Sustainable Finance Gets Organized

S Securities and Exchange Commission, or SEC for short. We go through some important aspects of the proposed rules and how this might play out in the coming weeks. We also discussed the EU taxonomy for sustainable activities and some of the recent updates regarding nuclear and gas. And we're going to end today's show with an overview of the

Glasgow Financial Alliance for Net Zero. The next episode following this one will be part of a special series with external guests from our b NF summits and will include an interview with Mark Karney, the chair of the Glasgow Financial Alliance for Net Zero or g FANS for short. Note that b and EF does not provide investment or strategy advice, and a complete disclaimer can be found at

the end of the show. If you want to read more of b NF sustainable finance research, clients can read it at b NF on the Bloomberg terminal, at BNF dot com, or via the BENF mobile app. If you get to the end of the show and you like what you heard and maybe you want to listen to the next one, don't forget to subscribe to our show on your podcast player. Now let's get to today's podcast on sustainable finance. Maya and Mallory thank you so much for coming back to the show and talk to us

a little bit today about sustainable finance and regulations. So Maya, Hi, Hi everyone, and Mallory Hi, thanks so much for having us. We've got three female voices on here, so who wanted to make sure you know who was who. We've got a lot of ground to cover, so typically on the show, one of the things we do is we think about one piece of research that our analysts have covered in depth. We dive in and we get into some of the

different things that were at up during that research. And today we're actually addressing three pieces of research, of which one is actually quite long, so we'll see how much ground we can cover. But well, let's start in the US because there's been some interesting developments and I'm going to be honest, I am not quite sure what they mean. So I hope you can shed light on that the

SEC has proposed some regulations. I'm thinking that similar maybe in some respects to what the EU taxonomy is doing. Let's see if I'm right or if I'm wrong, what is it that the SEC is proposing. Basically, to break it down, the SEC has proposed a new rule, so it's not finalized yet, but they have voted to sort of bring forward a rule that would change the way registrants sort of filers with the SEC have to disclose

things like climate related risk. And in my mind this is really a watershed moment because the US is not a super strong player as of right at all in terms of regulating setting policies for sustainable finance or e s g. Environmental, social and governance. You might hear that acronym a lot disclosure. You know, on a global scale,

they're well behind regions like the EU. So what this new proposed rule would do if it comes into effect, in a similar form to the proposal, which is over you know, five hundred pages long sort of describing the reasoning for their decisions, and a lot of detail is

it would require registrants. I'll use that word a lot. Basically, you know, folks that are registered with the SEC to a detailed existing and potential climate related risks, the impacts to their business, and sort of the oversight and management of those risks as they see. They'd also have to

detail any transition plans that they've made. So like a company who set you know, a public net zero target for you know, meeting net zero emissions by saying or something like that, they'd actually have to sort of detail in their typical filing documents there, you know, what are usually financial risk related documents with the SEC, what those plans mean, how they're planning to achieve those goals over time, what they've been doing, whether they're using carbon offsets. You know,

a lot of detail in there. And then one of the I think the most anticipated or unsure elements. You know, it's something that was really a bit more contentious going into this, although all of it is really quite important is that they'll also have to disclose their greenhouse gas emissions. And I mean that's a pretty big deal in my mind. There. You know, entities are going to have to start putting numbers,

you know, into the public. Many already do, but you know they'll have to do it in a uniform of what they're emitting. Scope one really direct emissions. Scope two emissions which are more indirect things like you know, from electricity and heating, and then Scope three for most entities,

will also have to be disclosed. Those are the super indirect emissions in many cases, you know, like what's being emitted by the products you know, put out by customer, or what's in the value chain, or emissions from travel of employees and and things like that. So there's there's a lot included in this new proposed rule. Then the proposal is still in some respects and its infancy, is it not? So when we're talking about Scope three, have

they defined what that actually entails? And I know this is one of the more tricky things to measure for many companies. Oh yeah, And my understanding is that there was quite a lot of deliberation between the SEC commissioners. There's four Commissioners right now there I think can be

a max at five. They were really trying to tease out whether or not to include Scope three, and to whom they've put in place some nuances, you know, like a gradual phase in period for these different types of disclosures, and Scope three would come a little bit later for entities than Scope one, sort of helping ease into the

process by level of difficulty. But it's still very ambitious, and they use a lot of existing frameworks to sort inspire this proposed rule, Things like the Test Force on Climate Related Financial Disclosures often called the tcf D just sort of a voluntary guide for disclosure that is widely adopted and in some cases, you know, used as a basis for mandatory disclosures in in different regions, and also

the Greenhouse Gas Protocol. They use that to sort of base their definitions of what is constituted as Scope three, and it would include a lot of activities. To your point about its infancy, yes, it's it's still unsure the final form that the rule will take, but I think it's anticipated that it will be somewhat similar in many ways to the current proposed rules. So basically what happens is they voted, the rule was sort of moved on to the next stage. It's now in a public comment period.

