solutions
that facilitate the flows
of ESG data (MAS Green
Finance Action Plan,
June 2022)

Some action by Regulator

Japan

JFSA action: to draft
impact indicators forsocial projects (JFSA
Strategy on Sustainable
Finance July 2021-June2022)

Exhibit 4: Summary of regulatory responses across selected jurisdictions (industry resilience)
Notes: Unless otherwise stated, the summary captures regulatory provisions, which could include legislative acts, regulatory guidelines, voluntary industry codes, etc.
Regulatory
concern /action

European Union

United Kingdom

Relevant
governance

ESMA actions: contribute as needed to the legislative
process on sustainable corporate governance (ESMA
Sustainable Finance Roadmap 2022-2024)

FCA action: to develop apolicy approach to ESG
governance (FCA, A strategy for
positive change: our ESG
priorities, 2022)

Entity and product-level
disclosures in alignment
with TCFD (FCA ESG
Sourcebook)

Climate change
as investmentrisk

FCA action: to establisha Climate Financial Risk
Forum (to help capacity
building across the industry)(FCA, A strategy for positivechange: our ESG priorities,
2022)

Sustainability as
investment risk

Consideration required under SFDR provisions
MiFID II sustainability-related amendments (2022) –requirements to take into account client sustainability
preferences and integrating sustainability into product governanceobligations

United States

Australia

Actions:
ASIC to encourage voluntary
TCFD-aligned disclosure (ASIC
media release 29/06/2022)
to set supervisory expectations
for the management anddisclosures of climaterelated risks and measuring
the exposures of financial
institutions to climate changerisks (APRA, ASIC, RBA) (RBA,
Financial Stability Review, 2021)

FCA’s SDR consultation
paper focuses onsustainability considerations
more generally, not only climate

UCITS & AIFMD sustainability-related amendments (2022) –require fund managers to take into account sustainability
risks and investments’ impact on sustainability more generally
ESMA action: contribute to the EC’s further work on enabling
financial market participants to systematically consider
positive and negative sustainability impacts of their investment
decisions (2024) (ESMA Sustainable Finance Roadmap 2022-2024)

Mandatory regulation

12

Draft/in consultation

Voluntary guidanceSome action by Regulator

Hong Kong

mandatory alignment ofclimate-related
disclosures with TCFD
recommendations acrossrelevant sectors by 2025
management anddisclosure ofclimate-related risks by fundmanagers (SFC Circular,August’21)

SingaporeJapan

MAS Environmental Risk
Management Guidelines
for financial institutions
provide guidance on
environmental risk governance

JFSA action: aninvestment manager
should develop effective
systems for ESG investment,
including the establishment ofa department responsible forstrengthening thesustainability promotion
framework, enhancing ESG
investment methods, andapplying ESG experts (FSA
Progress Report May’22)

guidance on how toaddress environmental
risks across all relevant
processes – governance andstrategy, research andportfolio construction, portfolio
risk management, stewardship,disclosure of environmental
risk information (Guidelines on
Environmental Risk
Management for Banks,
Insurers, and Asset Managers,
May’22)

guidance with respect toclimate change risk
governance; identification,assessment and managementof climate-related risks andopportunities; how to supportclients’ responses to climatechange and information
sharing with stakeholders(JFSA’s Supervisory guidanceon climate-related risk
management and client
engagement,July’22)

Exhibit 4: Summary of regulatory responses across selected jurisdictions (industry resilience) – continued
Notes: Unless otherwise stated, the summary captures regulatory provisions, which could include legislative acts, regulatory guidelines, voluntary industry codes, etc.
Regulatory
concern /action
Investment
risk vs impact
of investment(doublemateriality)
Stress tests andscenario analysis

European Union

United Kingdom

SFDR disclosure requirements cover sustainability risks andadverse impacts on environment
UCITS & AIFMD sustainability-related amendments (2022)
require fund managers required to disclose and take any
identified adverse impacts environment into account in theirinvestment due diligence processes
ESMA action: to conduct climate change scenario analysis,
including investment managers (2022-24) (ESMA Sustainable
Finance Roadmap 2022-2024)

United States

Australia

Hong Kong

SingaporeJapan

SFC action: to promoteclimate-focusedscenario analysis to assess theimpacts on financial
institutions, including asset
managers, under different
climate pathways (SFC, Agenda
for Green and Sustainable
Finance, 2022)

MAS action:
incorporated climate
stress testing and scenario
analysis as part of the 2022
industry-wide stress test
exercise, including asset
managers) (MAS Green FinanceAction Plan, June 2022)

JFSA action: conducteda pilot scenario analysis
using NGFS scenarios for theemegabanks and three major
non-life insurance groups(2021)

SingaporeJapan

SDR (The proposals go
beyond financial risks
and cover impacts ofinvestment firms and productson the environment andsociety)
BoE action: BoE
published the firstclimate stress test results inMay’22; those covered
transition and physical climatechange risks for banks andinsurers

Exhibit 5: Summary of regulatory responses across selected jurisdictions (value for money for investors)
Notes: Unless otherwise stated, the summary captures regulatory provisions, which could include legislative acts, regulatory guidelines, voluntary industry codes, etc.
Regulatory
concern /action
Market trends
review

European Union

United Kingdom

ESMA actions:• Annual Statistical Report ‘Performance and costs of EU retailinvestment products’, April’22 – includes a section on ESG
UCITS funds, which provides observations on the growing ESG
investment product offering, ESG investment strategies, and theirfinancial performance and costs• ‘The drivers of the costs and performance of ESG funds’, May’22– the report states that the issue of costs and performance of ESG
funds is of primary interest from an investor protection angle andtherefore the monitoring of costs will continue as part of ESMA’s
risk analysis work

Mandatory regulation

13

Draft/in consultation

United States

Australia

FCA action: In thecontext of the fund value
assessments, FCA highlighted
that firms should betransparent on how their ESG
services justify any additional
fees vs non-ESG funds(Authorised fund managers’
assessments of their funds’
value (multi-firm review, 2021)

Voluntary guidance

Hong Kong

JFSA action: JFSA
observed that the
average trust fee ratio of active
ESG funds is higher than that ofother active funds, while
average trust fee ratio is lower
than that of other passive
funds (FSA Progress Report on
Enhancing Asset Management
Business, May 2022)

Some action by Regulator

Exhibit 6: Summary of regulatory responses across selected jurisdictions (other)Notes: Unless otherwise stated, the summary captures regulatory provisions, which could include legislative acts, regulatory guidelines, voluntary industry codes, etc.
Regulatory
concern /action
Investment
stewardship

