Various types of agreements and regulations have been made since ESG emerged in financial markets. Many institutions presented their ESG assessment and scoring methodologies and their approaches in incorporating ESG factors in the investment process. In this article, we explore how the financial community has addressed ESG in our evolving world.

• Paris Agreement, TCFD, and Disclosure

The Paris Agreement, an international framework for climate change issues, was adopted at the United Nations Conference of the Parties. It has set the goal of keeping the average temperature increase in the world below 2°C, at 1.5°C compared to that of the pre-Industrial Revolution era. Amid its adoption, the Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosures (TCFD). As guidance for every sector in the industry, the TCFD report recommends disclosing material climate-related information. TCFD was criticized for lacking business-centered scenarios. Following that, in 2019, it announced that they're considering more "business-relevant and accessible scenarios" to help take up the climate scenario challenge.

• Positive Impact

Principles of Positive Impact Finance, developed by the founding members of the Positive Impact Initiative, were released in 2017 to encourage investors to make active, responsible investments. The principles define Positive Impact Business & Finance as "that which serves to deliver a positive contribution to …three pillars of sustainable development (economic, environmental and social)" These principles aim at proposing tools to mitigate the negative impacts and increase the positive ones. United Nations Environment Programme Finance Initiative and other 28 banks from around the world also launched Principles for Responsible Banking in 2018. The Principles were aimed at defining the banking industry's role and responsibilities in shaping a sustainable future. By committing to the new framework, banks will align their business with the objectives of the Sustainable Development Goals (SDGs) and the Paris Agreement.

• Around the World

Worldwide, different nations have created their versions of policies to encourage domestic financial institutions to actively participate in ESG adoption. For example, Japan, being one of the most economically developed Asian countries, is slowly but surely creating a shift towards sustainable finance via multiple governmental organizations unifying and proposing solutions. In 2018, The Principles for Financial Action for the 21st Century were adopted by and with more than 280 signatories.

Australia has a Financial Initiative to establish a resilient economy while adhering to the ESG factors for better business operations. The Initiative was created out of industry discussions at the end of 2017, during the Financing of a Resilient and Sustainable Economic conference held in July 2018 in Sydney. They published progress reports and roadmaps for tech integration with finance to help institutions operate efficiently while maintaining the required regulatory standards.

ESG investments are being considered in the African continent as well. Although Africa is still considered an emerging market, surprisingly, the first ESG report was published back in the 90s when the mainstream hadn't even used the word ESG. Two decades later, despite various obstacles in social and governance factors, Africa is trying to catch up to the world's trend. Since the 1990s, the number of Africa-focused PE firms has grown from a dozen, managing about $1 billion, to more than 200 firms, managing more than $30 billion. Countries like China and Russia are also targeting their domestic financial community with ESG scoring, policies, and methodologies to establish a sustainable finance norm.

As for other regulations, financial institutions tackling ESG must deal with a multitude of datasets on a daily basis. OTCFin' s expertise can help as the firm has extensive experience in regulatory and financial data management and integration. Let us relieve your burden. Contact today to schedule a demo with us.

References

*https://www.responsible-investor.com/articles/tcfd-business-relevant-climate-scenarios
*https://www.unepfi.org/news/industries/banking/launch-of-the-public-consultation-on-the-principles-for-responsible-banking/
*https://www.sustainablefinance.org.au/
* https://www.ft.com/content/3da22096-d220-11e8-a9f2-7574db66bcd5