A lack of global standardisation for climate-related financial regulation has created a confusing, disconnected — and easy to ignore — cross-border compliance culture, according to analysis and research from CUBE, the global regtech company.
Despite the prominence of cross-border industry groups, from the International Sustainability Standards Board to the Taskforce on Nature-related Financial Disclosures (TNFD) — there is currently minimal collaboration between regulators on an international level.
CUBE’s analysis suggests that there is little evidence that North American regulators are using the EU-based Sustainable Finance Disclosure Regulation (SFDR) as a framework for their own disclosure rules, and while there have been attempts at a global approach, such as the TNFD, their adoption has also been limited.
The lack of standardisation globally highlights the chasm between what regulators are saying and what they are enacting in the form of rules, regulations and legislation, CUBE says.
Regulatory bodies across regions are publishing tens of thousands of climate-related issuances and guidance – but just a tiny fraction of them have become enforceable regulations, it adds.
CUBE’s research identified that in Europe, just 4 per cent of the more than 50,000 climate-related issuances made in the last 10 years exist within in-force regulations.
Meanwhile, in North America, 16 per cent of total issuances are in force, although they are publishing far less climate-related content overall, and in Asia, just 0.007 per cent of issuances have been codified.
Of the issuances CUBE analysed that are not currently in force, 11 per cent are in progress towards becoming law.
Exacerbating the problem is the notable silence from some of the world’s most prominent and powerful regulatory authorities, deems CUBE.
As a result, financial services firms are left with little clear guidance on what measures they should be taking to curb climate change risks – and little incentive, as well, CUBE highlights.
Ben Richmond, founder and CEO of CUBE, says: “Ultimately, environmental, social and corporate governance-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.”
He adds: “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. 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.”
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