European Union

United Kingdom

ESMA actions:Support market
innovation

Australia

ESMA actions:

FCA action: to promotesustainability-focusedinvestor stewardship (FCA, A
strategy for positive change:
our ESG priorities, 2022)

SFC action:• to work with stakeholders
to enhance industry
capabilities and support
firms’ management ofclimate-related andwider sustainability risks,
opportunities and impacts• to develop strategies,
organisational structures,
resources and tools to support
the integration of ESG into
FCA activities (FCA, A strategy
for positive change: our ESG
priorities, 2022)

to facilitate cross-sectoralcapacity building for financial
regulators, government
agencies, industry
stakeholders and academia(SFC, Agenda for Green andSustainable Finance, 2022)

SFC action:• promote effective and consistent supervision aroundsustainability-related innovation (2022)• conduct workshops and training on sustainability-related
innovation and green FinTech (2022–24) (ESMA Sustainable
Finance Roadmap 2022-2024)

14

Japan
Stewardship code(latest revisions in 2020)
revisions to the
Corporate governancecode and the Guidelines forinvestor and company
engagement, June 2021
FSA action: to set
supervisory
expectations on investment
stewardship activities of asset
management firms

ESMA action:

Draft/in consultation

Singapore
Updates to Singapore
Stewardship Principles
for Responsible Investors(2022)

FCA action:• map ESG data needs and usages for supervisory purposes (2023)• deliver training of SFDR and the Taxonomy (2022-24)• deliver advanced MiFID II training with focus on ESG matters(2022-24)• explore actions on promoting financial education (2022-23)• deliver training on sustainability requirement in the EU Benchmark
Regulation 2022-24) (ESMA Sustainable Finance Roadmap
2022-2024)

Mandatory regulation

Hong Kong

UK Stewardship Code(2020)• contribute to developing further guidance in the area of
stewardship and engagement to ensure acting in concert does not
impede collaborative engagement by investors around common
sustainability goals (2022-23)• contribute to the review of the Shareholder Rights Directive II(ESMA Sustainable Finance Roadmap 2022-2024)

Regulators’capacity andknowledge

United States• engage with stakeholders tofacilitate the developmentof technologies to support
green and sustainablefinance initiatives• plan to create a publicly
accessible GHG emissions
estimation tool (SFC, Agenda
for Green and Sustainable
Finance, 2022)

Voluntary guidanceSome action by Regulator

MAS action:• to facilitate Asia-focusedresearch and training on
green and sustainablefinance and policy• to grow ESG services tosupport sustainable financeneeds of Singapore and theregion (MAS Green FinanceAction Plan, June 2022)

MAS action:• support green
FinTech projects, labs, andindustry utilities• drive innovative fintech
solutions to help financial
institutions respond betterto the pandemic and climatechange• Project Greenprint (MASGreen Finance Action Plan,
June 2022)

JFSA action:• to develop skilled
professionals via support for
private sector qualification
programs• to promote funding for
Climate Tech SMEs andstart ups
• to communicate policy androadmaps in a timely manner(JFSA, The Second Reportby the Expert Panel on
Sustainable Finance, 2022)

Appendix
Exhibit 7: Overview of selected regulatory actions in the European Union
Regulatory response/ action

Applicable regulations

Classification of sustainable
activities (taxonomies)

Regulation: ‘’EU Taxonomy’’ – Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (EU, 2020) – the EU Taxonomy is a classification system which establishes a list of sustainable economic activities; sustainability
is considered within the context of six different categories.
• categories covered by the Taxonomy – climate change mitigation, climate change adaptation, water stress, circular economy, pollution and waste, biodiversity. Only climate change-related categories are currently defined• the Taxonomy sets out thresholds, quantitative where possible, for economic activities to meet in order to be considered sustainable – for example, to be considered sustainable electric power generation should not exceed carbon dioxide emissions of
100gCO2/kwh (measured on life-cycle basis)• sustainability thresholds are initially set for the period up to 2025 and could be revised (i.e. made more stringent) over time
• the Taxonomy also applies a ‘double’ materiality lens – activities should meet the set criteria under a given category (such as climate change mitigation), but should also not cause material damage to other taxonomy categories (e.g. pollution); in the taxonomy,
this principal is referred to as ‘do no significant harm’ (DNSH).

Definitions of sustainable
investment/ ESG funds

Regulation: Guidelines on funds’ names using ESG or sustainability-related terms (Consultation Paper, ESMA 2022) – proposes requirements on quantitative thresholds the funds have to meet if using ESG or sustainability-related terminology:

Sustainability-related
disclosures

Regulation:‘’SFDR’’ - Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector’ (EU, 2019) and the related Regulatory Technical Standards (RTS) are the main sustainability-related disclosure regulation, and related
guidance, for the EU. SFDR applies from 1 January 2023 and it includes:• if ESG-related terms are used, a minimum proportion of at least 80% of its investments should be used to meet the environmental or social characteristics or sustainable investment objectives in accordance with the binding elements of the investment
strategy• if sustainability-related terms are used, within the 80% of investments dedicated to meeting the environmental or social characteristics/objectives (as described above) at least 50% should be allocated to sustainable investments as defined in SFDR Art 2(17)• detailed requirements on the content, methodology and presentation of SFDR disclosures on the entity and product level• guidance on reporting environmental and social principal adverse impact metrics (PAI), and the ‘do no significant harm’ disclosures• the pre-contractual disclosure requirements set by Articles 5 and 6 in the Taxonomy Regulation (identification of environmental objectives contributed to by a fund)
Disclosures include:• pre-contractual product disclosures of principal adverse impacts (apply from December 2022)– include a clear and reasoned explanation of whether, and, if so, how a financial product considers sustainability-related risks and investments potential principal adverse impacts on environment– a statement that information on principal adverse impacts on sustainability factors is available in the periodic disclosures• entity-level disclosures of principal impact indicators are due by June 2023 and periodically thereafter• periodic product disclosures starting in 2023
– funds reporting under article 8 – disclosures should include the extent to which environmental or social characteristics are met– Funds reporting under article 9 – disclosures should include the overall sustainability-related impact of the financial product by means of relevant sustainability indicators, or, if the fund references an index, comparison between the overall sustainabilityrelated impact of the financial product with the impacts of the designated index and of a broad market index– presentation and content requirements for these disclosures were further clarified in the draft Regulatory Technical Standards (RTS) issued in 2021, and the clarifications on the ESAs’ draft RTS under SFDR from June 2022
Actions: all applicable to ESMA• develop minimum sustainability criteria or a combination of criteria for financial products that disclose under SFDR Article 8• undertake coordinated supervisory action on sustainability disclosures (2023-24) (ESMA Sustainable Finance Roadmap 2022-2024)
Product labels