They'll get those comments back at least through May twenties, if not a longer, and then they will sort of take those into consideration. How it out amongst themselves, reformulate sort of the typical process for putting out rules with the SEC, and then they will you know, put out and vote on a finalized rule. We could see that as early as the end of the year. So the US Security and Exchange Commission is voting on this and then putting it out for what did you say, no, no,

you're good, so for public comments. So basically they have formulated this proposal amongst the different you know divisions of the SEC through the drafting process, and then there was a public meeting and they almost sort of presented publicly the details in a shortened form of the proposal. And then they the commissioners sort of those those members who vote on on the proposed rule. They sort of lead the SEC and they're appointed by the President and they

sit for a term. They all sort of gave reasoning behind their support or opposition of the proposed rule. And then they voted and it passed through three to one, and so now, yes, it it's going. It's it's open to the public. Anybody can read the document and submit a public comment and then that will all be taken into consideration before things are sort of rehashed and finalized by the SEC. So maya, how does what the SEC in the US is proposing to do? How does this

stack up with some of the existing regulations? It maybe do rate more highly. We we actually have a policy scoreboard where we actually look at countries and the different policies they have in place in comparison to one another. So that's something we look at it being how does what the US is proposing to do in the future, where does it get them in terms of stacking up

with perhaps the European Commission for example. Yeah, so what we're seeing right now with the US is that it's just the necessary first step to kick off the wider strategy the US is really behind and and to be completely honest, and we agree on that with Malorie as well, this first step there's nothing compared to the EU A gent down sustainable finance and the strategy that we're seeing here in the EU it's an important and necessary first step, but for now it very much looks like mandatory tcs

D reporting tcf D being what Mantery explained, which is the Task Force on Climate Related Antrol Disclosure, which basically forces company to look at the risk and opportunities that are linked to climate change and and this is due to many reasons. The first reason is the fact that the SEC, the mandate of the SEC, only allows them to look at what is financially material, then look at and create a great regulations or legislation to basically protect investors.

So their mandate is much more refined and smaller than the one of the European Commission and all the Europeans pre isory authorities plus the European Central Banks, because all the regulations were seeing in the in the European Union

come from everywhere. So for now, the US isn't the tier in the third tier of the G twenty country that countries that we rent so far, and it's most probably going to remain in the tier three because this is just one legislation looking at one type of organizations, which are corporations as a whole, like older registrants to the SEC. But it might probably push them to the top of that tier three, because at the moment they

were more at the bottom. All right, So then now, ay, I want to ask you whether or not you think it's actually even going to happen, because one of the things I have learned over the years from discussing different regulations in the US is that you have things that are proposed and then a new administration comes in in in Washington and then things get rolled back. Is there any risk that that will happen and that any changes in the White House will have an impact on the

way the SEC is actually functioning? You know, as of right now, I think it's pretty likely that it will get through. As I mentioned, there's four commissioners right now. Three of them are Democrats and one is Republican. The one Republican commissioner Hester Perse, She voted no, but the other three voted yes. And basically the appointments of the commissioner are put in place by the President and then they serve a term. One of the appointees Alison Heron Lee,

who previously served as the acting chair. Her term is coming up for a close in I believe June, but she has sort of put a statement saying that she will be stepping down at the end of her term once a successor is confirmed. So it's unclear exactly when

she'll be departing from the SEC. But given that you know, Joe Biden is the president and he is you know, of the Democratic Party, and there's room for more commissioners with and without commissionerly, I think it's you know, pretty much likely that whoever is or is not appointed before this finalized rule gets voted upon, because you know, you could see more commissioners appointed before that time, or or perhaps not, that it will get past in a form

