ESG disclosures, data product and ratings providers and 'greenwashing' will be in the regulatory spotlight in 2023, as financial regulators seek to implement measures aimed at improving the sustainability information made available to investors and to ensure that claims of being 'green', 'climate-friendly' and 'sustainable' stand up to scrutiny.
Channelling private capital towards sustainable investments, seen as integral to the success of 'sustainable finance' strategies, relies on 'decision-useful' disclosures along the investment chain. Consequently, in recent years there have been efforts to improve the quality of non-financial, 'ESG' or 'sustainability' disclosures produced by corporates, with many countries around the world, including the US, the EU and the UK, introducing more rigorous corporate sustainability reporting obligations, with more in the pipeline. In parallel with this, improving the quality of disclosures to investors has been high on the regulatory agenda – a trend that will continue in 2023. The EU led the way with the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, which require disclosure of the sustainability characteristics of investment products, to assist end investors in making more informed investment decisions. Now similar rules are proposed elsewhere, including in the UK and the US. In May 2022, the US Securities and Exchange Commission issued proposals for ESG disclosure rules and updates to the Names Rules. Meanwhile, the UK financial services regulator, the FCA, has recently consulted on a proposed regime for sustainable disclosure requirements and investment labels, known as the SDR, with a policy statement expected in June 2023 and the majority of rules to apply from June 2024. For firms, particularly asset managers with global businesses, 2023 is likely to be a year when the convergence of reporting standards and the interoperability between various disclosure regimes will be high on the agenda, as will the need to clarify key concepts underpinning the EU disclosure regime, with Q&A expected to be published by the Commission early in 2023.