ESG Regulatory Essentials

Welcome to the first issue of ESG Regulatory Essentials. This is a new publication from KPMG's EMA Financial Services Regulatory Insight Centre (RIC), providing a summary of the latest ESG regulatory developments impacting financial services firms.

As we approach the year end it's time to take stock of recent developments in ESG regulation. Unsurprisingly given the momentum around COP26, there has been a rush of climate-related regulatory updates and announcements. Regulators have continued to develop and expand on their guidance and requirements across disclosures, supervisory expectations, stress testing, and possible future capital requirements.

The COP26 meeting in Glasgow put the “E” front and central, triggering announcements such as the creation of an International Sustainability Standards Board, mandatory net zero transition plans for all UK listed firms from 2023 and reaffirmation of the NGFS members' commitments to meeting the 2015 Paris Agreement objectives.

Work continues to develop ESG frameworks and standards — at a global level, IOSCO has published recommendations for national regulators and policy makers in the asset management industry and called for oversight of ESG Ratings and Data product providers. The Basel Committee is consulting on draft principles for banks and supervisors for the effective management and supervision of climate-related financial risks. And the IAIS has committed to urgently advance work to address risks and opportunities associated with climate change.

The European Commission's new banking package introduces further ESG requirements for banks and the Commission also proposes new sustainability mandates for EIOPA under Solvency II. The European Supervisory Authorities have delivered draft Regulatory Technical Standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR). EIOPA has announced that in 2022 it will finalise the first Europe-wide dashboard on the natural catastrophe protection gap, and the ECB has shared the findings of its 2021 supervisory review work and published its stress testing methodology for 2022.

And in the UK, the government has launched its roadmap for sustainable investment, the first phase of which includes new Sustainability Disclosure Requirements for all financial firms and customer facing investment labels. The Climate Financial Risk Forum has issued further guidance for banks, insurers and asset managers. Financial regulators have also published their climate adaptation reports including supervisory expectations for 2022 - with particular focus on evolving capital requirements (PRA) and transition plans (FCA). Banks and insurers have made their first CBES stress test submissions.

For more on these and other developments, please download the full issue above and click on the tiles below to access our most recent ESG articles.