Ashley Alder, IOSCO board chair and CEO of SFC, Hong Kong SAR: part one

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Alder discusses the ongoing efforts of global market regulators to address the risks presented by climate change and the rapid evolution of digital assets

Ashley Alder talked with IFLR about global regulators’ key priorities during this eventful time. In the first part of the interview, published here, Alder emphasises the importance of the effort by the new International Sustainability Standards Board (ISSB) to create a global baseline for corporate climate disclosures. This will be a major advance to improve transparency, help achieve net zero targets and address significant concerns about greenwashing in the financial industry. The second part of the interview will feature Alder’s remarks on the regulation of crypto-assets and digital currencies.

What are IOSCO’s main priorities and key areas of work for the coming year?

There are three major areas. First is sustainable finance, and specifically climate. This mainly relates to the ISSB and the role of the International Organization of Securities Commissions (IOSCO) in potentially endorsing the ISSB’s new standards. The second area, which is accelerating fast, is crypto. And the third is about policies to address issues with non-bank financial intermediation—in other words, the financial sector outside traditional banking. That piece is complex, and we have been working on it together with the Financial Stability Board (FSB) since the March 2020 dash-for-cash episode, which exposed some vulnerabilities in the non-bank sector.

How has the Russian invasion of Ukraine and its consequences for the global economy shaped IOSCO’s agenda?

A lot has been said about deglobalisation and reducing external dependencies, and there are other drivers towards more dependable supply chains. But when it comes to the movement of capital, the situation is less clear. More importantly, when it comes to the community of regulators—both market regulators and central banks—the way we interact and cooperate has never been better. Our ability to work together to address cross-border, global issues is of a very high order.

By way of example, we held frequent calls after the invasion of Ukraine to discuss financial markets and the potential financial stability vulnerabilities that might arise. Everyone was contributing—which is partly because we all know each other well, across countries and organisations. The political fragmentation people claim to be seeing is not reflected in the way regulators have been cooperating.

You recently said this year would be “crunch year” for the ISSB and the evaluation of standards for endorsement by IOSCO. Can you expand on that?

The ISSB’s exposure drafts were issued in March of this year. This is the first time the ISSB put out something which needs to be assessed by the financial community as a whole, and IOSCO’s evaluation work continues. It is also crunch year in the sense that we always knew that the details of the standards, and implementation in particular, would be challenging and require a lot of work. At the same time, the US Securities and Exchange Commission is consulting on its proposals for corporate-level disclosures and the EU is also consulting on its own regulations.

What we obviously want to avoid is having three standards which are so different that disclosures are not comparable, and larger corporates operating cross-border would have to comply with three competing standards. We have made clear from an IOSCO perspective the need for the ISSB to operate as the global baseline which is sufficiently interoperable with the EU and the US approaches. That is essential, not least because the ISSB standards will be extremely important for emerging markets. We have to make sure this knits together to create an overall disclosure picture which is sufficiently comparable on a global basis.

There is also the question of implementation, which boils down to practicalities—including not just interoperability, but also data availability and proportionality. Climate disclosure depends on various categories of data being available and how the data is interpreted. Access to data is as important as the standards, which would be difficult to comply with if there is no existing data to inform the required disclosures. And an associated issue is proportionality. Smaller companies, in aggregate, may be significant in terms of climate impact and risk. What do they need to do? Is there a subset of standards or phase-in for them? These questions are equally important.

Implementation is always the hard part. That is what I meant by “crunch year”. We are now looking at how the ISSB might provide implementation guidance to sit alongside the standards. This would be more about the “how” of the way in which corporates comply. And then IOSCO may consider guidance to our membership on how regulators could phase in the standards. These are all under discussion at the moment.

How do you tackle the issue of different jurisdictions progressing at different speeds when it comes to climate initiatives?

Asia accounts for 50% of global greenhouse gas emissions, but so far emerging economies in Asia have not developed proposals for climate disclosures which are close to those being pursued in Europe. There is a great deal of willingness, but the question is to what extent can they look to a global baseline to accelerate the process. That is why the ISSB standards are important.

Corporate disclosure standards are critical for sustainable finance. Without them, it is very difficult for asset managers, banks and corporates to assess risks and fold climate issues into their strategies. As regulators, our position is that this information is certainly important in the context of net zero targets and transition: you cannot manage what you cannot measure. But in the broader context, our prime concern is about greenwashing. One of our major motives here is to make sure we have something similar to the traditional view, which is that you disclose what is material for investors and do not misrepresent your disclosures.

Finally, has there been much progress around a common ground taxonomy?

The second version of the International Platform on Sustainable Finance’s common ground taxonomy was released in early June. Basically, it takes what is common between the Chinese and European taxonomies for environmentally sustainable activities, and works out how that can be used as a baseline for other jurisdictions. This initiative was the result of a conversation we kicked off in Hong Kong about three years ago, with the overarching aim that aligning taxonomies as much as possible would provide a starting point for other countries. Of course, each country’s economy is different and may require modified taxonomies.

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