Regulation: EU Eco label for retail financial products (ESMA, in development) – the ecolabel will define the minimum environmental performance of this product group and will be based on the requirements of the EU Ecolabel Regulation 66/2010 with theobjective of awarding the best environmentally performing financial products.
Actions: all applicable to ESMA• contribute, as needed, to EC’s efforts to develop EU-wide labels, including the EU Green Bond Standard, and in the future as requested ESG labels for instruments (e.g., sustainability-linked bonds) and investment products (2022-24)• survey the landscape of EU/national ecolables (2022-24) (ESMA Sustainable Finance Roadmap 2022-2024)

Sustainability-linked financeRegulation: Proposed European Green Bond Standard – voluntary, introduces greater transparency, external review requirements and the EU Taxonomy alignment
Actions: ESMA to develop the EU Green Bond Standard, and in the future as requested ESG labels for instruments and investment products (ESMA, 2022-24) (ESMA Sustainable Finance Roadmap 2022-2024)

15

Exhibit 7: Overview of selected regulatory actions in the European Union – continued
Regulatory response/ action

Applicable regulations

Sustainability-related
benchmarks

Regulation: Regulation (EU) 2019/2089 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks (EU, 2019) – the regulation introduces minimum
requirements for index construction, if such indexes are to be ‘referred to’ as climate transition benchmarks. The regulation outlines two types of climate transition benchmarks:• EU Climate Transition Benchmark – with a minimum portfolio carbon intensity reduction requirements, decarbonisation trajectory, minimum share of green investments requirement• EU Paris Aligned Benchmark – has stricter exclusion standards, higher level of portfolio decarbonisation, greater focus on green investments
Actions: all applicable to ESMA• contribute to EC’s planned work to review the minimum standards for both Climate Transition Benchmarks and Paris-Aligned Benchmarks to ensure that the selection of underlying assets is coherent with the EU Taxonomy (2022)• contribute to planned EC assessment of the possibility to create an ESG Benchmark label (2022)• organise discussions among National Competent Authorities (NCAs) of new climate benchmarks and how to effectively supervise them
• monitor trends in the use of existing EU climate benchmarks to obtain a picture of current offer and demand (2022) (ESMA Sustainable Finance Roadmap 2022-2024)

Sustainability-related data andrating providers

Actions: all applicable to ESMA

Sustainability-related data
quality and availability

Actions: all applicable to ESMA

Guidance on regulation
implementation

Actions: Supervisory briefing – Sustainability risks and disclosures in the area of investment management, ESMA34-45-1427 (ESMA, May’22) – it contains guidance on supervision of sustainability-related fund documents, marketing materials, and fundnaming. The briefing is intended for use by the National Competent Authorities (NCAs) and aims to promote common supervisory approaches and practices.

Monitor regulation
implementation andenforcement

Actions: all applicable to ESMA

Monitor and analyse market
developments

Actions: all applicable to ESMA

Relevant governanceActions: ESMA to contribute as needed to the legislative process on Sustainable Corporate Governance16• support the EC’s in improving the reliability and comparability of ESG ratings, notably through contributing to evidence gathering (2022)• assess ESG disclosures in credit rating agency press releases (2022)• conduct assessment of how ESG factors are incorporated by credit rating agencies (CRAs) (2022) (ESMA Sustainable Finance Roadmap 2022-2024)• take into account ESG-related data reporting needs when amending or proposing reporting requirements• assess data availability and quality for asset managers (2022-24)• discuss and consider implications for ESMA of the EC’s plans to integrate sustainable finance data under the European Data Strategy (ESMA Sustainable Finance Roadmap 2022-2024)• assess greenwashing practices and their key features• analyse disclosures under SFDR Article 8 and 9 in the investment management sector to support supervisory convergence efforts and the identification of greenwashing cases (2022-24)• map and develop a common understanding of the supervisory role of the National Crime Agencies (NCAs) across sectors, notably on greenwashing, and identify legal impediments• organise supervisory case discussions with NCAs on how to identify and address greenwashing (2022-23)• contribute to work on possible further changes to UCITS Directive and AIFMD to enable market participants to systematically consider positive and negative sustainability impacts of their investment decisions (2024)• contribute to consistent implementations of new regulatory requirements applicable to asset managers (SFDR and the related Taxonomy requirements, AIFMD, UCITS) (2022-24)• assess added value/conduct a Coordinated Supervisory Action on ESG factors in suitability assessments (2023/2024) (ESMA Sustainable Finance Roadmap 2022-2024)• assess greenwashing practices and their key features• collect data on the distribution of ESG products (2022-24) (ESMA Sustainable Finance Roadmap 2022-2024)

Exhibit 7: Overview of selected regulatory actions in the European Union – continued
Regulatory response/ action

Applicable regulations

Sustainability as investment risk

Regulation:• SFDR• MiFID II sustainability requirements (Directive 2014/65/EU, commonly known as MiFID II)– Aug 2022 – client sustainability preferences amendments (introduced in the Delegated Regulation 2021/1253)» firms providing investment advice are required to take into account the sustainability preferences of their clients when recommending suitable financial instruments» investment firms should have appropriate arrangements to prevent misspelling or misrepresentations in this context» ESMA is planning to release updated Guidelines on certain aspects of the MiFID II suitability requirements which will take into account these amendments– Nov 2022 – amendments integrating sustainability factors into the product governance obligations (introduced in the Delegated Directive 2021/1269)» sustainability preferences and objectives should be included into the target market analysis» ESMA is currently consulting on an update to the MiFID II product governance guidelines which will take into account sustainability-related product governance amendments with a view to publish finalised guidance in early 2023
• UCITS & AIFMD sustainability amendments (‘Commission Delegated Directive (EU) 2021/1270 of 21 April 2021 amending Directive 2010/43/EU as regards the sustainability risks and sustainability factors to be taken into account for Undertakings forCollective Investment in Transferable Securities (UCITS)’ (2021) and Commission Delegated Regulation (EU) 2021/1255 of 21 April 2021 amending Delegated Regulation (EU) No 231/2013 as regards the sustainability risks and sustainability factors to be taken
into account by Alternative Investment Fund Managers):– The amendments introduce requirements for fund managers to assess the sustainability risks to fund returns, as well as ensure they have organisational structures to provide for sustainability risks assessments, appropriate resources and expertise,governance structures and incorporate sustainability risks in the existing risk management processes– In addition, fund managers should identify and mitigate any conflicts of interest that may arise in connection with integration of sustainability risks into their processes (including conflicts of interest that could lead to greenwashing)– Fund managers required to disclose their impact on sustainability factors should take any identified adverse impacts into account when complying with the investment due diligence obligations
Actions: ESMA to contribute to the EC’s work on possible further changes to UCITS Directive and AIFMD to enable financial market participants to systematically consider positive and negative sustainability impacts of their investment decisions (2024) (ESMA
Sustainable Finance Roadmap 2022-2024)

