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Climate Risk Regulation Rundown: November 2022

December 6, 2022

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


The US Securities and Exchange Commission (SEC) charged Goldman Sachs Asset Management (GSAM) for failing to honor policies and procedures linked to three environmental, social, and governance (ESG) products.

In an order published November 22, the agency said GSAM will pay a USD$4mn penalty to settle the charges. GSAM’s failures concern two mutual funds and one separately managed account strategy. For one of these products, GSAM did not have any written policies and procedures for ESG research from April 2017 to June 2018, the SEC said. Once policies were put in place, GSAM did not follow them consistently until February 2020.

“In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG,’” said Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force. “When they do, they must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process, and then follow those policies and procedures, to avoid providing investors with information about these products that differs from their practices.”

The GSAM charge is the latest in a series of ESG-related enforcement actions conducted by the SEC this year. In May, the agency charged BNY Mellon Investment Adviser Inc. for misrepresenting how ESG factors influenced investment decisions for certain mutual funds. The company paid USD$1.5mn to settle the charges.

On November 22, the US Department of Labor (DoL) issued a rule that allows 401(k) workplace retirement plans to incorporate climate and other ESG factors into their investment decisions.

The rule overturns Trump-era DoL regulations that prevented plan fiduciaries from taking ESG concerns into account when choosing assets. Once in force, the rule will enable fiduciaries to consider an investment’s ESG factors on a level playing field with their other financial and economic characteristics. 

President Biden directed the DoL to draft the rule in his 2021 executive order on climate-related financial risk. He also instructed the department to identify any additional actions it could take to guard workers’ life savings and pensions from climate-related threats.

“Climate change and other environmental, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers,” said Lisa Gomez, a DoL official. She added that the rule should make workers’ retirement savings “more resilient” by “removing needless barriers” to investment. 


The European Central Bank (ECB) said banks have until March 2023 to analyze how climate and environmental risks could impact their activities. By the end of 2023, they must factor climate risks into their governance, strategy, and risk management processes. By the end of 2024, they must fully integrate climate change into their stress testing and internal capital adequacy assessments.

In a November 2 announcement, the central bank said the deadlines will be “closely monitored” and that “enforcement action” will be taken against laggards if necessary. The announcement accompanied the publication of the ECB’s thematic review of banks’ climate risks. The analysis found 96% of lenders have climate risk “blind spots” in certain sectors, geographies, and risk drivers. However, 85% have “at least basic practices” for most of the central bank’s climate risk expectations, the review added.

On November 22, the European Financial Reporting Advisory Group (EFRAG) submitted a first draft of 12 European Sustainability Reporting Standards (ESRS) to the European Commission.

If adopted, the ESRS will be used by over 50,000 companies to disclose sustainability-related information, which is required under the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD). The directive was passed into law by the European Parliament on November 10. It will go into effect for large companies in 2024.

The ESRS set out how companies should report on a range of sustainability issues, including climate change. The climate change-specific standards mirror the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), with rules covering organizations’ climate governance, strategy, risk management, and metrics and targets.

The European Commission will consider the draft ESRS in consultation with other EU bodies and member states. It’s scheduled to adopt the final standards in June 2023.

The three European Supervisory Authorities (ESAs) issued a call for evidence on greenwashing in the burgeoning sustainable investment market.

Published November 15, the call asks the public for information on potential greenwashing practices in banking, insurance, and financial markets. The ESAs are also interested in stakeholders’ views on how to understand greenwashing and what factors drive the practice. Any available data that may help the ESAs get a “concrete sense of the scale of greenwashing and identify areas of high greenwashing risks” is also welcome.

Financial institutions, retail investors, nongovernmental organizations, and consumer associations are all invited to participate. Responses are welcome until January 10, 2023. The ESAs say the evidence gathered will inform interim and final reports on greenwashing risks and sustainable finance policies that they’re compiling for the European Commission.

The three ESAs are the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority.

On November 18, the European Securities and Markets Authority (ESMA) published draft guidelines on the use of ESG- and sustainability-related terms in investment funds’ names. The move is part of the regulator’s broader efforts to stamp out greenwashing risks. 

