UK: United Kingdom Set to Regulate ESG Ratings Industry
The United Kingdom has indicated that it will soon announce new measures to regulate its ESG ratings industry. The government is currently considering industry responses to the public consultation that closed in June 2023. It plans to set out formal proposals as early as January 2024, with the goal of increasing transparency regarding methodologies, governance and processes involved in rating investments’ ESG credentials. Proposals under consideration include establishing a new watchdog for the industry, or assigning such a role to the Financial Conduct Authority (FCA). It is intended that the measures be in line with the voluntary Code of Conduct for ESG rating and data providers currently under development by the FCA.
U.K. Treasury Consultation Paper
Asia: Australia Seeks to Advance Net Zero Transition with Sustainable Finance Strategy
On November 2, 2023, the Australian Treasury unveiled its three-pillared Sustainable Finance Strategy, which seeks to facilitate investment in sustainable ventures.
The first pillar of the strategy focuses on improving access to “high quality, credible and comparable information” on the financial risks posed by climate change, particularly for retail investors who may lack tools to verify sustainability claims on their own. The first pillar will require an investment to meet minimum standards before it can receive a sustainability label from the Australian government. This requirement follows similar labeling proposals in the EU, UK and U.S. Investment firms will also be required to explain how their investment processes incorporate sustainability considerations, and to disclose additional information on their sustainable products. Another component of the first pillar is the creation of a Sustainable Finance Taxonomy, which includes a set of scientifically verifiable criteria that will allow investors to evaluate the sustainability of an investment.
The second pillar of the strategy focuses on increasing regulatory supervision of sustainable investments, while the third pillar focuses on expanding the government’s role in sustainable finance through the creation of a sovereign green bonds program and other measures.
Treasury of the Australian Government
EU: French Socially Responsible Investment (SRI) Label to Exclude Funds Investing in Coal and New Hydrocarbon Projects
On November 7, 2023, following a public consultation, the French government announced that funds investing in fossil fuels will no longer be eligible for the French socially responsible investment (SRI) label. To be designated as an SRI, the fund will be required to exclude investments in companies linked to coal or other unconventional hydrocarbons, as well as in companies launching new oil and gas projects. It remains to be seen how prior oil and gas investments will be handled by the new standard.
The French government’s consultation, launched in October 2021, reviewed existing SRI label requirements and recommended significant revisions. The updated SRI label requirements will generally reinforce selectivity on ESG criteria by mandating that funds limit the negative impacts of their investments. In addition, the new SRI label standard will require a transition plan to be developed in alignment with the Paris Climate Agreement.
France’s SRI label was created in 2016 and has not undergone significant revision since its creation. The new SRI label standard will be published by the end of November and is expected to take effect on March 1, 2024.
Press Release from French Ministry of Economy