Climate Risk Regulation Rundown: May 2023

June 8, 2023

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


Commissioner Mark Uyeda of the US Securities and Exchange Commission (SEC) warned that the agency may become the “global police” for environmental, social, and governance (ESG) issues. 

In a speech before the Managed Funds Association on May 16, Uyeda said the SEC may increasingly prosecute non-US companies for misleading or incomplete sustainability-related disclosures — irrespective of their financial materiality. He cited the agency’s enforcement action against Brazilian mining firm Vale in 2022, which followed the fatal collapse of one of its dams. “Instead of satisfying itself that Brazilian authorities were appropriately taking the company and its executives to task, the SEC touted its initiative to “identify material gaps or misstatements in issuers’ ESG disclosures, like the false and misleading claims made by [the company],” said Uyeda.

The commissioner cautioned that this assertion of US regulatory primacy could lead to foreign companies retreating from US activities and restricting US investment or reciprocal actions from foreign countries.

In a May 11 speech, US Federal Reserve Governor Christopher Waller said he does not believe climate change “poses a serious risk to the safety and soundness of large banks or the financial stability of the United States.”

He argued that the evidence he’s seen so far suggests that climate-related physical risks, like hurricanes and wildfires “don’t have much of an effect on bank performance.” With regards to transition risks, Waller said “they are neither near-term nor likely to be material given their slow-moving nature and the ability of economic agents to price transition costs into contracts.”

Waller added: “I don’t see a need for special treatment for climate-related risks in our financial stability monitoring and policies. As policymakers, we must balance the broad set of risks we face, and we have a responsibility to prioritize using evidence and analysis. Based on what I’ve seen so far, I believe that placing an outsized focus on climate-related risks is not needed, and the Federal Reserve should focus on more near-term and material risks in keeping with our mandate.”

Waller was speaking at an event hosted by the Spanish central bank in Madrid.

The US Environmental Protection Agency (EPA) proposed new carbon pollution standards for coal and natural gas-fired power plants on May 11. The standards aim to reduce carbon dioxide emissions by up to 617 million metric tons through 2042. 

The guidelines include stricter emission limits for fossil fuel-fired steam generating units and new facilities, requiring operators to adopt carbon capture and hydrogen fuel technologies. The standards support President Biden’s climate policy, which targets a 50-52% reduction in US emissions from 2005 levels by 2030.

On May 3, Oklahoma State Treasurer Todd Russ released an initial list of financial institutions allegedly boycotting energy companies due to their climate policies.

Firms on the list — including BlackRock, JP Morgan, and State Street — may be barred from managing state pension funds’ money and doing business with Oklahoma state entities. The list follows the passage of the Energy Discrimination Elimination Act in 2022, which requires the treasurer to identify institutions prejudiced toward fossil fuel companies. Oklahoma state entities have 30 days to report investments in the listed companies, which have 90 days to cease boycotting energy firms to avoid divestment.

Canadian legislators from multiple parties, led by Liberal MP Ryan Turnbull, backed a motion urging the government to align the country’s financial system with the Paris Agreement’s aim of limiting global warming to below 1.5°C. The group seeks to use “all legislative and regulatory tools at its disposal” to ensure banks, insurers, and pension funds invest in climate-focused initiatives.

As of May 17, a total of 13 MPs from the NDP, Bloc Québécois, and Green parties had seconded the motion.


The European Commission (EC) has signaled it will loosen its European Sustainability Reporting Standards (ESRS) for the 50,000 European companies that are required to disclose climate-related and environmental, social, and governance information under the Corporate Sustainability Reporting Directive (CSRD).

Various media outlets have reported that the EC wants to shift all ESRS mandatory indicators, which include greenhouse gas (GHG) emissions disclosures, into the scope of a materiality assessment. This means they only need to be reported if a company concludes that an ESG or climate factor is meaningful to them.

