CFA Institute 10 February 2022

Global and Regional ESG Regulations and Standards: Implications for the Financial Services Industry

CFA Institute Alpha Summit APAC

Grace Hui Claudia Gollmeier CFA, CIPM Jason Norman Lee Michael Salvatico

Virtual Session: Video On Demand

Overview

CFA Institute Alpha Summit APAC, a two-day virtual conference focusing on the investment industry’s biggest challenges and most compelling trends across Asia Pacific, was held on 10-11 February 2022.

The number of ESG regulations and standards has grown worldwide in response to concerns of greenwashing as well as the potential systemic risks posed by climate risks. Initially many of the disclosure requirements were focused on the corporate sector. As corporate disclosures improve, we are seeing more emphasis on improving disclosures from the financial services industry, some through mandatory TCFD disclosures. This has brought about significant opportunities and challenges. How is the industry adapting to these changes? How can we address issues of regulatory fragmentation in a diverse region such as Asia Pacific? Are regulations necessary to ensure capital market integrity and efficiency?

Speakers:

Grace Hui, former head of Green and Sustainable Finance, Markets Division, Hong Kong Exchanges and Clearing
Jason Norman Lee, managing director, Legal and Regulations, Temasek
Michael Salvatico, head of Asia Pacific ESG Solutions, S&P Global Sustainable1.

Moderator:

Claudia Gollmeier, CFA, senior investment officer at Colchester Global Investors

Watch the Video

Length: 58 min. Recorded: 10 February 2022.

Synopsis

At CFA Institute Alpha Summit APAC, moderator Claudia Gollmeier, CFA, senior investment officer at Colchester Global Investors, hosted a panel discussion on key developments within the environmental, social, and governance (ESG) regulations and standards sphere. The contributors included Grace Hui, former head of Green and Sustainable Finance, Markets Division, Hong Kong Exchanges and Clearing; Jason Norman Lee, managing director, Legal and Regulations, Temasek; and Michael Salvatico, head of Asia Pacific ESG Solutions, S&P Global Sustainable1.

The panel’s insights are drawn from various viewpoints, including asset managers, stock exchange participants, and service providers. Together they offer a thorough overview of the development and evolution of sustainable-finance regulations within Asia, including an outline of differences in their application across the region. This wide-ranging discussion touches on the common-ground taxonomy, a framework that enables investors to align sustainable activities across the EU and China. According to Hui, this helps identify the commonalities and differences in the two regions’ approaches and outcomes. Among the other topics featured, the experts take a deep dive into the global carbon market, a critical mechanism for helping to achieve the transition to net zero.

Hong Kong SAR Enhances Its Governance Framework

Hui emphasises the scale of the challenge facing her own market, adding, “Most Hong Konglisted companies are state, family, or founder controlled. As such, investors have greater expectations that minority-shareholder interests are properly considered and safeguarded.”

She explains the implemented changes: “The most recent corporate governance amendments, which came into effect earlier this year, addressed board independence and diversity.” Hong Kong SAR businesses are now required to have a mechanism to ensure that independent views are available to their boards.

Investor Momentum Should Channel a Company's Sustainability Thinking

Salvatico shines a light on the importance of climate-risk reporting and disclosure aligned to the Task Force on Climate-Related Financial Disclosures (TCFD) standards. Even if companies or financial institutions do not yet face mandatory disclosure of their climate impacts, he argues, “these will be modelled anyway by investors.” Hence, it is better to control data with an organisation’s own reporting. He comments on the need to understand how regulations apply to different groups across Asia Pacific and the importance of tailoring solutions to local markets while remaining focused on the bigger goal.

Businesses Need to Take a Flexible Approach

Lee believes asset managers and other financial institutions should expect a “nonlinear” journey as they strive to meet global and regional ESG regulations and standards. He also stresses the need to cultivate sustainable capabilities and ESG knowledge from the top of organisations downward, in part through training as well as by “incorporating ESG elements into their everyday activities.”

He speaks of the need to engage with regulators to produce binding guidelines that reflect a consensus view.

