Regulators Issue Recommendations on Sustainable Finance in Emerging Markets
06/05/2019The Growth and Emerging Markets Committee, a committee of the International Organization of Securities Commissions that aims to promote the development and efficiency of emerging securities and futures markets, has published a series of recommendations on the development of sustainable finance in emerging markets and the role that securities regulators play in this arena. The report also contains an overview of sustainability-related regulatory initiatives in emerging markets and market trends arising in the sustainability sector.
The GEMC's report sets out ten recommendations regarding regulation and disclosure requirements around sustainable investments and environmental, social and governance risks, which include:
- Integrating ESG-specific issues in overall risk assessment and governance by issuers and other regulated entities;
- Incorporation by institutional investors of ESG-specific issues into their investment analysis, strategies and overall governance;
- Regulatory requirements around the disclosure, reporting and data quality of ESG-related risk management, governance practices and strategies of issuers;
- Use of clear definitions in sustainable instruments, including reference to the categories of eligible projects and activities that funds will be directed towards;
- Direction of funds towards one of the three broad ESG categories set out by the GEMC; GEMC members should define the eligible projects and activities within those categories that are applicable for their jurisdiction;
- Establishment of regulatory requirements for offerings of sustainable instruments;
- Establishment of regulatory requirements for ongoing disclosure on the use of funds raised from sustainable instruments;
- Establishment of regulatory measures to tackle the misuse of funds raised from sustainable instruments;
- Use of external reviews to confirm consistency of instruments with the definition of sustainable instruments and eligible projects set out in recommendations four and five; and
- Consideration by regulators of ways to build capacity and expertise with regard to the ESG-related issues raised by the recommendations.
In setting out the recommendations, the GEMC hopes to enhance understanding of the issues and challenges that affect the development of sustainable finance in capital markets, both for emerging markets regulators and the investors and asset managers looking to allocate investment. Sustainability-focused products, including green bonds, social-impact bonds, renewable energy investments and sustainable funds, have seen notable growth in recent years, and both industry and investors are attaching increasing importance to environmental, social and governance factors.
View the GEMC's report.
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