Stress tests

Actions: all applicable to ESMA• conduct climate change scenario analysis, including investment funds (2022-24)• consider how to incorporate the impact of climate change in stress testing for CCPs (central counterparties – clearing service providers) (ESMA Sustainable Finance Roadmap 2022-2024)

Investment risk vs impact ofinvestments (double materiality)

Regulation:

Value for money for investors –market trends review

Actions: all applicable to ESMA

Investment stewardship

Actions: all applicable to ESMA

• SFDR – disclosure requirements cover sustainability risks and adverse impacts of economic activities on the environment• UCITS & AIFMD sustainability-related amendments (2022) – fund managers are required to disclose their impact on environment (the principal adverse impact metrics) and should take any identified adverse impacts into account in their investment due
diligence processes• Annual Statistical Report ‘Performance and costs of EU retail investment products’(April 2022) – dedicates a section to ESG UCITS funds, which provides observations on the growing ESG investment product offering, ESG investment strategies, and theirfinancial performance and costs• ‘The drivers of the costs and performance of ESG funds’(May 2022) – the report states that the issue of costs and performance of ESG funds is of primary interest from an investor protection angle and therefore the monitoring of costs will continue as part of
ESMA’s risk analysis work
• contribute to developing further guidance in the area of stewardship and engagement to ensure acting in concert does not impede collaborative engagement by investors around common sustainability goals (2022-23)• contribute to the review of the Shareholder Rights Directive II (ESMA Sustainable Finance Roadmap 2022-2024)

Regulators’ capacity andknowledge

17

Actions: all applicable to ESMA• map ESG data needs and usages for supervisory purposes (2023)• deliver training of SFDR and the Taxonomy (2022-24)• deliver advanced MiFID II training with focus on ESG matters (2022-24)• explore actions on promoting financial education (2022-23)• deliver training on sustainability requirement in the EU Benchmark Regulation 2022-24• build direct supervisory capacities over administrators or critical and third country recognised benchmarks (ESMA Sustainable Finance Roadmap 2022-2024)

Exhibit 7: Overview of selected regulatory actions in the European Union – continued
Regulatory response/ action

Applicable regulations

Support market innovation

Actions: all applicable to ESMA
• promote effective and consistent supervision around sustainability-related innovation (2022)• conduct workshops and training on sustainability-related innovation and green FinTech (2022-24) (ESMA Sustainable Finance Roadmap 2022-2024)

Other

Actions: all applicable to ESMA
• collect data on the distribution of ESG products (2022-24)• build analytical tools for monitoring developments in EU carbon markets• assess and contribute to consistency of Sustainable Finance legislation across sectors and convergence in their application and supervision (ESMA Sustainable Finance Roadmap 2022-2024)

18

Exhibit 8: Overview of selected regulatory actions in the United Kingdom
Regulatory response/ action

Applicable regulations

Classification of sustainable
activities (taxonomies)

Regulation: ‘UK Green Taxonomy’ – proposals put forward in Greening Finance: A Roadmap of Sustainable Investing (HM Government, Oct 2021)• The taxonomy would aim to enhance the available environmental data by providing a classification of sustainable activities across six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of waterand marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems.
• criteria for the climate change mitigation and adaptation objectives are set to be released in 2022
Advice on the development of a UK Green Taxonomy (Green Technical Advisory Group, Oct2022) – the document set out the recommendations of the working group (GTAG) to the UK Government for the development of a green taxonomy in the UK. The
recommendations of the GTAG include:• the GTAG recommended that the UK taxonomy is at least as ambitious as the EU Taxonomy• the GTAG recommended maintaining independence in the development of the taxonomy and maintaining strictness and credibility of the technical criteria• the GTAG recommended adoption of the EU Taxonomy principles, except where they need a revision (either due to conflict with UK’s net zero strategy or due to implementation difficulties)

Sustainability-related
disclosures

Regulation:• Financial Conduct Authority (FCA), FCA COLL Collective Investment Schemes Sourcebook – reporting requirements for asset managers (and certain asset owners), coming into force over 2022-2023 with respect to climate change-related reporting inalignment with the recommendations of the Taskforce on Climate Change Financial Disclosures (TCFD):– Entity level: asset managers are required to provide an annual TCFD report on their website– Product/portfolio level: TCFD product reports, these disclosures should also be placed on the website and included or referenced in client communications;» Scope 1, 2, 3 GHG emissions» Total carbon emissions» Total carbon footprint» Weighted average carbon intensity» Climate value-at-risk (as far as reasonably practicable)» Climate warming scenario alignment of the product (as far as reasonably practicable)• SDR – CP22/20 Sustainability Disclosure Requirements and investment labels (FCA, Oct 2022) – the proposals in the consultation for SDR include:– consumer-facing product-level disclosures to help consumers understand the key sustainability features of a fund (e.g. sustainability objective, progress towards the objective, investment strategy, stewardship approach, unexpected investments,
sustainability metrics)– more detailed product-level disclosures on sustainability-related features of a fund aimed at broader audience– ongoing sustainability-related performance information in a ‘sustainability product-level report’– entity-level disclosures in a ‘sustainability entity report’
Actions: FCA to support global standards for sustainability reporting (FCA, A strategy for positive change: our ESG priorities, 2022)

Definitions of sustainable
investment/ ESG funds

Regulation: the SDR proposes three sustainable investment labels (see the section below)

Product labels

Regulation: the SDR proposes the following investment labels:• Sustainable focus – products investing in assets that are environmentally and/or socially sustainable• Sustainable improvers – products investing to improve the environmental and/or social sustainability of assets over time, including in response to the stewardship influence of the firm
• Sustainable impact – products investing in solutions to environmental or social problems to achieve positive real-world impact

