Securities regulators from growth and emerging markets today published a report that sets forth recommendations related to the development of sustainable finance in emerging markets and the role of securities regulators in this area.
IOSCO's Growth and Emerging Market Committee (GEMC) today published the report Sustainable finance in emerging markets and the role of securities regulators, which provides 10 recommendations for emerging market member jurisdictions to consider when issuing regulations or guidance regarding sustainable financial instruments. Among other things, the recommendations include requirements for reporting and disclosure of material Environmental, Social and Governance (ESG) specific risks, aimed at enhancing transparency.
The report explores the trends and challenges that influence the development of sustainable finance in emerging capital markets. It also provides an overview of the initiatives that regulators, stock exchanges, policy makers and others key stakeholders in emerging markets have undertaken in this area. The report identifies the pre-requisites for creating an ecosystem that facilitates sustainable finance, such as an appropriate regulatory framework and fit-for-purpose market infrastructure, reporting and disclosure requirements, governance and investor protection guidelines and mechanisms to address needs and requirements of institutional investors.
Given the global nature of sustainable instruments, the GEMC believes its recommendations will benefit both issuers and investors by improving the consistency of regulation of sustainable finance in emerging markets. It encourages its members to consider implementation of this guidance in the context of their legal and regulatory framework, given the significance of the associated risks and opportunities.
The recommendations fall into the following categories:
- Integration by issuers and regulated entities of ESG-specific issues in their overall risk assessment and governance (Recommendation 1);
- Integration by the institutional investors of ESG-specific issues into their investment analysis, strategies and overall governance (Recommendation 2);
- ESG-specific disclosures, reporting and data quality (Recommendation 3);
- Definition and taxonomy of sustainable instruments (Recommendation 4);
- Specific requirements regarding sustainable instruments (Recommendations 5 to 9); and
- Building capacity and expertise for ESG issues (Recommendation 10).
Marcos Ayerra, Co-chair of the GEMC Working Group on Sustainability in Emerging Markets (WGS), and Chair of the Comisión Nacional de Valores, Argentina, said: “The report seeks to help securities regulators understand and address the issues and challenges impacting the development of sustainable finance in capital markets. Its conclusions highlight the important role that regulators can play in promoting sustainable finance as a driver of long-term economic development in emerging market jurisdictions.”
Syed Zaid Albar, Co-chair of the GEMC WGS and Chairman of the Securities Commission Malaysia, said: The GEMC report is a valuable resource for emerging market regulators seeking to facilitate sustainable finance and long-term value growth in their jurisdictions. The report offers recommendations that can help regulators in emerging markets develop key aspects of sustainable finance, including transparency and disclosure of material ESG risks.”
