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Climate Risk Regulation Rundown: March 2023

April 13, 2023

What happened in climate-related financial regulation last month, and what’s coming up.


On March 20, US President Joe Biden vetoed a Republican-led attempt to stop retirement plan managers from considering environmental, social, and governance (ESG) factors when making investments. The Department of Labor’s rule, put into effect this January, allows managers to consider climate change and other ESG factors as long as they are relevant to a risk and return analysis. 

Biden argued that the Republican resolution would prevent retirement plan fiduciaries from taking into account risk factors that could affect investment returns, such as the physical risks of climate change and poor corporate governance. 

The House passed the bill to kill the rule on February 28, and the Senate followed suit on March 1. A Republican effort to override Biden’s veto on Mach 23 failed to achieve the required two-thirds majority.

US Securities and Exchange Commission (SEC) chair Gary Gensler has suggested that Scope 3 emissions disclosures may be removed from the agency’s forthcoming climate risk reporting rule. 

Before the Council of Institutional Investors on March 6, Gensler said there are many companies already disclosing Scope 1 and 2 emissions. While he didn’t want to “get ahead of the process,” he indicated that the agency may take a different approach to Scope 3 disclosures.

Gensler’s comments follow reports that the SEC is considering weakening elements of the rule. This prompted more than 50 Democratic lawmakers to write to the chair, urging him to keep the part of the rule that requires companies to publish their emissions data.

Canada’s Office of the Superintendent of Financial Institutions (OSFI) issued new guidelines that ask banks and insurers to build out their climate risk governance, management, and scenario analysis capabilities, as well as to disclose their climate-related information. 

Entities covered by Guideline B-15, released March 7, must incorporate physical and transition risks into their business models and strategies, test their resilience against a 1.5°C warming scenario, and report the results of “standardized climate scenario exercises” to the regulator.

They must also produce reports aligned with the Task Force on Climate-related Financial Disclosures (TCFD), which include their absolute Scope 1, 2, and 3 emissions. The largest Canadian banks and internationally active insurance groups must comply with B-15 beginning fiscal year-end 2024, with all other entities following a year later. 

On March 3, Canada’s Sustainable Finance Action Council (SFAC) published a Taxonomy Roadmap Report, outlining what economic activities could receive a “green” or “transition” classification. 

The report states green activities should include those that support renewable and clean energy and produce negligible emissions. It says transition activities should cover projects that reduce emissions in line with Canada’s climate goals. 

Some oil and gas activities would qualify for a transition label if companies show a willingness to phase out Scope 3 emissions. Canadian Environment Minister Steven Guilbeault has said the government is reviewing the report’s recommendations before deciding whether to endorse the taxonomy.


On March 1, the European Council and European Parliament reached a political agreement on a European Union (EU) Green Bond Standard.

The agreement lays the groundwork for a voluntary labeling system for bonds that claim to be environmentally friendly. For issued bonds to be eligible under the standard, companies will have to disclose how the proceeds will be used and how they align with their own climate transition plans. Furthermore, the proceeds must predominantly be used in projects that are aligned with the EU’s Sustainable Taxonomy, with only 15% allowed to be spent on activities that don’t fit these criteria. 

The EU will provide disclosure templates for companies to verify that their green bonds meet the standard. The standard is expected to go into effect next year.

The European Central Bank (ECB) released its first climate-related financial disclosures on March 23 that show the carbon intensity of its corporate bond holdings and information on its climate-related governance, strategy, and risk management. 

The filings reveal that the absolute emissions linked to the ECB’s corporate bond portfolio have increased in recent years because the bank purchased more securities for monetary policy purposes over the course of the COVID-19 pandemic. However, the carbon intensity of the portfolio has gradually declined. This is due to two factors: one, because issuing companies have cut their emissions for every million euros of earnings — a sign that they are working on their carbon efficiency — and two, because the ECB has been tilting its portfolio toward ‘greener’ issuers since October 2022.

The ECB said it intends to publish data on the climate performance of its portfolios annually.

