How ESG regulatory and market trends are shaping up the EBRD’s region of operations

Responsible investing is widely understood as the integration of environmental, social and governance (ESG) factors into investment processes and decision-making of a company. This is a new and fast evolving area, and companies are facing increasing pressure to report on ESG matters driven by shareholder pressure, regulation, reputational concerns and other factors. COVID-19 has put ESG in a different context and has highlighted a number of risks and opportunities that financial institutions need to take into account in order to manage their businesses.

ESG issues are no longer a case for managing short-term risks, as a focused approach to ESG can serve as the foundation upon which long-term growth is secured. Board members and senior executives are being advised that a failure to address material ESG, including climate-related issues may be in conflict with their duty of care. Financial institutions are being expected to integrate ESG factors into their investment methodologies, develop sustainable corporate governance of climate risks, and ultimately to consider ESG-related products and services. Boards of directors are under pressure to identify any transitional risks posed to their business as well as to assess its resilience to the physical effects of climate change. The impacts of climate change, investors' demand and the evolving ESG regulatory regimes are accelerating the adoption of green agenda by financial institutions and corporates.

In 2018, the European Commission published its Action Plan on Sustainable Finance aiming to foster transparency and long-termism in financial activities and presented a package of regulations related to sustainable finance. The Action Plan includes the Taxonomy Regulation, which came into force on 12 July 2020, the Sustainable Finance Disclosure Regulation, which will apply from 10 March 2021, and the Low Carbon Benchmark Regulations, in force since 30 April 2020. On 9 April 2020, the EC published three delegated acts under the Low Carbon Benchmark Regulation, which were adopted on 17 July 2020. The 2020 update of the Non-Financial Reporting Directive (NFRD) (EU) 2014/95 is aimed to scale up sustainable finance and support the transition to a more sustainable economy by focusing on corporate transparency.

EU financial regulators have turned their attention to ESG and climate-related risks and their impact on operations of financial institutions. Central banks and financial supervisors (including some from the EBRD countries of operations) have recognized that climate change is a risk to financial stability and have jointly published guidance to market participants suggesting timely, consistent and decision-useful climate-related disclosures. The UK government is expecting that all listed issuers and large asset owners will be reporting in accordance with the Taskforce on Climate-related Financial Disclosure (TCFD) recommendation by 2020, while the Financial Conduct Authority (FCA) has proposed TCFD-aligned climate-related disclosure requirements for premium-listed issuers on "comply or explain basis".

These regulatory and other relevant developments, including the role of accounting firms and standard-setting institutions in ESG metrics standardisation, will be presented and discussed. This workshop will be delivered by EBRD experts and leading City practitioners and is a follow up to the ESG event ​​EBRD organised last year.

OBJECTIVES

• Provide insights into the evolving policy and regulatory frameworks for ESG disclosures and market transformation as investors are increasingly seeking sustainable investing alternatives
• Discuss the role of EBRD in shaping up its region of operations by promoting ESG policies, regulations, standards and business products
• Discuss how to promote climate governance, including by engaging with clients to enhance their corporate climate governance under GET 2.1, and present the case study of STEG, an electricity and gas public utility in Tunisia