Sustainable financeActions: FCA Primary Market Bulletin 41 (FCA, June’22) highlighted the prospectus rules that currently apply to ESG use-of-proceeds instruments and endorsed the ICMA guidelines for sustainability bonds

Sustainability-related
benchmarks

Regulation: Retained UK equivalents of the EU climate benchmark regime (Regulation (EU) 2019/2089 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures forbenchmarks (EU, 2019)):• UK Climate Transition Benchmark• UK Paris Aligned Benchmark

Sustainability data and rating
providers

19

Actions: FCA to support the integrity and effectiveness of ESG data, ratings, assurance and verification services (Feedback statement outlining the regulatory position published in June 2022) – FCA has expressed that there is ‘a clear rationale’ for bringing
certain ESG data and ratings providers under the regulatory oversight, which is likely to be indicative of the policy trajectory in the near futureExhibit 8: Overview of selected regulatory actions in the United Kingdom (continued)
Regulatory response/ action

Applicable regulations

Sustainability-related data
quality and availability

Actions: FCA to support the integrity and effectiveness of ESG data, ratings, assurance and verification services (FCA, A strategy for positive change: our ESG priorities, 2022)

Greenwashing – guidance on
regulation implementation

Regulation:

Relevant governanceActions: FCA to develop a policy approach to ESG governance, remuneration, incentives and training/certification in regulated firms: stakeholder engagement to begin in 2022 (FCA, A strategy for positive change: our ESG priorities, 2022)

Climate change as an investment
risk

Regulation: FCA COLL Collective Investment Schemes Sourcebook – reporting requirements for asset managers (and certain asset owners), coming into force over 2022-2023 with respect to climate change-related reporting in alignment with therecommendations of the Taskforce on Climate Change Financial Disclosures (TCFD); see disclosure requirements in the ‘Disclosures’ section of this table.

• Guiding principles for authorised ESG & sustainable investment funds (FCA, 2021) the guidance was issues in response to the FCA observing a high number of ESG fund applications which included misleading or unclear statements and lacked measurable
non-financial objectives(FCA, Authorised ESG & sustainable investment funds: improving quality and clarity, 19 June 2021).
– The Guiding Principles establish that a fund’s sustainability focus has to be consistently reflected across the product design, delivery and disclosure (including the name, fund objectives, investment strategy and holdings).
» design of sustainable investment funds and disclosure of key design elements in fund documentation: ESG and related terms used in the fund name, promotional materials and other fund documents should accurately reflect the materiality of ESG
considerations to the investment strategy or the fund» the delivery of ESG investment funds and ongoing monitoring of holdings: firms should dedicate appropriate resources to achieving the fund’s ESG objectives; in addition, the fund’s holdings and investment strategy should be aligned with its statedobjectives on an ongoing basis» pre-contractual and ongoing periodic disclosures of sustainable funds should be easily available and accessible to consumers: ESG-related information in KIID should be easily available, accessible (without overuse of technical terms), and sufficiently
comprehensive for the consumers to make an informed decisions– Periodic sustainability fund disclosures should involve the following: evaluation against stated ESG characteristics, themes or outcomes; actions taken in pursuit of the fund’s objectives• SDR proposals introduce a general anti-greenwashing rule – sustainability-related claims must be clear, fair, not misleading and consistent with the sustainability-profile, including:– only funds with labels may use ‘ESG’, ‘sustainable’ or ‘any other term which implies that a … product has sustainability characteristics’ in their name or marketing– only ‘Sustainable Impact’ funds may use ‘impact’ in name or marketing– funds with no label, but with sustainability-related policy and strategy should describe this ‘factually’ in required disclosures, but not in their marketing

Actions: FCA to establish the Climate Financial Risk Forum (to help capacity building across the industry) (FCA, A strategy for positive change: our ESG priorities, 2022)
Sustainability as an investment
risk

Regulation: the SDR proposals for entity-level disclosures extends disclosure requirements from climate risk to sustainability-related risks and opportunities (including governance, impacts on the business, risk management, metrics and targets)Stress tests

Actions: the Bank of England published the first climate stress test results in May 2022 – the tests covered banks and insurers and in terms of risks they covered transition and physical climate change risks.

Investment risk vs. impact ofinvestments (double materiality)

Regulation: SDR – the proposals for certain product labels cover the impact of investments on the environment and society; however the FCA’s proposals do not require disclosure of principal adverse impacts or DNSH.

Value for money for investors –market trends monitoring

Actions: In the context of the fund value assessments, FCA highlighted that firms should be transparent on how their ESG services justify any additional fees vs non-ESG funds (Authorised fund managers’ assessments of their funds’ value (multi-firm review, 2021))

Investment stewardship

Regulation: UK Stewardship Code 2020
Actions: The asset owners and the investors are expected to use the sustainability information provided by the implementation of the SDR and the UK Taxonomy to inform their stewardship activities, as well as investment decision-making, monitoring, andvoting practices. The continuing regulatory focus on investor engagement is evident in the FRC’s 2022 review of stewardship practices and the FCA’s ongoing efforts to promote sustainability-related stewardship. (FCA, A strategy for positive change: our ESG
priorities, 2022)

Regulators’ capacity andknowledge

Actions: applicable to FCA

Other

Actions: all applicable to FCA• work with stakeholders to enhance industry capabilities and support firms’ management of climate-related and wider sustainability risks, opportunities and impacts• develop strategies, organisational structures, resources and tools to support the integration of ESG into FCA’s activities (FCA, A strategy for positive change: our ESG priorities, 2022)• promote well-designed, well governed, credible and effective transition plans – through stakeholder engagement 2022
• set expectation across E, S, and G: Consultation in the second half of 2022, through stakeholder engagement• embed ESG considerations and the expectation that we have regard to net zero across FCA functions: ongoing through 2022
• communicate and ‘role model’ (FCA, TCFD Report 2022) (FCA, A strategy for positive change: our ESG priorities, 2022)

20

Exhibit 8: Overview of selected regulatory actions in the United States
Regulatory response/ action

Applicable regulations

Sustainability-related
disclosures

Regulation: Enhanced disclosures by certain investment advisers and investment companies about ESG investment practices (SEC proposal, May’22)