that is probably pretty similar to what it is now. I don't anticipate them pairing it down too much because I think the biggest hurdle was them actually putting a lot of this like scope three emissions disclosures in the proposed rule and sort of putting that out there, so you know, it kind of behooves them to to put it through. To One concern in terms of things like

rollbacks is legal action. So there have already been threats for lawsuits to you know, challenging the SEC, which would happen after the rule is finalized, so it wouldn't be happening in this form because the rule is not complete yet, and you know, challenge whether or not it violates the mandate of the SEC. As Maya mentioned, you know, astuteley earlier, the SEC you know how is sort of regulating things that pose material you know, financial risks, and that's something

that I didn't mention earlier. Some of these disclosures are

subject to to that sort of materiality clause here. That buzzword a lot, but basically it's you know, meaning that a reasonable person would think that information is financially important, and so it's you know, it's a very strong rule in my personal opinion, but it does leave you know, some of this quote unquote materiality of what to disclose or not disclose up to the discretion of the disclosure, you know, which can you know, pose those questions are

not I'm stealing so of Maya's European pessimism, but for for this, you know, I think that you know, analyses have shown that it's sort of likely that even if a lawsuits were to be waged, the rule will probably survive in you know, the form without being completely paired down, strip down, you know, to to its nuts and bolts and get through, which you know, I think would be

a pretty big deal. It remains to be seen how things will go in the future, but you know, current concerns are whether or not you know, the greenhouse gas emissions disclosure components, for example, you know, violate the rule. Uh, you know, the mandates from Congress so that established the SEC of having to disclose financially material information, and whether it's sort of oversteps by requiring them to disclose too much.

There's also concerns over whether it violates the Constitution's First Amendment of free speech, because the SEC is sort of allowed to compel speech to promote transparency from companies, but there have been questions over whether or not this, uh, this oversteps that that first Amendment as well. So we'll

see the like. You know, it's likely that lawsuits will be waged, but I think it's also equally likely that the rule will come through sort of unabashed and and make it in a final form that looks very similar to what it is now and sort of in supreme for for quite a while now for a very short break, stay with us. So well, then let's go back to Maya and that you are calling it European pessimism. But I think she's just giving it a good dose of critical thinking and realism on some of these and she

applies it to Europe as well. So let's then talk about the EU taxonomy. There have been some changes on that side and some discussion around incorporating gas and nuclear. Now I know that you have some strong opinions regarding what this may do to Europe's climate goals. So Maya, why don't you lay out what what is what is the problem here, and what is your critique of gas

and nuclear in the taxonomy. So ney's try to make it short because we don't have three hours in front of us and a long debate, you know the French way, like everything hands and stuff. Anyway, I'm going to play devil's advocate here too, ready for that. So they two very different points. The inclusion of nuclear and natural gas

have come together into the taxonomy. But this is more because of like diplomatic and political like reason is the fact that some countries were pushing for one some so others were like, you know what, if you're pushing for one, we're pushing for the other. So the taxonomy has been the first thing that people need to know is that the taxonomy, the first texts have been approved, they've been signed off, they've been passed, they came into force this year.

Companies have been reported their inligibility percentage to the taxonomy and it's going to be full alignment next year. But then in December one, the European Commission proposed and put out an addendum to the taxonomy to basically create conditions under which nuclear and natural gas could be considered green in the taxonomy within the framework of the tex ME.

And so after that the Platform and UM and the Europe of the Platform and the member states have reviewed this these conditions, and then after there was another point where the European Commission has actually approved the text that was that was proposed at the end of December without any changes, despite the despite the analysis from the Platform and the member state. So the two facts are the inclusion of nuclear in the in the taxonomy is where

any new built nuclear but also maintenance of installation. The main issue with the inclusion of nuclear in the taxonomy, according to being if analysis is being at finds out that basically there is no issue in terms of like announcing the de carbonization potential of nuclear. Nuclear is a very low carbon source of electricity, well below the hundred grams seal too perclude our that is requested from any

power generation plants within the taxonomy. So nuclear depending on the estimates, we range between ten grams and sixty grams. But whatever the the exact number, it's for a bit of the freshials that are imposed in the taxonomy. So from the angle of what we call substantial contribution, we're fine. It has a potential for the carbonizing the grid. The problem that BNFC is in the inclusion of of nuclear

is the aspect of doing no significant harm. So for for those who listen to us often, we did a session with Data and Mark back in the days to to explain how the taxonomy works and for the taxonomy not an issue. You prove that you're green by substantially contributing to to an environmental goal like plane to change mitigation, but you should also prove that you're not harming any other environmental goal such a protection of of econsistent but

what are use waste management annicating things? So you can't You need to ensure that you're not only decarbonizing, but you're also not harming the rest of the environment, and with nuclear this has been highly contests so that was the main reason why eyebrows were raised with the inclusion of nuclear. Because of nuclear waste, because of military safety issue as we're seeing right now in Ukraine for instance.

