Over the past six months, financial firms in the United Kingdom and the European Union have faced significant pressure to comply with diverging environmental, social, and governance (ESG) rules, according to KPMG’s Regulatory Barometer, released on Monday.
he KPMG Regulatory Barometer aims to help firms identify the key areas of pressure across the evolving UK and EU regulatory landscape and measure the impact of the likely change. It identifies nine key regulatory themes and assigns each of them a regulatory impact score based on attributes such as volume of regulatory updates, complexity and time to implementation.
KPMG analysis highlights that ESG and sustainability issues continue to be at the top of regulatory agendas – the EBA, EIOPA, ESMA, BoE, PRA and FCA all have aspects of ESG and sustainable finance in their key priorities for the year. Greenwashing concerns are paramount and are driving regulatory initiatives on product labels, ESG data and ratings and corporate due diligence, together with the ongoing development of reporting and disclosure standards, and associated assurance requirements.
Investment managers and financial advisers are increasingly expected to consider sustainability risks in their investment and advice processes, even when they do not offer or specifically advise on green products. The measurement and management of climate-related risk has moved largely into business as usual supervision for banks and insurers, although further progress is required. New requirements for transition plans are emerging and will place additional pressures on firms already grappling with existing disclosures. And nature and biodiversity are sharply in focus both from a risk management and disclosure perspective.
ESG and Sustainable Finance again has the highest regulatory impact score across the key themes. The pressure on firms should be expected to persist as disclosure requirements are implemented, supervisors increase their expectations around climate risk and developments on taxonomies, ESG data and ratings, product labels and carbon markets ramp up. The slight drop in score reflects initiatives that have not moved to implementation due to delays in issuing final policy/legislation e.g. taxonomies.