By Margarita Pirovska, Director of Global Policy, PRI
2023 marks ten years since the PRI first started working on sustainable finance policy. And what a year it was. With a record 60+ consultations, statements and letters on sustainable finance policy reforms, our team has continued to champion the role of sustainability in financial regulations across key capital markets, clarify how investors can pursue sustainability outcomes and scale up climate policy reforms.
The economic transition to net zero
The most-attended COP in the history of climate negotiations culminated with an unprecedented call to phase out fossil fuels. This illustrates the current trend of policy reform: recognising that the transition to net zero should be a central feature of economic policy. Since the US government published the Inflation Reduction Act in 2022, other countries have followed suit, including Japan with the GX strategy, the Net Zero Industry Act in the EU, and the UK’s guidance on transition plans. Australia’s draft Sustainable Finance Strategy provides a comprehensive framework for reducing barriers to investment in sustainable activities, including net zero transition planning.
The PRI is now examining the social implications of the transition and working on in-depth country transition reports. Our first in this series will focus on Japan and will build on the success of our policy events at PRI in Person.
In his keynote speech [at PRI in Person], Japanese Prime Minister, Fumio Kishida, highlighted impact investing as a key priority.
Success for our Japan policy work at PRI in Person
Holding PRI in Person 2023 in Tokyo helped us build strong engagement with key Japanese policymakers. Prior to the event, Japan’s Ministry of the Environment published a statement of endorsement for PRI in Person 2023, which referenced our Legal Framework for Impact (LFI) project and the importance of investing for sustainability impact. In his keynote speech, Japanese Prime Minister, Fumio Kishida, highlighted impact investing as a key priority, and announced the launch of the Impact Consortium, which will serve as a platform for broad stakeholders to progress discussions on sustainability impact. He also announced that by the end of 2023, the FSA would create a “Dialogue on Enhancing Sustainability Investment Products”, covering the Japan Climate Transition Bond among others. He noted a commitment to “strengthen the function of finance that encourages sustainability outcomes”.
In 2024, we will be looking forward to re-convening investors and policymakers at PRI in Person in Toronto, 8-10 October.
Sustainability and investment goals
The Legal Framework for Impact project, led jointly with UNEP FI and the Generation Foundation, provided important input into policy reforms, such as updated investment governance guidance for superannuation fund trustees (SPG 530) by APRA in Australia in July 2023. For the first time, this guidance set out clear expectations for trustees to demonstrate how they integrate ESG factors (including market-wide or system-level risks) in their investment analysis, decision-making and governance. The updated guidance also clarified that superannuation funds can set environmental and social impact objectives where that is consistent with the outcomes the funds seek for their beneficiaries. In the UK, we also welcomed the FCA’s Sustainability Disclosure Requirements (SDR) Policy Statement, which sets clear regulatory standards to support investor disclosure on sustainability claims.
In 2024, we will publish new research on the progress made by different jurisdictions on standards and guidance to clarify when investors’ legal duties enable or require them to pursue sustainability impact goals.
Standardised data
With the ISSB standards S1 and S2 published in 2023, we look forward to the first batch of reporting against the global standard in 2024. As a reminder, PRI supports the widespread adoption of ISSB in national disclosure regulations and urges all signatories to sign our supporting statement.
We have seen progress in Australia, where the government has announced that it will introduce ISSB-based mandatory climate related disclosure standards from 2024 onwards. In China, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) issued the ESG reporting framework and reporting template for listed SOEs, which will effectively enhance the ESG information disclosure for state-owned enterprises (SOEs). However, more efforts and collaboration across ministries are still needed to establish a mandatory corporate disclosure framework for all listed companies. We expect the newly launched ISSB Beijing office will effectively support development on this front. In Hong Kong, HKEX is also working on enhancing climate disclosure under its ESG framework and plans to integrate the expected ISSB Adoption Guide.
Although there has been no public commitment to a timeline in Canada, climate risk management disclosure will become mandatory for private entities subject to the Canada Business Corporations Act, and the Canadian Securities Administrators will likely implement climate risk disclosure for publicly traded issuers. We also expect the US SEC climate disclosure in the first half of 2024.
A major nature policy milestone for 2024 will be the Convention on Biological Diversity – COP16 – scheduled for October-November 2024.
Important progress in nature policy
Following almost two years of stakeholder consultation across four beta versions, the PRI welcomed the release of the Taskforce for Nature-related Financial Disclosures’ (TNFD) final recommendations. Launched on 18th September during Climate Week in NYC, the TNFD represents the most significant risk management and disclosure framework to report and act on evolving nature-related risks to date.
In 2024 we will be taking our work on nature policy forward with the new PRI initiative, Spring. We also look forward to seeing the Nature Restoration Law continue to make progress following its adoption by the EU in 2023.
A major nature policy milestone for 2024 will be the Convention on Biological Diversity – COP16 – scheduled for October-November 2024. By then, parties are expected to have revised their National Biodiversity strategies and aligned their action plans with the Kunming-Montreal Global Biodiversity Framework’s goals and targets.
What else to look out for in 2024
In the new year, we will be supporting the Taskforce on Net Zero Policy, launched at COP28, and its aims to implement recommendations made in the UN HLEG report, Integrity Matters. The taskforce is expected to report on progress at COP29 in Baku in late 2024.
We will also continue contributing to the EU Platform on Sustainable Finance, as the European Commission current mandate is coming to an end, with European elections taking place in June 2024. In March, the PRI will publish a roadmap for the upcoming Commission on delivering the transition to a sustainable economy. In the UK, we look forward to the development of a UK Green Taxonomy, outputs of the Transition Plan Taskforce (TPT), and the UK’s adoption of ISSB standards. We hope that greater synergies between sustainable finance tools will be supported by equally ambitious steers from the UK government.
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The PRI blog aims to contribute to the debate around topical responsible investment issues. It is written by PRI staff members and occasionally guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view.