So there are a lot of points that raise eyebrows, but the main point that being at raised about the inclusion of nuclear is that whether nuclear is labeled green or not won't make change in terms of if we are financing nuclear. So whether nuclear is including in the taxonomy or not, nuclear will get financed if needed. The reason why nuclear is not finances because it's far too

expensive and it's far too lon to build. So so so basically we're all saying at benish and that's the point of our report is to say, well, you've been pushing for the inclusion of nuclear, there are some big caveat in the way that do no significant harmony structured. We don't like being a doesn't put doesn't push back on the fact that it's it's a low carbon in a source of energy, but it's the risk, it's the associated potential for the two arms. I think that's an

important distinction. It's potential, but not necessarily it just depends on circumstances exactly, and the criteria that we're stepped out to ensure to reduce that potential. We're two weak according to the platform and according to being a research but for it being if our angle was much more pushing around the fact that it doesn't make sense whether it's labeled ring or not. So that's the point in nuclear. The concern with nuclear is that potential for there to

be harm. And you referenced actually what's going on in the Ukraine and some concerns over actually nuclear power stations being taken over. Also related very much to this, in particular in a European context, but actually very much globally, is what's happening with gas prices, which we're already high before that conflict kicked off, and now there is concerned around the security of supply of natural gas. Europe is very dependent upon natural gas at the moment, and it

is in many respects. I know we don't love this term, but many have referred to it as a bridge fuel or something that can provide assistance with providing seven access to clean energy when you don't have the supply coming from either wind or sunshining at certain parts of the day, month, year.

What is the issue with incorporating natural gas and the important role that it plays within you know, providing security of supply and so you know, I know, Maya that right now what you're going to talk about is really I mean an opinion that we have put forward being and yet as a house view regarding where this fits in there. And we can talk, like you said, for three hours about whether or not it should or should

not be included. So within the stance that we've taken, if we press that a little bit, what is the b NF house view on why gas maybe shouldn't be included in the U taxonomy? Like all the your remarks are great remarks, and they are the ones that are pushed onto us at the moment and that are pushed onto the platform. So the taxonomy is a grain taxonomy. It's a standard to define what we call green in

the European Union. It means that whether you're in the taxonomy or not in the taxonomy, you'll still get access to financing. The main stuff that it ensures is the fact that what's in the taxonomy has the potential to have access to preferential rate so that we can accept

narrate the transition, right. It's not saying we're gonna make for now like the europe Incordition doesn't have the plan to create like a list of what we should stop financing, and that actually can be a different podcast at different points in time because we're also thinking about that. It's not about that. So the inclusion of natural gas in the taxonomy is out of context because nuclear is a

needed source of power. I mean, for those of you who are listening to us and and know our new energy outlook, who know the European energy transition outlook, you know that from our own scenarios there is a role for gas to play in the transition to look carbon look carbon economy. So that's no no question asked on that.

The main question there is is to label a for sale fuel as a sustainable investment as a green investment, and it's mixing up everything in the investors of you because what being I found out is that first the criteria that are set in the taxonomy, despite potentially being hard to meet, some of them has to have such strong caveat that the it makes them weak. So for instance, there is there is an annual capacity level of carbon and carbon emissions that is set for a certain guest

power plant that is a twenty year average. But you need to report your taxonomy alignment every year. So that does that mean that you basically upload or offload all your greenhouse gas emission at the beginning of the life cycle of the power plants for ten years, and then after you'll be like, okay, after ten years, basically I'm gonna be neutral in terms of greenhouse gat shin and therefore overall over the twenty years, I'll meet that average.