Definitions of sustainable
investment/ ESG funds

Regulation: Enhanced disclosures by certain investment advisers and investment companies about ESG investment practices (SEC proposal, May’22) – proposes to distinguish between several types of ESG funds depending on how ESG factors areincorporated into investment strategy• Disclosure requirements depending on how ESG factors are incorporated into a fund’s strategy• Certain climate-focused funds will be required to disclose portfolio GHG emissions• No definitions of ESG/sustainable investing; focusing on ensuring funds’ disclosure of their investment approach• Integration funds – ESG factors are integrated alongside non-ESG factors in investment decisions but are not more significant than other factors• ESG-focused funds – ESG factors are a significant or main consideration in selecting investments or the engagement strategy• Impact Funds – a subset of ESG-focused funds that seek to achieve a particular ESG impact
Monitor regulation
implementation andenforcement

Enforcement actions: BNY Mellon fine for misstatements and omissions about ESG considerations in making investment decisions (SEC, 2022)

Monitor and analyse market
developments

Actions: The Division of Examinations’ Review of ESG Investing (SEC, 2021) – the review covered investors’ portfolio management, advertising and marketing, and compliance practices and it had the following observations:21• portfolio management practices were inconsistent with disclosures about ESG approaches• controls were inadequate to maintain, monitor, and update clients’ ESG-related investing guidelines, mandates, and restrictions• proxy voting may have been inconsistent with advisers’ stated approaches• there were unsubstantiated or otherwise potentially misleading claims regarding ESG approaches• controls were inadequate to ensure that ESG-related disclosures and marketing are consistent with the firm’s practices• compliance programs did not adequately address relevant ESG issues

Exhibit 9: Overview of selected regulatory actions in Australia
Regulatory response/ action

Applicable regulations

Classification of sustainable
activities (taxonomies)

Regulation: Sustainable Finance Taxonomy – in development by the Australian Sustainable Finance InstituteSustainability-related
disclosures

Actions: applicable to ASIC

Guidance on regulation
implementation

Regulation: Information sheet (INFO271) (ASIC, 2022) – guidance on how to avoid greenwashing when offering and or promoting sustainability-related products. The guidance includes:

Climate change as investment
risk

Actions:

22

Actions: Monitor the development of sustainable/green taxonomies, learn and influence their development (APRA, ASIC, RBA)
• Engage with IOSCO Sustainability Technical Experts Group on a framework for sustainability reporting under a possible International Sustainability Standards Board• Encourage voluntary TCFD-aligned disclosure (ASIC Corporate Plan 2022-26)• existing prohibitions against misleading and deceptive statements and conduct (the Corporations Act 1041E, 1041G, 1041H; ASIC Act 12DA, 12DB)• existing disclosure obligations (the Corporations Act 1013D(1)(I), Regulatory Guide 65 Section 1013DA disclosure guidelines)• further issues to consider in the context of promotions/communications on sustainability-related products:– is the product true to label– is there vague terminology– are the headline claims potentially misleading– do the disclosures explain how sustainability-related factors are incorporated into investment decisions and stewardship activities– do the disclosures/promotions explain the investment screening criteria– do you have any influence over the benchmark index for your sustainability-related product (and if so, is the level of influence accurately described)– do the disclosures explain the use of sustainability metrics– do you have reasonable grounds for a stated sustainability target (does the disclosure explain how the target will be measured and achieved– is the relevant information easily accessible to investors• encourage voluntary TCFD-aligned disclosure (for ASIC) (ASIC media release 29/06/2022)• set supervisory expectations for the management and disclosures of climate-related risks and measuring the exposures of financial institutions to climate-related risks (for Financial regulators – APRA, ASIC, RBA) (RBA, Financial Stability Review, 2021)

Exhibit 10: Overview of selected regulatory actions in Hong Kong
Regulatory response/ action

Applicable regulations

Classification of sustainable
activities (taxonomies)

Action: SFC will consider how the adoption of the Common Ground Taxonomy (in development by the IPSF Working Group on Taxonomies) will complement the existing regulatory and supervisory measures.

Sustainability-related
disclosures

Regulation:

The Common Ground Taxonomy-Climate Change Mitigation is a joint initiative of the People's Bank of China (PBoC) and the European Commission. It provides a comprehensive mapping and comparison between EU and China taxonomies and the mapping
analysis can be considered as major first step towards convergence of global standards of green definitions.
• mandatory alignment of climate-related disclosures with TCFD across relevant sectors by 2025
• Circular to management companies of SFC-authorised unit trusts and mutual funds – ESG funds (SFC, June’21); – contains disclosure guidance on pre-contract and periodic reporting for ESG funds (this circular supersedes the 2019 circular); additional
guidance for climate-focused funds apply. The guidance broadly cover the below areas:– scope of ESG funds– fund name– disclosure in offering documents– additional information– periodic assessment and reporting– application to UCITS funds– ongoing monitoring• Management and disclosure of climate-related risks by fund managers (SFC, Aug’21) – contains amendments to the Fund Manager Code of Conduct which require fund managers to take climate-related risks into consideration in their investment and risk
management processes and make appropriate disclosures. Amendments broadly cover:– board and management’s roles and responsibilities in relation to the climate-related considerations and risks– integration of climate-related risks into investment management– climate-related risk management– disclosure (manner and frequency of disclosures, entity and fund-level disclosure requirements)
Actions: applicable to SFC• support the ISSB initiative and engaging with the domestic authorities on developing an approach to globally aligned disclosure requirements• monitor the implementation of the existing regulatory measures by asset managers, taking into account the availability and quality of ESG/climate-related data required to meet the disclosure requirements• maintain regular dialogue with the industry (SFC, Agenda for Green and Sustainable Finance, 2022)

Definitions of sustainable
investment/ ESG funds

Regulation: Circular to management companies of SFC-authorised unit trusts and mutual funds – ESG funds (SFC, June’21) – it defines ESG funds as funds which consider ESG, climate, or sustainability factors as key to their investment strategy

Sustainability-related data andrating providers

Actions: SFC to consider the publication of guidance for asset managers on engagement of ESG ratings and data providers (SFC Agenda for Green and Sustainable Finance, 2022)

Guidance on regulation
implementation

Actions: applicable to SFC

Monitor regulation
implementation andenforcement• engage with stakeholders to provide guidance and enhance investors’ awareness of ESG funds• ongoing monitoring of ESG funds’ compliance with the June 2021 Circular• monitor global regulatory developments (SFC, Agenda for Green and Sustainable Finance, 2022)