Also in March, the ECB published the results of a stress test of the Eurosystem, the network of EU member states’ central banks that collectively implement the ECB’s monetary policy. The exercise gauged the sensitivity of the Eurosystem’s collective balance sheet to both physical and transition climate risks across long- and short-term scenarios.

The results show the banks’ asset portfolios are materially exposed to climate risks and that their corporate bond portfolios are the main risk contributor.

On March 31, the European Securities and Markets Authority (ESMA) published a questions-and-answers document, clarifying elements of EU rules on climate transition benchmarks, Paris-aligned benchmarks, and sustainability-related disclosures for benchmarks. 

Climate transition benchmarks are indices tracking financial instruments that are issued by companies on a decarbonization trajectory. Paris-aligned benchmarks are indices in which constituent securities are issued by companies that are in sync with the Paris Agreement.

The three European Supervisory Authorities (ESAs) have been asked to conduct a one-off climate stress test by the European Commission to estimate how the EU financial system will respond to the bloc’s efforts to hit its 2030 climate targets.

In a letter to the ESAs dated March 8, the Commission said the exercise should “go beyond the usual climate stress tests” by exploring potential impacts across sectors, risk contagion, and second-order effects from climate shocks. The letter said it would be important for any “policy-relevant conclusions” to be ready by the first quarter of 2025.

The three ESAs are the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA).

On March 13, the ESAs and the ECB issued a joint statement, calling for enhanced climate disclosures for structured finance products. 

Structured products, like securitizations that bundle up financial assets to produce stable cash flows, may be impacted by physical and transition risks, the authorities say. For example, a securitization backed by a series of real estate mortgages could become impaired if the underlying home loans default in the wake of a flood event or other climate-related hazard. 

The statement said ESMA is working on improving structured product disclosures to include climate-related information. It also lobbied structured products issuers, sponsors, and originators of assets used in securitizations to collect “high-quality and comprehensive information on climate-related risks.”

The UK Government indicated that nuclear power will be classified as environmentally sustainable under the country’s forthcoming Green Taxonomy. 

Jeremy Hunt, the UK finance minister, made the announcement in his budget speech on March 15, saying the categorization will unlock the same investment incentives for nuclear as for renewable energy.

The UK paused work on its Green Taxonomy in December, having previously pledged to roll out the framework by the end of 2022. Like the taxonomies under development in the EU and Canada, the UK Green Taxonomy is intended to steer investment toward activities that further the country’s net-zero goals. 

The UK Treasury published a draft regulatory framework for environmental, social, and governance (ESG) ratings providers as part of the government’s updated Green Finance Strategy. 

The Treasury said the increased use of ESG ratings in investment decision-making presents risks, which justifies new regulation. The purpose of the framework would be to mitigate these risks by improving transparency into ESG rating agencies’ methodologies and to promote good conduct among companies working in the space. 

A consultation on the framework is open until June 30.

The Bank of England (BoE) said on March 13 that more research is needed to determine how climate risks could affect banks and insurers before it considers changing capital rules. 

In a report, the BoE opined that existing capital frameworks are appropriate for climate risks and that effective risk management controls at institutions may reduce the need for them to build up additional capital buffers.

The report added that the BoE will continue to work on improving how companies identify, measure, and manage climate risks. It also said the BoE would build its own capabilities and tools to estimate the financial system’s ability to withstand climate shocks.

On March 24, the BoE published the results of its most recent systemic risk survey, which  shows the proportion of respondents citing climate risk as a key source of risk to the UK financial system (39%) is at the highest level recorded in the survey. 

These respondents cited transition and physical risks as key challenges. Survey participants included UK banks and building societies, large foreign banks, asset managers, hedge funds, insurers, pension funds, large non-financial companies, and central counterparties.

The Pensions Regulator (TPR), the UK’s retirement fund watchdog, published a review of the first batch of climate-related disclosures released by occupational pension schemes on March 23. 

UK pension funds over £5bn (USD$6.1bn) in size have been required to publish reports based on the Task Force on Climate-related Financial Disclosures (TCFD) since October 2021.

The regulator subjected 71 of these disclosures to a quantitative review and 45 to a qualitative survey. It found almost all the reports surveyed are “substantial documents” that showed “an encouraging level of trustee engagement with the new requirements.” 