This is impossible to check you here on here. So maybe we're going to have assets that are going to be labeled as green at the beginning of their life that are not necessarily green because you'll feed just on the on the big steme of the twenty years. That's

one example. The problem is that it's as if they had pushed to get natural gas into the taxonomy for many different reasons why it's not necessarily in that text that it should be so in in our note, for instance benf analysis, the fact that this the role that gas has to play could be regulated by other sorts

of regulations, but not by the taxonomy. The taxonomy is a sustainable like a green and roamentally friendly green framework for investor for them to be a no brainer and say, okay, if it's a line with the taxonomy, me if in my portfolio I have a line with the taxonomy, means that I had all of my investments are a line

with the Paris Agreement. And now it creates doubts. While at the same time, at the beginning of this week, the European Platform and Sustainable Finance, which is the expert group that like responds to the European Commission on these topics, has just put out a transition of taxonomy. So why can't it be that because, as you explain rightly, Diana, it's a bridge fuel, it's a fuel that we need for a certain period of time. So your argument is that there is a separate taxonomy. They can take this

into consideration but walk back confusing things. I don't think so. I think right now the main discussion and the reaction from from from investors what BNFC is that investors are are just saying they don't understand anymore. The taxonomy was supposed to be this kind of pure grain list that they could follow without asking themselves the questions because most of them don't have a scientific background. Most of them

don't have an engineering background. They don't necessarily know when hydrogen is green, when cement's green, and that was supposed to be our common methodology, and now in the middle of all of that you have a fossil view. So it's better to have different sets of rules being I think that this came up as well because one of the biggest criticism against the taxonomy was the saying that it didn't have a shaded approach. It was either your in or you're out. So hence the need for the

transition tacconas exactly. This is why the Platform and Sustainable Finance and the European Commission still have a lot of work. How much work to do? So much sure to do. Okay, so there's that that's sober looking up. So we've talked a bit about Europe. We've talked about the u S

and some developments there. Let's add one more thing into the show today, which is the Glasgow Financial Alliance so g FANS, which is fairly new and it would be useful for us to just kind of quickly go over what it is, what it isn't, because it is going to be a new force within all of these different

frameworks for companies and governments to look at. Absolutely, and maybe I'll jump in on that because I think it's a perfect secret data, almost as if it were by design, because you know, Maya's talking about, you know, the need for transparency and green activities and and every great point that she's just brought up, and it's the same you know, with the SEC, investors have been asking for a long

time for more transparency. That's part of the impetus for putting forward any type of rule like this, you know, whether it's a taxonomy or SEC regulation or anything you know that runs the gamut is that people are saying, hey, you know, we need more information if we're going to make prudent financial or other decisions related to asks, opportunities, decisions, what have you. And the same is true, you know for the g fans, the Glasgow Financial Alliance for net zero.

It is sort of like a I like to think

of it like a coalition of coalitions. Basically, a group or groups rather of the financial participants, whether that be banks, asset managers, insurance companies, asset owners and many others have sort of come together in different coalitions to sign on to achieve net zero emissions by or earlier, and there are different types of, you know, additional goals that go along with that, and you know, oftentimes you hear about things like me for setting interim goals, not just saying

see you in t like you know, we'll meet you there, but like you know, things coming you know, every five years or so, or at least you know, one interim goal. There's different elements of these sort of voluntary standards, but generally the gist is let's all get to net zero by and the g FANS, which was initiated I believe in April, sort of coalesced these coalitions, brought them all together under one roof for umbrella so that things could

be streamlined. So basically you have all these financial institutions saying yes, net zero, me too, and then they're all working in tandem under sort of a similar umbrella to figure out how they do that. So, whether that means you know, figuring out how to call for more regulation like we've been talking about as a group, say we need more info, or whether it's about figuring out how to identify and calculate the pathways that they're going to

do that. The g FANS has set up several sort of work streams or priority areas, and they released this at the time of COP last October slash November UM and you know, now they're sort of working on helping to enable that transition that many of these companies have signed onto and and they're still signing onto these These initiatives are growing. I believe at the time of COP it was announced that there were four hundred and fifty participants or you know sort of sign on across the

institution types. And this is something that I think we're seeing more and more. Is you know, I like to think of it as like a bit of a wave. It's like you start out with something like you know, green Finance or the Call for Disclosure, and it's a few voices and it's you know, not necessarily put into action very quickly, a couple of people are sort of crying out in the wilderness saying we need more of this or we need to set just in that little tiny voice too, I'm really I hear that from the

