Science & Technology

KPMG: ESG Tops Regulatory Demands in Finance While UK & EU Rules Diverge

KPMG’s Regulatory Barometer showed that financial service firms in the UK and the EU remained under significant pressure to comply with diverging ESG requirements over the last 6 months

ESG Tops Regulatory Demands in Finance

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According to the latest data from KPMG’s Regulatory Barometer released on Monday, delivering ESG and sustainable finance initiatives is currently the top priority for the financial services firms in the EU and UK. Meanwhile, the scale of the divergence between UK and EU regulations in this sphere remains significant.

KPMG Regulatory Barometer provides biannual insights aimed at helping global firms with compliance planning. The tool tracks the main regulatory pressures in the EU and UK, while also tracking the scale of the divergence between existing regulations.

This year, the average indicator of upcoming regulatory demands on finance rose slightly to 7, on a scale of 1 to 10, from 6.9 registered last October. However, the ESG-related demands greatly exceeded the average number, scoring 8.5 this February.

Both the EU and the UK have announced the upcoming regulation updates in the sphere. A new Green Finance Strategy from the UK Government is scheduled for Q1 2023. Meanwhile, the EU continues to push forward with its Sustainable Finance Action Plan and the European Green Deal.

Therefore, the financial firms in both regions feel increased pressure to comply with the ESG agenda. Thus, EBA, EIOPA, ESMA, BoE, PRA and FCA all have aspects of ESG and sustainable finance in their key priorities for the year.

Greenwashing remains the top regulators’ concern. It drives legislative initiatives on product labels, ESG data, ratings and corporate due diligence, reporting and disclosure standards, and associated assurance requirements.

Moreover, investment managers and financial advisers are increasingly expected to consider sustainability risks in their services, even when they do not offer or specifically advise on green products.

While the ESG aspects remain the top priority for FS providers in the EU and the UK, the divergence between the eurozone and British policies is expected to grow.

"As the UK forges ahead with new approaches post-Brexit, and regulators consider their new competitiveness objectives, firms will likely need to adapt to an increasingly different set of requirements in the UK versus Europe. The volume of emerging requirements for ESG and Sustainable Finance may lead to further divergence despite global standard-setters' best efforts."
Kate Dawson, a director at KPMG's regulatory insight centre

Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.