In the Asia-Pacific region, the global push towards sustainable finance has created one of the most dynamic regulatory environments in recent memory. The region’s economic opportunities and challenges have led national regulators to adopt varied and sometimes divergent standards.
For the evolution of sustainable finance regulation in 2020, we expect national regulatory frameworks to continue to develop. In the last decade, governments and regulators began putting in place measures such as Indonesia’s Roadmap for Sustainable Finance (2014) and China’s Guidelines on Establishing the Green Financial System (2016). In 2019, Securities Commission Malaysia published its five-year roadmap to become a regional leader in sustainable and responsible investment, while the Hong Kong Monetary Authority announced a long-term, three-phased approach to promote the development of green finance.
Certain countries have launched green development funds. By the end of 2016, there were 215 green industry funds registered by provinces and cities in China; and in 2019, Singapore followed suit by establishing a $2 billion green investments programme to place funds with asset managers that have a strong green focus.
The Australian Sustainable Finance Initiative is set to publish a national roadmap for the development of sustainable finance regulation. We expect this trend to continue throughout 2020.
The US Securities and Exchange Commission is investigating the investment processes of asset management firms with an ESG focus with a view to detecting and preventing greenwashing. Currently, most Asia-Pacific jurisdictions require listed companies to make ESG disclosures predominantly on a voluntary or comply-or-explain basis. We expect to see a move towards mandatory ESG disclosures.
The Hong Kong Stock Exchange has announced that it would enhance numerous aspects of its ESG reporting regime beginning in July 2020 and the Hong Kong Securities and Futures Commission (SFC) mandated enhanced disclosure requirements for ESG-focused funds in order to prevent greenwashing. China is also poised to move from a voluntary approach to ESG disclosure to a mandatory regime.
As standards and practices around ESG integration develop, we expect regulators to take a view and issue useful best practices guidance for the integration of ESG factors into business operations, including asset management functions.
The final quarter of 2019 saw such guidance from regulators in Hong Kong, Vietnam and the Philippines, with the Hong Kong SFC issuing the results of an ESG-focused asset management survey. The State Bank of Vietnam has directed Vietnamese banks to include ESG factors in credit risk analyses and establish dedicated ESG analysis units by 2025, and Bangko Sentral ng Pilipinas announced plans to phase in requirements for banks in the Philippines to integrate ESG factors into corporate and risk governance frameworks, as well as business strategies and operations. Market participants can expect more practical guidance from regulators in 2020.
By Mark Uhrynuk, corporate and securities partner; Norah Mugambi, associate and knowledge manager; and Alexander Burdulia, registered foreign lawyer, at Mayer Brown
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