In a keynote speech at the recent Climate Risk and Green Finance Regulatory Forum 2021, Ashley Alder, the Chair of the International Organization of Securities Commissions (IOSCO) and Chief Executive Officer of Hong Kong’s Securities and Futures Commission (SFC), addressed the “urgent need to retool the financial system to address the threat of climate change.” According to Mr. Alder:

“we are now in a crucial few months which will set the direction for years to come.”

Mr. Alder proceeded to highlight key climate-related issues that IOSCO is now addressing at a global level, effectively outlining the future of climate risk regulation by securities regulators. In this Blog Post, we discuss some of the key statements from Mr. Alder’s speech that foreshadow regulatory initiatives to come, as well as practical takeaways for market participants.

Speaking as the Chair of IOSCO, Mr. Alder began by highlighting important climate-related international regulatory efforts already underway, including IOSCO’s own Sustainability Task Force, the NGFS and the EU’s International Platform on Sustainable Finance (IPSF). While these are “a good start”, he noted “a strong need for a more driven global effort” on the following issues:

Climate Disclosures

“One absolutely fundamental area where we can see the contours of a compelling regulatory outcome is to do with corporate-level climate disclosures.”

Mandatory climate-related disclosure regulation is likely to be a principal area of focus for many regulators in 2021 and beyond. According to the Sustainable Stock Exchanges Initiative, 24 securities exchanges already require ESG reporting as a listing rule, while 56 offer guidance on voluntary ESG disclosures. As climate change data becomes easier for companies to record and report, and investors continue to support calls for high quality ESG data, market participants can expect existing guidance on voluntary climate-related disclosures to become mandatory.

“As a start, a more substantive uptake of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) is essential.”

Mr. Alder’s strong support for the TCFD is no surprise. This voluntary framework could soon become the de facto global climate disclosure and risk management standard, as governments from the United Kingdom to Hong Kong commit to make the TCFD’s Recommendations binding regulatory requirements. For market participants looking to act on climate in 2021, the TCFD is a strong place to start.

“I also want to highlight the very important IFRS Foundation proposal to establish a new, global sustainability standard setting board alongside its existing International Accounting Standards Board.”

The IFRS Foundation is taking significant steps to address the current landscape of numerous climate and sustainability disclosure standards by moving toward an international sustainability standard-setting board. This proposal already enjoys the support of many of the world’s leading sustainability disclosure standard setters including the Global Reporting InitiativeClimate Disclosure Standards Board and Sustainability Accounting Standards Board, as well as government bodies in Hong Kong, the United Kingdom and the European Union.

Asset Management

“Securities regulators have a very firm handle on asset management firms and product disclosures because they register, license, authorise or regulate them directly. So this is an area where we can have major influence.”

In suggesting that IOSCO will focus climate efforts on licensed asset managers, Mr. Alder refers to the Hong Kong SFC’s recent consultation on climate risk requirements for fund managers. Among other things, the SFC proposes to require fund managers to integrate climate risk into investment management processes, adopt climate risk management processes and make specific climate-related disclosures. The Monetary Authority of Singapore recently launched a similar regulatory regime for asset managers, banks and insurers. As two of the leading financial centres in Asia are now addressing mandatory climate integration and disclosure requirements for asset managers, we expect additional regulators to consider similar regulation of licensed entities.

Third-party Data and Ratings Providers

“IOSCO is looking at the emerging risks associated with the growing role of ratings.”

The shortcomings of ESG data, including a lack of comparability and reliability, are well known. In a previous Blog Post, we discuss these deficiencies and a related call by ESMA, the EU securities regulator, to regulate the ESG ratings and assessment industry. Going forward, it seems likely that other IOSCO members will heed ESMA’s call and approach this relatively nascent industry with heightened scrutiny and new regulation.


“Of particular interest to us in Hong Kong is the EU’s and China’s project to develop a common taxonomy under the IPSF.”

While Mr. Alder notes the potential for harmonization of the EU and Chinese taxonomies via the IPSF, market participants should be aware of problematic regulatory fragmentation as other jurisdictions adopt unique national sustainability taxonomies. For example, Singapore is now consulting on a national taxonomy of its own, while Bank Negara Malaysia consulted on a national climate change taxonomy in 2019. As other regimes develop around the world, market participants should be mindful of gaps among the taxonomies in their jurisdictions of operation.


“As for incentives, setting a credible price on carbon, including a forward price, is a much discussed policy tool.”

While carbon pricing schemes can be politically controversial, Mr. Alder notes that two of the world’s three largest economies now have full-fledged emissions trading systems (ETS). In a previous Legal Update, we compare the EU ETS and China ETS and discuss related technological developments. Private investors participating in these two ETS schemes could soon increase calls for similar systems in other jurisdictions around the world, leading regulators to respond in kind.