Finding Common Ground in Taxonomy

Hui also refers to the need for consistency between China and the EU in terms of taxonomy and the agreed-upon approach. This effort started with an analysis of 80 activities across six sectors of the EU and China taxonomies. “The goal is not to create a common or a single taxonomy standard, but rather to provide an evolving tool that will help different parties understand the activities their respective taxonomies could cover,” says Hui.

Salvatico then explains how he weighs up local characteristics: “I’m part of the green finance industry task force in Singapore, which aims to understand the nuances of Singapore’s economy and the type of taxonomy that should apply.” Salvatico adds that he plays a role in an Australian sustainable-finance initiative, where one of the critical points on its road map is the creation of a local taxonomy.

Opinions on Carbon Markets

There was a lively discussion on carbon markets, with the panel members offering essential insights into how they view regulatory activity.

Salvatico provides clarity over the two different types of carbon market (voluntary and compliance), pointing out the various requirements between each. And Lee addresses the importance of carbon-market regulatory structures, noting that the design of these schemes will be critical, stressing the importance of selective regulation. Hui agrees, making it clear that developing an effective system requires education and improvements in the integrity of market participants.

CFA Institute: Setting Industry Standards

Gollmeier rounds out the proceedings by highlighting CFA Institute ESG disclosure standards for investment products, observing that this is an area that requires transparency, regulation, and standardisation.

Next Steps

To learn more about these central themes and stay abreast of ever-evolving ESG regulations and standards, please view the presentation here.

*It should be recognised that China refers to mainland China in this article.
*It should be recognised that Hong Kong SAR refers to Hong Kong, a special administrative region (SAR) of China in this article.

CFA Institute Alpha Summit APAC 2022

Virtual Sessions - Video On Demand:

Day 1:

Day 2:

Speakers

Grace Hui

Grace is a strategic visionary with more than twenty years of international and domestic banking and finance industry experience. From 2013–2021, she worked at Hong Kong Exchanges and Clearing Limited (HKEX), where she was the Chief Operating Officer of its Listing Division responsible for listing policies, structured products and debt securities, listing enforcement and accounting affairs. In early 2020, Grace founded HKEX’s green and sustainable finance department and subsequently launched HKEX’s STAGE, the first-of-its kind new sustainable finance information platform in Asia. She is currently an honorary adviser and a member of the Inspection Committee of the Financial Reporting Council, and a member of both the Regulatory Oversight Board and the Sustainability Committee of The Hong Kong Institute of Certified Public Accountants.

Claudia Gollmeier CFA, CIPM

Claudia Gollmeier, CFA, CIPM, Managing Director (Singapore) and Senior Investment Officer at Colchester Global Investors. As a Senior Investment Officer, Claudia manages global and emerging bond portfolios. She also conducts ongoing economic and ESG research. Before joining Colchester, Claudia held positions at UBS Reality investors and was a portfolio manager at Western Asset Management.
Claudia also chairs the PRI Sovereign Debt Advisory Committee, having previously been a PRI Fixed Income Advisory Committee member and chaired the PRI Sovereign Working Group. She is a member of the CFA UK ESG Working Group, which developed the first professional ESG qualification. In addition, Claudia sits on the CFA Institute ESG Verification Subcommittee.

Jason Norman Lee

Jason has more than 20 years of experience providing legal and regulatory advice across global financial markets. His specialities include complex derivatives, carbon trading, financial regulation, technology and data, commodities, and private equity. Jason’s career has seen him lead and manage restructurings, workouts, regulatory investigations, and compliance programs. In addition, he has spearheaded regulatory-change programmes across diverse business areas and geographies. Jason is qualified in four jurisdictions and has held positions at leading financial institutions in London, Singapore, and Sydney.

Michael Salvatico

Michael has spent the past decade providing sustainable solutions to investors, banks, corporates, regulators, governments, and academics. Before joining S&P Global Sustainable1, he led the Asia- Pacific ESG business development team at Trucost, also part of S&P Global. Michael regularly presents at events and is involved in ESG-focused initiatives, including the ASFI Technical Working Group and PRI Fixed Income Working Group. He holds a master’s degree in applied finance and investment from the Securities Institute of Australia and a bachelor’s degree in commerce from the University of New South Wales.