Reuters reported that the decision came in response to concerns from some EU lawmakers about increased bureaucracy from the bloc’s ‘green deal’ reforms. The EC is set to put a revised version of the proposed ESRS to public consultation in June.

On May 3, the European Council agreed on a negotiating position to amend laws surrounding companies’ environmental claims, aiming to strengthen consumer rights and ban generic “eco-friendly,” “green,” and “climate neutral” labels. The proposed changes to the EU’s Unfair Commercial Practices Directive and the Consumer Rights Directive were initially suggested by the European Commission in March 2022 to empower and protect consumers during the low-carbon transition. With the council’s adopted position, formal negotiations can now begin with the European Parliament to finalize the amendments.

On May 23, the European Council and European Parliament struck a provisional agreement on the creation of the European Single Access Point (ESAP), aimed at centralizing and digitally streamlining access to financial and sustainability-related information of EU companies and investment products. ESAP will surface sustainability and climate data mandated for public disclosure under existing European rules and regulations. ESAP is intended to enhance decision-making for investors and to further integrate financial services and capital markets within the EU. The platform is set to launch in summer 2027.

On May 25, the three European Supervisory Authorities (EBA, EIOPA, and ESMA) submitted draft standards to the European Commission on environmental, social, and governance (ESG) disclosures for securitizations. These aim to give securitization investors insights into the sustainability profile of their underlying assets. Securitizations are groups of assets packaged together into interest-bearing securities. 

The technical standards are aligned with the EU’s Sustainable Finance Disclosure Regulation (SFDR), which sets out mandatory sustainability indicators, such as energy efficiency and additional indicators, like emissions.

The standards would apply to securitizations identified as Simple, Transparent and Standardised (STS) under EU’s Securitisation Regulation (SECR) and only to those investments where the underlying exposures are residential loans, auto loans, and auto leases.

The European Securities and Markets Authority (ESMA) launched its fifth stress test exercise for central counterparties (CCPs) on May 31. Fourteen EU-authorized CCPs and two UK CCPs are participating. CCPs are financial institutions that sit in between securities and derivatives trades made by banks, asset managers, and other entities.

The stress test will examine CCPs’ resilience to a wide range of risks, including climate risk. Specifically on climate risk, the exercise will analyze how CCPs’ business models may be affected by a low-carbon transition, how the transition could affect the value of collateral held by CCPs, and the impacts of physical risks on CCPs’ operations.

The results will be published in the second half of 2024.


The Australian Securities and Investments Commission (ASIC) revealed it took action in 35 greenwashing cases between July 1, 2022, and March 2023. 

In a report published May 10, the regulator says it has addressed potentially misleading disclosures on topics like net-zero statements, terminology such as “carbon neutral,” “clean,” and “green,” and the scope of investment exclusions and screens. The actions followed a comprehensive review by ASIC on fund disclosures, investment processes, and ESG-related disclosures for raising capital from retail investors.

The Bank of Japan (BoJ) published a climate report aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) on May 29.

The report describes the bank’s various climate initiatives across monetary policy, financial supervision, research, international finance, business operations, and external communications. Of note, the BoJ has introduced a “fund-provisioning measure” to support green investment by the private sector and has taken steps to identify climate risks to the financial system. It’s also stepped up its purchase of green bonds issued by foreign governments.

Regarding financial stability, the BoJ says it has been conducting “in-depth discussions with financial institutions on their efforts to address climate-related financial risks and on their engagement with corporate customers in pursuit of decarbonization.” It is also encouraging financial institutions to run climate scenario analyses, taking into account its own pilot scenario exercise conducted last year, as well as international best practices. 

In a May 31 speech, Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), emphasized the importance of blended finance for achieving a low-carbon transition. 

Menon highlighted the need to facilitate the decarbonization of emerging markets and developing economies, which face fiscal constraints, limited access to private capital, and projects that are not “bankable” — meaning they pose a risk to lenders. He said one solution would be the development of “synergistic” public-private financing partnerships, where state actors provide initial capital and assume some of the risk of big ticket transition projects, while private financial institutions provide the rest of the funding to complete them.