Monitor and analyse market
developments
Climate change as investment
risk

23

Regulation:• Mandatory alignment of climate-related disclosures with TCFD across relevant sectors by 2025
• Management and disclosure of climate-related risks by fund managers (SFC, Aug’21) – contains amendments to the Fund Manager Code of Conduct which require Fund managers to take climate-related risks into consideration in their investment and risk
management processes and make appropriate disclosures. Amendments broadly cover:– board and management’s roles and responsibilities in relation to the climate-related considerations and risks– integration of climate-related risks into investment management– climate-related risk management– disclosure (manner and frequency of disclosures, entity and fund-level disclosure requirements)

Exhibit 10: Overview of selected regulatory actions in Hong Kong (continued)
Regulatory response/ action

Applicable regulations

Stress tests

Actions: SFC to promote climate change-related risk scenario analysis to assess the impacts on financial institutions under different climate pathways (including climate risk stress tests for banks and insurers, and scenario analysis for large asset managers)(SFC, Agenda for Green and Sustainable Finance, 2022)

Regulators’ capacity andknowledge

Actions: applicable to SFC

Support market innovation

Actions: applicable to SFC• facilitate cross-sectoral capacity building for financial regulators, government agencies, industry stakeholders and academia through:– promoting the inclusion of ESG as a topic for training under the Guidelines for Continuous Professional Training (consultation, June’21)– support of investor education – regular online updates, publicity and press events, public talks and stakeholder collaborations• support the Cross-Agency Steering Group’s (CASG) efforts in relation to its Centre for Green and Sustainable Finance (GSF Centre), particularly in the area of capacity building (SFC, Agenda for Green and Sustainable Finance, 2022)• engage with CASG and other stakeholders to facilitate the development of technologies to support green and sustainable finance initiatives• plan to create a publicly accessible GHG emissions estimation tool that can be used by companies (SFC, Agenda for Green and Sustainable Finance, 2022)

Other

Actions: applicable to SFC• develop a regulatory framework for carbon markets• participate in the IOSCO STF’s carbon market workstream (to support international development in the global transition to a sustainable economy) (SFC, Agenda for Green and Sustainable Finance, 2022)

24

Exhibit 11: Overview of selected regulatory actions in Singapore
Regulatory response/ action

Applicable regulations

Classification of sustainable
activities (taxonomies)

Regulation: Identifying a green taxonomy and relevant standards for Singapore and ASEAN (MAS, May’22) – in development, the Green Finance Industry Taskforce consulted on the second version of the Taxonomy in May 2022, the proposed classification ingreen, amber, and red economic activities, depending on their contribution to climate change mitigation
Actions: MAS is also participating in the development of the ASEAN Taxonomy for Sustainable Finance, IPSF’s Common Ground Taxonomy, and G20 Sustainable Finance Working Group

Sustainability-related
disclosures

Regulation: CFC disclosure and reporting guidelines for retail ESG funds (MAS, July’22; applicable from Jan’23)• sets the regulatory expectations on how existing requirements under the Code on Collective Investment Schemes and the Securities and Futures Regulations apply to retail ESG funds, and the applicable disclosure and reporting guidelines• applies to funds which use or include ESG factors as their key investment focus and strategy and are represented as an ESG-focused scheme• includes guidance on the naming of ESG funds, and disclosure (prospectus and enhanced reporting)
Actions: MAS to support alignment of disclosures with international standards, such as TCFD and the upcoming ISSB (MAS Green Finance Action Plan, June 2022)

Sustainability-linked financeActions: All applicable to MAS• Sustainable bond and green and sustainability-linked loan grant schemes – promote sustainable lending frameworks that provide simplified processes and standardised criteria for borrowers• US$2b MAS Green Investments Programme – A MAS-funded programme which will place funds with asset managers who are committed to drive regional green efforts (e.g. firm commitment to deepening their green investment capabilities across functions
such as research, stewardship, policy and portfolio management, accelerate local capability transfers)• Insurance-linked securities grant scheme (ILS)– the scheme covers upfront issuance costs for ILS bond issuances (MAS Green Finance Action Plan, June 2022)

Sustainability-related data
quality and availability

Actions:

Guidance on regulation
implementation

Regulation: CFC Disclosure and Reporting Guidelines for Retail ESG Funds (MAS, July’22; applicable from Jan’23)

Relevant governanceRegulation: Guidelines on environmental risk management to financial institutions (MAS, Dec’20) and Guidelines on environmental risk management for banks, insurers, and asset managers (MAS, May’22). Those include:• MAS & CDP Memorandum of Understanding (Mar’22) – both parties agree to collaborate on promotion of sustainability disclosures and access to ESG data
• MAS to improve accessibility of ESG data through a regulatory data platform• Project Greenprint – MAS to partner with industry to develop digital solutions that facilitate the flows of ESG data (MAS Green Finance Action Plan, June 2022)• guidance on governance and strategy – effective oversight of the management of environmental risk by boards and senior management• board and senior management roles and corporate governance structures
Climate change as investment
risk

Regulation: Guidelines on environmental risk management to financial institutions (MAS, Dec’20) and Guidelines on environmental risk management for banks, insurers, and asset managers (MAS, May’22). Those include:

Stress tests

Action: a range of long-term climate scenarios were included as part of the 2022 industry-wide stress test exercise (MAS, 2022)

Investment stewardship

Actions: Updates to Singapore stewardship principles for responsible investors (MAS, 2022)

Regulators’ capacity andknowledge

Actions: all applicable to MAS

Support market innovation

Actions: all applicable to MAS• guidance on how to address environmental risks across all relevant processes – governance and strategy, research and portfolio construction, portfolio risk management, stewardship, disclosure of environmental risk information• overview of the 2020 Guidelines implementation, emerging best practice, current challenges• facilitate Asia-focused research and training on green and sustainable finance and policy by centres of excellence (e.g. Singapore Green Finance Centre, Sustainable Finance Institute Asia, Sustainable and Green Finance Institute)• grow ESG services to support sustainable finance needs of Singapore and the region• facilitate the establishment of GFANZ Asia-Pacific Network central office in Singapore (MAS Green Finance Action Plan, June 2022)• support green FinTech projects, labs, and industry utilities (e.g. S$50m Green FinTech Grant Scheme)• drive innovative fintech solutions to help financial institutions respond better to the pandemic and climate change (e.g. Global FinTech Innovation Challenge)• Project Greenprint• partner with industry to develop digital utilities that facilitate the trusted and efficient flow of ESG data, to support financial institutions and businesses in mobilising capital to sustainable projects, monitoring commitments and measuring impact (MAS Green
Finance Action Plan, June 2022)

