The 2022 United Nations Climate Change Conference saw global leaders, activists and thinkers come together in Egypt. Hundreds of discussions took place, with millions around the world following to understand the current issues and proposed solutions to these.
The Novatus ESG team have followed COP-27 closely, and paid particular attention to the EU Side Events, where regulations and standards designed to tackle climate change were in the spotlight. Here we have summarised the three events that we believe will have a big impact on our clients and network in the near future.
If you would like to discuss any of the topics raised in our summary, please get in touch with Coralie Nelson. Our ESG team are ready to help you navigate any issues.
EU ESG disclosures and the European Sustainability Reporting Standards (ESRS)
Following the submission of draft European Sustainability Reporting Standards (ESRS) to the European Commission by EFRAG, now more than ever, it is crucial for firms operating in the EU to be aware of upcoming changes to their reporting obligations.
This event, hosted by the Director of Financial Markets at FISMA, outlined recent progress made by the EU on sustainability reporting, with a particular focus of climate-related reporting. It included a deep dive on the push for interoperability between the proposed ESRS framework and existing ISSB standards and states that firms should expect a joint public announcement between EFRAG and the ISSB on this subject in the coming months.
As the CSRD is phased-in, firms with a presence in the EU will have to comply with increasingly complex sustainability disclosure requirements and the team at Novatus Advisory can support firms in adapting to this fast-changing regulatory landscape.
N.B. The EU defines large companies as having greater than 250 employees NFRD website CSRD website ESRS website Management of climate risks and the treatment of green investments
This side event gave an overview of current EU supervisory initiatives on the management of climate-related risk in the financial sector. Featuring presentations from the EIOPA (European Insurance and Occupational Pensions Authority), EBA (European Banking Authority), ECB (European Central Bank), and European Commission it outlined best practices for firms and set out the future plans of the major EU supervisory authorities.
Key Findings:
The EIOPA's mandate has been expanded to include greater consideration of climate-related financial risks.
The Climate Resilience Dialogue has been established to reduce the size of the insurance protection gap.
A 2021 EBA climate risk scenario analysis found that 60% of major EU banks faced a high level of climate-related transition risk and that data limitations remained the biggest barrier to action in the financial sector.
A 2022 ECB climate risk stress test found that 59% of major EU banks have not yet integrated climate-related financial risk into their stress-testing framework.
A 2022 ECB gap analysis assessed the climate-related financial disclosures made by major EU banks. It assessed 45% of these disclosures as insufficient and found that 1/3 of participating institutions do not transparently disclose their exposure to climate risk in line with their internal materiality assessments.
The European Commission will amend Solvency II to include greater consideration of climate-related financial risks.
Regulators are unanimous in stating they have no intention to introduce climate-related capital requirements.
The GFANZ (Glasgow Financial Alliance for Net Zero) is a group of leading financial institutions launched at COP-26 with the goal of ensuring the 1.5°C objective of the Paris Agreement is achieved. This side event presented the findings of a joint EBF (European Banking Federation) and EY report on the progress made towards GFANZ objectives in the European banking sector in the light of new macroeconomic developments like COVID-19 and the Russo-Ukrainian conflict. The report contains the results of a survey of 27 major European banks across 18 jurisdictions and it is complemented by the existing EY Climate Barometer which provides an overview of the current state of global climate risk disclosure practices by examining disclosures from over 1,504 companies, covering 13 exposed sectors across 47 countries.
Key Findings:
7% of respondents to the EBF/EY survey have yet to start the process of embedding climate risk into their operations.
The EY Climate Barometer finds that:
77% of global banks are producing climate-related disclosures, increasingly based on TCFD recommendations.
49% of companies had conducted scenario analysis.
The most referenced scenarios were RCP 8.5 and RCP 2.6.
The most referenced time horizons were 2040-50.
61% of companies disclosed decarbonization strategies.
29% of companies referenced the financial impact of climate change in their statements.