Sustainable finance regulation will grow in all parts of the world with Europe continuing to lead, according to a report released Friday by ISS ESG.
The report from the responsible investment arm of Institutional Shareholder Services, The Depth And Breadth of Regulatory Initiatives Across Regions, looks at six key areas of sustainable financial regulation: taxonomies; product standards, disclosures and labeling; management and disclosure of climate risks; management and disclosure of ESG risks; ESG in stewardship; and green bond guidelines.
Europe is still the front-runner when it comes to regulating sustainable finance, but Asia and other regions are catching up, according to the report.
Regulatory initiatives "vary greatly in terms of bindingness, scope and prescriptiveness," with green bond guidelines and national or regional taxonomies the most widely used regulations, ISS ESG found.
"In the EU, both France and Germany have strong ambitions to be leading sustainable finance hubs, and are taking relevant measures. In Asia, Japan, India and Singapore address almost all the key regulatory topics discussed," the report said.
ISS ESG describes Russia as "a new player" with recent moves including a taxonomy and stewardship code with ESG factors. Brazil is at the forefront in Latin America, but Colombia, Mexico and Peru are making progress on taxonomies and ESG risk management disclosures.
In Africa, sustainable finance and regulations are just starting, but South Africa "sets itself apart" by working on taxonomy and ESG requirements for pension funds, the report said.
According to an International Monetary Fund Global Financial Stability Report referenced by ISS ESG, an estimated $20 trillion in new investments will be required by 2050 to achieve worldwide net-zero goals.
"Regulation plays an important role in promoting sustainability and fostering economic growth, while ensuring proper ESG risk management and preventing greenwashing," said Maximilian Horster, head of ISS ESG, in a statement with the report.