TPR also acknowledged that “data quality and coverage remain a challenge” for funds. However, it added that this was likely to become less of a problem over time “as investment firms adapt to the new data capture and reporting requirements and as trustees and their advisers learn from experience.”


The Reserve Bank of New Zealand (RBNZ) issued draft climate risk management guidance for financial institutions on March 29. 

This includes the recommendation that banks, insurers, and other financial organizations incorporate climate risks within their broader risk management frameworks. The guidance also proposes that entities develop climate scenario analysis and stress testing capabilities. Interested parties are invited to comment on the guidance up until June 7.

On March 27, the RBNZ described the findings of a climate stress test of New Zealand banks’ home loan portfolios. The exercise explored the potential effects of both coastal flooding and sea-level rise country-wide, as well as the likely impacts of a rainfall-induced flooding event in Auckland, New Zealand’s most populous urban area.

The results showed banks’ capital buffers could withstand flood-related losses. However, the RBNZ said more work is needed to understand how flood risk could interact with and exacerbate other financial risks, like those linked to an economic recession.

The Australian Sustainable Finance Institute (ASFI) published a final report on its recommendations for a sustainable finance taxonomy on March 23.

The taxonomy is intended to facilitate investment in activities that support Australia’s climate, environmental, and social objectives.

The Australian government has pledged to work hand-in-hand with ASFI and businesses to develop the taxonomy. Formal work on the taxonomy is expected to begin in mid-2023.

An official at the Monetary Authority of Singapore (MAS) said life insurers should have credible climate transition plans that reference science-based pathways for their investment portfolios. 

In a speech on March 21, MAS assistant managing director Marcus Lim also said insurers can help scale so-called blended finance to accelerate the net-zero transition. Blended finance is the use of public funds to incentivize private investment in sustainable development.

“I urge the industry to continue to push ahead with your efforts to address environmental risk as hesitation to act would be costly, both for yourselves and for the broader economy that you insure and finance,” said Lim.


The International Accounting Standards Board (IASB) launched a project to improve the reporting of climate-related financial risks on March 23.

The project will explore whether companies are meeting existing accounting requirements on reporting climate-related risks. It will also dive into whether investors’ climate-related information needs exceed the boundaries of traditional financial statements. 

The IASB effort will complement the work of the International Sustainability Standards Board (ISSB), which is currently finalizing its climate and sustainability disclosure standards. 

The IASB said the project may result in minor amendments to its accounting standards, though it will not generate a fully-loaded standard or comprehensive new guidance.

The Taskforce on Nature-related Financial Disclosures (TNFD) released the final beta version of its risk management and reporting framework on March 28. 

The framework, designed to help companies report on their financial risks linked to biodiversity loss and ecosystem destruction, is structured on the same four pillars as the Task Force on Climate-related Financial Disclosures (TCFD) — governance, strategy, risk management, and metrics and targets. The TNFD framework also incorporates all 11 of the TCFD’s recommended disclosures. 

The TNFD proposes a tiered approach to metrics, including “core global disclosure metrics,” “core sector disclosure metrics,” and “additional disclosure metrics.” 

Alongside the draft framework, the TNFD published additional guidance to help companies in four sectors and four ecosystems, including tropical rainforests, to understand and implement it. Over 1,000 organizations have joined the TNFD Forum, a consultative group helping to shape the framework, and 200 are currently piloting aspects of the framework. 

The beta framework is open for public consultation until June 1, and a finalized version of the framework is slated for September.

On March 29, the Integrity Council for the Voluntary Carbon Market (ICVCM) published a global benchmark to promote the development of high-quality carbon credits.

The Core Carbon Principles (CCPs) and Program-level Assessment Framework are intended to help carbon market participants identify projects that have a meaningful climate impact. 

To be eligible for CCP assessment, developers must provide detailed disclosures on the effectiveness of their projects and any of their impacts on Indigenous and local communities. 

ICVCM chair Annette Nazareth said the new rules will create a transparent, regulated-like market, where buyers can easily identify and price carbon credits that meet consistently high-integrity standards.