The report identifies the prerequisites for creating an ecosystem that facilitates sustainable finance, and sets out 10 recommendations for growth and emerging markets.
IOSCO (the International Organization of Securities Commissions) has published a report from its Growth and Emerging Markets Committee (GEMC) setting out 10 recommendations for developing sustainable finance ecosystems in growth and emerging markets.
The recommendations:
- Issuers and other regulated entities should integrate material ESG-specific issues in their overall risk assessment and governance, including at the board level.
- Institutional investors should incorporate ESG-specific issues into their investment analysis, strategies and overall governance, and consider the material ESG disclosures of the entities in which they invest.
- Regulators should require disclosure (with adequate data quality) of material ESG-specific risks and opportunities as they relate to the issuer’s governance, strategy and risk management.
- Sustainable instruments should be clearly defined, making reference to the eligible projects and activities that the funds raised can be used for.
- Funds raised through sustainable instruments should only be used for projects and activities falling under one or a combination of three broad ESG categories: environmental, social and governance.
- Regulators should establish requirements for sustainable instrument offerings which include information about the use and management of the funds raised and the processes used for project evaluation and selection.
- Regulators should establish ongoing disclosure requirements regarding the use of the funds raised through the issuance of sustainable instruments including the extent of unutilised funds.
- Regulation should provide for measures to prevent, detect and sanction the misuse of the funds raised through the issuance of sustainable instruments.
- Issuers should use external reviews to ensure consistency with the definition of the sustainable instruments and eligible projects.
- Regulators should analyse the gaps in ESG-related capacity and expertise and consider targeted capacity building to address these gaps.
The report also provides an overview of the initiatives regulators, stock exchanges, policy makers and others key stakeholders in emerging markets have undertaken in this area.
It highlights China as one of the most active jurisdictions in Asia for sustainable finance, and the world’s second largest green bond market. China plans to have all listed companies disclosing the environmental risks associated with their operations by 2020. It is also working on imposing environmental disclosure requirements to all bond issuers.
The report also highlights India for its 2017 green bond guidelines, which institute disclosure norms for issuing and listing green bonds and mandatory requirements for continuous disclosure and monitoring. India also has in place mandatory requirements for the top 500 listed companies to annually publish ‘business responsibility reports’, which include information related to sustainability.
In Malaysia, the alignment of Shariah investing with sustainable finance has focused efforts on further developing the SRI (socially responsible investing) ecosystem. Key efforts include the development of frameworks for SRI sukuk and fund products, the code of conduct for institutional investors, and amendments to listing requirements to include sustainability-related matters.
According to the report, the critical components for creating an ecosystem that facilitates sustainable finance include an appropriate regulatory framework, fit-for-purpose market infrastructure, reporting and disclosure requirements, governance and investor protection guidelines, and mechanisms to address needs and requirements of institutional investors.
Source: Regulation Asia