25

Exhibit 12: Overview of selected regulatory actions in Japan
Regulatory response/ action

Applicable regulations

Sustainability-related
disclosures

Actions: Progress report on enhancing asset management business (JFSA, May’22) – it lists JFSA’s supervisory expectations for information provision and disclosures by asset managers with respect to how ESG is incorporated in their investment processes
and decision-making:• be consistent and conform with the investment process• allow investors to correctly understand the ESG features of the investment product, compare it with other products and take an investment decision

Sustainability-linked financeRegulation:• Social bonds guidelines (JFSA, October’21) – the guidelines have four core components, including:– use of proceeds – the proceeds of social bonds should be exclusively allocated to social projects– process for project evaluation and selection – intended social objectives and the process for project evaluation and selection should be explained– management of proceeds – proceeds should be appropriately tracked and managed– reporting – disclosures should include a brief description of the project, the allocated amount and social benefits; quantitative indicators for social benefits are recommended• Green bond and sustainability-linked bond guidelines (Ministry of the Environment, 2020) – the aim of the guidelines is to achieve credibility of the environmental benefits of green or sustainability-linked bonds while reducing the cost and administrative
burden on issuers. The main elements include setting principals with respect to:– use of proceeds or target setting– process of evaluation of projects/ targets– management of proceeds– reporting and external reviews• Basic guidelines in climate transition finance (JFSA, May’21) – general guide which aims to support the issuance of debt funding supporting projects which will result in carbon reduction. Transition in the context of the guidelines is defined as activities which
would result in carbon reduction for activities which may not necessarily be low carbon at present. The guidance sets out four elements of transition which need to be met:
– fundraiser’s climate transition strategy and governance – includes the broader decarbonisation strategy of the fundraiser and consideration of the ‘just transition’– business model environmental materiality – should include core business activities which are material at present and in the future in terms of environmental impact– targets and consideration of science – the proposed carbon reductions from the funded projects should be measured with science-based targets– implementation transparency – use of quantitative measures where possible with respect to relevant indicators and disclosures
Action: for JFSA – create an ESG bond information platform (JFSA Strategy on Sustainable Finance July 2021-June 2022)

Sustainability-related data andrating providers

Regulation:• Draft code of conduct for ESG evaluation and data providers (JFSA, July’22, in consultation). The code sets out principals with respect to:– quality of ESG data
– necessary human resources– independence and conflict of interest– transparency, confidentiality, and communication between ESG data providers and issuers• Progress report on enhancing asset management business (JFSA, May’22) – suggests asset managers to conduct verification and due diligence of ESG ratings and data product providers in order to ensure the accuracy and quality of ESG evaluations anddata from different data providers

Sustainability-related data
quality and availability

Actions: JFSA to draft impact indicators for social projects (JFSA Strategy on Sustainable Finance July 2021-June 2022)

Guidance on regulation
implementation

Action: Progress report on enhancing asset management business (JFSA, May’22) – asset management firms should continue to strengthen their investment approach and enhance disclosure to enable consumers to understand the content of the investment
products and make appropriate investment decisions

Monitor regulation
implementation andenforcement

Actions: JFSA conducts regular market reviews, including with respect to developments in sustainable investment – e.g. Progress report on enhancing asset management business (JFSA, May’22)

Relevant governanceAction: Progress report on enhancing asset management business (JFSA, May’22) – an investment manager should develop effective systems for ESG investment, including the establishment of a department responsible for strengthening the sustainability
promotion framework, enhancing ESG investment methods, and applying ESG experts.

Climate change as investment
risk

Regulation: Supervisory guidance on climate-related risk management and client engagement (JFSA, July’22) – it covers guidance with respect to climate change risk governance; identification, assessment and management of climate-related risks andopportunities; how to support clients’ responses to climate change and information sharing with stakeholders

Stress tests

Action: JFSA conducted a pilot scenario analysis using NGFS scenarios for thee megabanks and three major non-life insurance groups (2022)

26

Exhibit 12: Overview of selected regulatory actions in Japan (continued)
Regulatory response/ action

Applicable regulations

Value for money for investors –market trends review

Action: Progress report on enhancing asset management business (JFSA, May’22). Observations of the May’22 analysis include:

Investment stewardship

Regulation:• the average trust fee ratio of active ESG funds is higher than that of other active funds• the average trust fee ratio of passive ESG funds is lower than that of other passive funds• Stewardship Code Revisions (JFSA, 2020)– recommends greater transparency on proxy voting– recommends investors to consider sustainability in the context of their investment strategy in engagement– promotes asset owner stewardship• Revisions to the Corporate Governance Code and the Guidelines for Investor and Company Engagement (JFSA, June’21) – promotes:– enhanced board independence– diversity– increased attention to sustainability and ESG factors
Action: Progress report on enhancing asset management business (JFSA, May’22) – in accordance with its investment strategy, a firm should proactively conduct stewardship activities to achieve corporate value growths by improving ESG-related business
opportunities and reducing business risks identified at the time of investment

Regulators’ capacity andknowledge

27

Actions: all applicable to JFSA
• develop skilled professionals via support for private sector qualification programs• promote funding for Climate Tech SMEs and start ups• communicate policy and roadmaps in a timely manner (JFSA, The Second Report by the Expert Panel on Sustainable Finance, 2022)

Important information
This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy,
hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment
needs, objectives and financial situation.
We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in
future if circumstances change.
To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views maychange, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.
About First Sentier Investors
References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, Igneo Infrastructure Partners andRealindex Investments, all of which are part of the First Sentier Investors group.
We communicate and conduct business through different legal entities in different locations. This material is communicated in:•Australia and New Zealand by First Sentier Investors (Australia) IM Limited, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)•

European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)•

Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors is a business name of First Sentier Investors (Hong Kong) Limited.

•

Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) is a business division of First Sentier Investors (Singapore).

•

United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)•

United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)•

Other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (registration number 122512; registered office 23 St. Andrew Square, Edinburgh, EH2 1BB number SC079063).

This material is neither directed at nor intended to be accessed by persons resident in, or citizens of any country, or types or categories of individual where to allow such access would require any registration, filing, application for any licence or approval or other steps to be taken by First Sentier Investors in order tocomply with local laws or regulatory requirements in such country.
This document is the intellectual property of First Sentier Investors, MUTB / MUFG and if applicable a third party. They retain all intellectual property or other rights in all information and content (including, but not limited to, all text, data, graphics and logos).
To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repaymentof capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
© First Sentier Investors Group