“We need to make every dollar of public capital count. We need blended finance. Catalytic and concessional funding from the public sector, multilateral development banks, and philanthropic sources can potentially enhance project bankability and help to crowd in private capital,” said Menon.

He was speaking at the opening of the third edition of the Green Swan Conference, a summit on climate risk and green financing co-hosted by MAS, the Bank for International Settlements, the Central Bank of Chile, and the South African Reserve Bank.

The Reserve Bank of India (RBI) published a report on May 3 outlining policy responses to advance the country’s net-zero plan. 

It recommends the introduction of a broad-based carbon pricing system in line with global best practices and emphasizes the “urgent need” for a green taxonomy to identify sustainable assets and activities.

 “[C]learly spelling out what constitutes green can, inter alia, help direct investment through better-designed policies and improve the monitoring of progress,” the report says.  


The Group of Seven nations endorsed the International Sustainability Standards Board’s (ISSB) upcoming climate and sustainability disclosure standards in a May 20 communique

The G7 leaders encouraged countries to prepare for the implementation of the baseline standards and to make them interoperable with other national and regional disclosure requirements. This is in order to promote consistent climate and sustainability data worldwide. 

The G7 also called for a practical, flexible, and proportionate sustainability reporting baseline for small- and medium-sized enterprises.

The International Sustainability Standards Board (ISSB) launched a consultation on May 4 seeking input on its priorities for the next two years. 

Stakeholders are asked to consider four potential projects: a sustainability-related research effort focused on biodiversity, ecosystems, and ecosystem services; a separate research effort on human capital; another on human rights; and a fourth project centered on integration in reporting. These projects were selected based on investor interest and issues with current corporate sustainability disclosure practices. The consultation will close on September 1, 2023.

On May 24, the Network for Greening the Financial System (NGFS) invited risk modeling teams to express their interest in developing short-term climate scenarios.

These short-term scenarios would accompany the NGFS’s existing long-term climate scenario framework. With a primary objective of understanding the immediate impacts of a disorderly low-carbon transition and natural disasters on the financial system, the NGFS seeks to develop advanced macroeconomic models that offer detailed variables at global, country, and sector levels. Interested teams have until June 15, 2023 to express their interest in participating in the project.

On May 31 the NGFS published a stocktake on climate transition plans, describing the various ways they are being used by financial supervisors and institutions to assist with decarbonization efforts and climate risk assessments. 

The report explains that the NGFS will engage with international authorities and standard setters — including the Financial Stability Board, the Basel Committee on Banking Supervision, and the International Organization of Securities Commissions — to harmonize transition plan standards going forward.

The Financial Stability Board (FSB) hosted regional consultative group meetings in Europe and the Americas to debate key risks to the global financial system, including climate change.

Specifically, the group meetings discussed the use of climate scenario analysis in assessing, supervising, and regulating climate-related financial risks and their role in transition planning. They also touched on the inclusion of physical and transition risk in financial stability assessments.

The Europe meeting took place on May 23 in London, and the Americas meeting took place in Toronto on May 26.

On May 10, the Principles for Responsible Investment (PRI) announced its 2023 reporting window would open from June 14 to September 6. During this period, the over 5,000 PRI signatories — including asset owners, asset managers, and service providers — are encouraged to upload climate and ESG-related indicators to the group’s online portal.

The International Capital Market Association (ICMA) and the Luxembourg Stock Exchange launched a new sustainable bond database on May 17. 

The database includes information on over 8,700 listed green, social, sustainability, and sustainability-linked (GSSS) bonds from more than 2,100 issuers. It is publicly available on the ICMA’s website. The objective of the database is to increase transparency around sustainable debt markets and facilitate access to reliable and meaningful sustainable bond issuer data.