Financial Services Ireland


Climate change and sustainability: global financial regulators step up the pace

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As the financial impacts of climate change become clearer, regulators and supervisors are increasingly focused on the breadth and depth of their response.  Climate change considerations are moving from being primarily focussed on supporting risk mitigation to how to better support the pathway towards the adaptation of a ‘new norm’ as articulated in the recently-launched EU Adaptation Strategy. We can anticipate further changes to be articulated in the EU’s Renewed Sustainable Finance Strategy which is due to be launched later this year.

Thinking will continue to evolve and accelerate, setting the basis of change for the financial services sector that will bring considerable challenge as well as opportunity. This paper provides a snapshot of the current regulatory landscape through a global lens and identifies a set of common themes and forces which may be useful for companies to adopt on a ‘no regrets’ basis.

Commenting on the report, James Maher, EY Sustainable Finance Lead Ireland, said:

While Europe is engaged in the white heat of negotiating the regulatory technical standards underpinning taxonomy-related sustainable disclosures it is essential that all keep an eye firmly on the prize of proactive transition, with the full support of the finance sector pointing its considerable resources towards transition activities.

Across the board, there is a drive for more and better disclosures regarding climate risk exposures, risk management and ESG products — with an increasing shift to mandatory requirements. As all actors move with purpose towards the 26th United Nations Climate Change Committee of Parties conference (COP 26) in Glasgow in November 2021, we propose six actions for consideration by Financial Institutions to address both prudential and conduct implications.

  • Embed climate change risk into governance, strategy and risk management; the regulatory details may be unclear but the path of travel has been set.
  • Engage with the data challenge early on and consider collaboration with industry partners, regulators and governmental bodies to establish common public sources.
  • Do not underestimate the risk of mis-selling or greenwashing: these have not only regulatory and reputation consequences but also potential litigation risks.
  • Engage in open regulatory dialogue to both shape the agenda as well as promote and implement the programmes of change for mitigation and adaption.
  • Monitor developments in jurisdictions that are “early movers”, leveraging lessons learned.
  • Consider sustainability factors that reach beyond climate risk to include Environment Social and Governance factors (ESG) and enterprise Long Term Value.

EY’s Fidelma Clarke also commented:

Overall, there is huge momentum in driving a regulatory response, driven by an ever-increasing conviction regarding the impact of climate change and sustainability risks, political commitment, public policy action and investor focus.  Whilst Europe and parts of Asia-Pacific appear to lead on developments in this area, political commitment in other parts of the world – notably the US, given the new administration – is likely to change the landscape and the pace of change.  Financial services regulatory authorities are seeking to maintain flexibility to account for ongoing developments, whilst providing guidance and setting benchmark standards.  What is voluntary or non-binding today may be mandatory tomorrow and therefore collaboration with industry, academia and specialists is essential to inform policy making as methodologies and data driven measurement remains at early-stage development.

Download the report below and reach out if you have a question. You may also be interested in attending our upcoming webcast on this topic.

Thought Leaders

James Maher

Insurance, Sector Leader

Fidelma Clarke

FS Partner, Sustainable Finance Consulting