The proposal says funds should only use ESG-related words in their names if at least 80% of their investments have environmental or social characteristics or sustainable investment objectives, as reported in their mandatory Sustainable Finance Disclosure Regulation (SFDR) disclosures. If a fund uses “sustainable” in its name it should meet the ESG fund name requirements and also ensure that half of its assets are sustainable investments, as reported in SFDR disclosures.

In the proposal, ESMA also asks stakeholders whether “minimum safeguards” should be introduced to stop funds from exaggerating their ESG credentials.

A consultation on the draft rules is open until February 20, 2023.

Data from the European Insurance and Occupational Pensions Authority (EIOPA) shows climate risks to European insurers are at a “medium level.” It also reveals that firms slowed the rate at which they added green bonds to their investment portfolios over the second quarter of this year.

The information was part of the latest version of EIOPA’s periodic Risk Dashboard, which was published November 4. The dashboard is based on regulatory data gathered under the EU’s insurance regulation, known as Solvency II. It covers 94 insurance groups and 2,198 solo insurance entities.

The UK Financial Conduct Authority (FCA) set up a working group to develop a voluntary code of conduct for ESG data and ratings vendors.

Announced November 22, the group is tasked with crafting non-binding rules that build trust in the ESG data and ratings market, protect market integrity, and support “effective competition.” The FCA says the code of conduct should include “clear, comprehensive and proportionate guidance for ESG data and ratings providers.” It should also build on the International Organization of Securities Commissions’ recommendations on ESG data and ratings.

The group will be co-chaired by asset manager M&G, financial data firm Moody’s, the London Stock Exchange Group, and law firm Slaughter and May. The FCA, the Bank of England, other financial authorities, and government departments will serve as observers of the group.

The information was part of the latest version of EIOPA’s periodic Risk Dashboard, which was published November 4. The dashboard is based on regulatory data gathered under the EU’s insurance regulation, known as Solvency II. It covers 94 insurance groups and 2,198 solo insurance entities.

The UK Transition Plan Taskforce (TPT) published a disclosure framework for private sector organizations that want to produce “gold standard” climate transition plans.

Released November 8, the framework identifies a range of actions and policies that companies should disclose — from their net-zero objectives to engagement strategies with clients and suppliers.

The TPT also produced implementation guidance that describes how companies should develop transition plans, as well as where, when, and how they should disclose them.

The framework is open for public consultation until February 28, 2023. Once completed, the UK’s Financial Conduct Authority will use it to set transition plan disclosure expectations for listed companies, asset managers, and asset owners.

On November 23, the Federal Council of Switzerland passed a law that will force banks, insurers, and large public companies to issue climate-related financial disclosures from 2024 onward.

The filings have to follow the recommendations of the TCFD, covering climate governance, strategy, risk management, and metrics and targets. In addition, companies must include “a [climate] transition plan that is comparable with the Swiss climate goals” with quantitative information, if possible.

The law applies to public companies, banks, and insurers with 500 or more employees and at least CHF 20mn (USD$21.2mn) in total assets or more than CHF 40mn (USD$42.45mn) in revenue.


The Australian Prudential Regulation Authority (APRA) published the findings of its first climate stress test of big banks on November 30.

The Climate Vulnerability Assessment (CVA) included Australia and New Zealand Banking Group, Commonwealth Bank of Australia, Macquarie Bank, National Australia Bank, and Westpac Banking Corporation. Each bank measured the impact to their lending portfolios of two scenarios: a “Delayed Transition Scenario” and a “Current Policies Scenario.” 

The results show that although climate physical and transition risks would likely increase bank losses over the medium to long term, altogether the financial hit would be “unlikely to cause severe stress” to the banking system.

However, APRA explained that the estimated losses across banks varied significantly, in part because of the different modeling approaches taken, the quantity and quality of data used, and their distinct portfolio mixes.

On November 1, the Reserve Bank of New Zealand (RBNZ) published the findings of its first climate stress test of the country’s banking system.

The test required banks to measure how exposed their mortgage portfolios would be to coastal flooding if sea levels rise in line with the Intergovernmental Panel on Climate Change’s estimates. The results showed “significant differences” in at-risk home loans by region. Assuming 50 centimeters of sea level rise, 22% of all at-risk home loans are located in Christchurch on New Zealand’s South Island, while 14% are located in Wellington, the nation’s capital. 

