Financial services need global standardisation of climate regulations

The lack of global standardisation for climate-related financial regulation is causing confusing, disconnected and easy to ignore cross-border compliance environments, according to a report from CUBE.

The RegTech company claims this is preventing financial services from making crucial climate change mitigation measures.

 It claims that despite the notoriety of cross-border industry groups, there is still little collaboration between regulators.

According to its analysis, there is little evidence North American regulators use the EU-based Sustainable Finance Disclosure Regulation as a framework for their own disclosure rules. Furthermore, while there have been attempts at a global approach, such as the Task Force on Climate-related Financial Disclosures, there has been limited adoption.

CUBE claims the lack of global standardisation highlights the chasm between what regulators say and what they do. Despite regulatory bodies publishing tens of thousands of climate-related issuances and guidance, only a fraction is enforceable, it said.

In Europe, just 4% of over 50,000 climate-related issuances made in the past ten years have existed within in-force regulations. This is compared to 16% of issuances in North America (there are less overall) and 0.007% in Asia.

Making the problem worse, according to CUBE, is the silence from some of the world’s most prominent and powerful regulators. Its research found the UK’s FCA only accounted for 0.004% of all regulatory instances within the data analysed, and the US’s Securities and Exchange Commission represented even less at 0.0004%.

CUBE founder and CEO Ben Richmond said, “Without a global regulatory standard, a lack of cross-border collaboration has emerged, resulting in meaningful discussion but limited action and guidance from regulators. This has inadvertently left grey areas around how firms can navigate and implement regulatory change. It has also left gaps in how these firms can effectively curb climate change risks.

“Ultimately, ESG-related regulation is one of the most important regulatory movements we have seen in our time, so much so that over 2020 and 2021, in the face of a global pandemic, regulatory bodies continued to publish climate-related content in the tens of thousands.

“Firms who find climate-related risk slipping down their agenda should not overlook the sheer quantity of issuances in the progress of becoming law over the next two years. More than 8,000 global regulatory insights currently exist as ‘Bills’ which suggests that legislation will be implemented – and imminently.”

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