Since the global financial crisis of 2008, public awareness of corporate financial behaviours has increased significantly. The incorporation of environmental, social and governance (ESG) factors within the corporate landscape is a direct result of the public interest around a culture of sustainability, accountability and a financial system that is effectively governed.
With ESG fast becoming a global priority, financial regulators are adding ESG factors to their regulatory agenda. These regulatory developments are only the tip of the ESG iceberg.
What lies beneath is swathe of regulation, investment decisions, governmental and social expectations. Financial institutions must be adequately prepared to anticipate, analyse and implement this sea change of regulatory activity into their policy and control frameworks.
The three pillars of ESG
The term ESG spans the length and breadth of financial services, from consumer-driven investments and sustainability, to the diversity of company boards, and the reduction of carbon emissions. It comprises three distinct pillars, all of which are equally important to forming a holistic ESG policy.
The impact that a company has on the environment and on climate change, including its energy consumption, waste disposal practices, carbon emission levels and sustainability of investments.
The promotion of inclusivity, diversity, and equality within a company, and the treatment and safety of employees.
The manner in which a company governs itself, makes ethical decisions, deals with conflicts of interest, meets the needs of stakeholders, and complies with the laws of its jurisdiction.
Why does climate change matter for financial services?
Climate change and sustainable finance matters for financial services for myriad reasons. The motivating factors come mainly from a societal awakening around sustainability, climate change and diversity, paired with a shifting demographic of investors.
ESG regulation is not primarily investor-driven. Climate change presents a number of risks, not only those that threaten the environment. It poses physical risks to property and assets – which in-turn affects insurance claims and can lower collateral value. It also opens up the possibility of devaluation as old assets such as fossil fuels lose their value, in turn reducing the value of associated loans and investments.
How CUBE solves for ESG
We scan the horizon, so you don’t miss a thing
Powered by AI, CUBE scans every regulatory source from across the globe and captures, categorises, and explains it. We know the regulatory data that is relevant to you, so if you’re looking to expand your ESG inventory we can provide you with the earliest possible forewarning of relevant proposed and pending ESG regulations. This includes real-time developments, from speeches to blogs, consultations and bulletins, and everything in between. So as the ESG picture becomes clearer, you can keep one step ahead.
The devil’s in the detail
For now, the regulatory regime surrounding ESG is far from holistic. ESG requirements exist, but are often hidden within current, non-specific regulations. In the US, for example, the SEC’s 2010 climate guidance sets out a number of disclosure rules that imply climate-related disclosures. Regulation S-K’s item 101 and 407(h) could easily be interpreted to include climate-related disclosure rules. In the UK, the Financial Conduct Authority (FCA) has issued ESG-related disclosure rules, and has introduced the Green Finance Strategy. Globally, existing fiduciary duties for senior directors and boards could also be read to include ESG provisions.
CUBE has the world’s most comprehensive source of global regulations and uses sophisticated AI to break down each regulation to granular, sentence level. So we can find existing ESG provisions, without lifting a finger.
Meeting emerging regulatory standards
While regulatory standards for ESG continue to emerge, CUBE has got you covered. CUBE is built with change in mind, it’s in our DNA. As global regulatory ESG standards develop, CUBE is ready to harness these changes and create a purpose-built regulatory Ontology to provide a global view of ESG financial regulation, classified at a level of granularity that allows for precise mapping to your existing policies and controls.