Banks’ exposures to at-risk properties are limited, though. Across all participating banks, just 2.5% of mortgaged properties are exposed to flood risks with 50 centimeters of sea level rise. Furthemore, the test suggests the risks to banks from heightened flooding are manageable. Four-fifths of current mortgages in at-risk flood zones have loan-to-value ratios below 60%, meaning borrowers would be able to handle a significant drop in their properties’ values before their outstanding loan principals exceed their homes’ worth.

Still, the RBNZ said lower-valued homes provide less security to banks if their mortgage borrowers default.

The State Securities Commission of Vietnam (SSC) signed a memorandum of understanding (MoU) with two overseas partners to promote ESG standards, practices, and requirements across the country’s financial sector.

The MoU links the SSC with the Swiss State Secretariat for Economic Affairs (SECO) and International Finance Corporation (IFC), a unit of the World Bank Group. The latter two will help SSC enhance its sustainable finance framework and build out the country’s market for green bonds, transition bonds, and sustainability-linked bonds so as to attract international investors.

The tie-up is the product of an IFC-SECO initiative called the Integrated ESG Program which helps regulators, investors, and real-economy companies in Vietnam manage their ESG risks.


The G20 supported plans to develop climate transition finance frameworks and improve the credibility of financial institutions’ net-zero commitments. 

In the G20 Leaders’ Declaration, released following the group’s summit in Bali on November 15-16, heads of state endorsed the 2020 G20 Sustainable Finance Report. The report, put together by a panel of G20 finance ministers and central bankers, outlined 22 transition finance principles that cover a range of topics — from the implementation of climate-focused investment taxonomies to the role of multilateral development banks.

The Financial Stability Board (FSB) said climate risks to the financial system are “likely understated” by scenario analyses.

In a report published November 15, the panel of global regulators summed up the findings of 67 planned and completed climate scenario exercises that were conducted by central banks and supervisors. The FSB concluded these exercises may underestimate how climate change could destabilize the financial system because of issues with their underlying methodologies and input data.

It recommended that financial authorities work together on a “common framework” for developing and running scenario exercises.

The International Sustainability Standards Board (ISSB) agreed that firms adopting its climate risk reporting rules would have to use climate-related scenario analysis to describe their resilience to physical and transition risks.

The board voted unanimously in favor of the requirement at a November 1 meeting. Guidance from the TCFD will be used to show companies how to approach climate scenario analysis, the ISSB added. At the very least, organizations reporting under the board’s standards will have to undertake a “qualitative” scenario analysis.

In November, the board also confirmed that reporting entities will need to consider the Sustainability Accounting Standards Board’s (SASB) standards when preparing disclosures in line with the ISSB’s general sustainability requirements. SASB was absorbed by the ISSB earlier this year as part of a broader consolidation of voluntary sustainability reporting initiatives.

On November 8, the ISSB announced that its climate disclosure standards would be incorporated by CDP, a nonprofit that runs the world’s largest environmental disclosure platform for companies, cities, and other entities. The ISSB said the move would facilitate “rapid accelerated early adoption” of its climate disclosures across the global economy. There are 18,700 companies that disclose information through CDP’s platform, representing half of global market capitalization.

Also on November 8, ISSB Chair Emmanuel Faber announced a ‘Partnership Framework’ to drive the adoption of its climate- and sustainability-related standards. Twenty partner organizations have so far joined the framework, including civil society groups, standard-setting bodies, and global accounting firms. Faber said the framework would help prepare reporting entities, investors, and other stakeholders for the incoming standards.

On November 9, the International Organization for Securities Commissions (IOSCO) issued recommendations for establishing “sound and well-functioning” carbon credit markets.

The publication covers both compliance carbon markets — like the European Union’s Emissions Trading System — and voluntary carbon markets (VCMs), which companies choose to be a part of. The recommendations focus on “regulatory and oversight frameworks” that can help compliance markets run smoothly, as well as the qualities that make for high-quality VCMs.

IOSCO also published regulatory priorities for shielding investors from greenwashing risks. These include supporting standards for sustainability disclosures, and pushing standard-setters and industry associations to distribute best practices for combating greenwashing in asset management, data services, and environmental, social, and governance ratings.

IOSCO is a standard-setting body for more than 95% of the world’s securities markets. Its membership is made up of regulators and financial authorities from 130 jurisdictions.