financial services community exactly. That's how they speak outward. Yeah, and then it like swells, you know, all of a sudden, all these voices join on. It becomes more of a roar. I'm not going to do that voice preserved some of my dignity while we discussed this. But basically, then you have this sort of swell where a lot of d these are calling for the same thing. Maybe they're setting

out frameworks, they're trying to figure out their footing. Us they paved the way toward the future, and it becomes a bit confusing. So you start out with not enough guidance. You get to everybody wants the same things. So there's all these different avenues and now we're sort of in the last part of the wave where it's starting to

funnel down again, but with more clarity. So you take all of those voices, all of these frameworks, all of these coalitions, and you're putting it under one roof so that you're not having everybody doing things with a different methodology, which is super important. You have to, you know, make sure that calculations are similar, otherwise things will be completely incomparable and will sort of wind up with, you know, chaos.

Now for a very short break, stay with us. Yeah, it makes it impossible for the investment community to compare different companies within their portfolio to one another and make decisions. And for Emmy and for us the public as well, that's exactly right, And something like the g FANS serves as a funneling exercise like that, it takes a bunch of coalitions and says, hey, let's get on the same page. Because you can also imagine one financial entity, you know,

bank for example. You know, they might have an asset management arm. It makes sense for them to be doing something that is comparable across their different types of activities, so that calculations are similar. And that also takes away some of the burden of things like reporting and trying to meet goals because everybody is sort of on the same page, and even if it's between entities, it's not

the same entity. It just like you said, it helps folks that are on the outside understand what things mean and things like a taxonomy so that everybody's on the same page about what is or is not considered green SEC regulations, so everybody's sort of disclosing information the same way instead of just here and there with different parts included in different units, you know, in there in there.

It helps read that level of transparency that then will help us understand not only what the goals are things like net zero, but also how far are we on the way to get there because we can sort of come pair as a group. So actually, I I have a question for both of you who really spend a lot of time thinking about sustainable finance. That is that is the job after all. So my question is, actually we're talking about g FANS, which is trying to consolidate

and look at different frameworks. Invariably, the TCFD was looking to do the same thing. There are not the same thing, but was also looking to consolidate various different frameworks that are driving to an end. We are at a place where there are these moves to consolidate information data frameworks create alignment as we head into world where E s

G is becoming less niche and becoming more mainstream. And the main question within this is is this consolidation happening quickly enough that we will be able to capitalize on the amount of energy and interests that is coming from the financial services community at the moment because there are so many companies that are looking to better under stand what their E s G strategy should be going forward and probably formulating their own methodology, they're buying data, they're

coming up with their views. All of these frameworks going to get there in time. Will they be additive or will they be a moment too late. I think that's

the main issue. I was actually having a moderating and conferences today on the topic, and I think that's going to be the main concern of everyone, because, let's be honest, we create all these data sets, and we build all these new regulation so that financial market participants can act on it, so that corporations can act on it, but in particular investors and lenders, and ensuring that they take

into account social and environmental. In this particular case, whe we're mostly talking about environmental, but there is the whole part on social. They've taken too account environmental impact of their investments. Not only do they take into account the risk that the like climate change fairs on their investments, but all their investments is bearing on the environment as

a whole. And the problem we're seeing is that the same way we've been talking about the EU taxonomy, but at the moment we're talking about this taxo mania, because so many taxonomys are created around the world. Is that the technical term for it. Tax so Mania. It's a term that has been like spreading in the in the in the market. Yeah, the one that has been used

and basically that that tax so Mania. It's great because it shows that we're creating this common language, but there are some small discrepancies between one country and another, like we saw the Russian taxonomy or the China taxonomy, EU taxonomy. Now we're going to have the UK taxonomy. South Africa is working on one's well, like so many I don't even have enough time to talk about it. But it's also going to be harmonizing all of that and ensuring

that investors can compare one with another. That's gonna be really like difficult the part on corporate disclosure. They could do a big effort in harmonizing all of that, and I think initiatives like I S, S, B G funds, TCND really need help with the harmonization and standardization of the type of data that we're capturing. But also I hope that could bring a bit of like ambition, you know, I don't want them to just don't do something because you're scared that the other one is not going to

do or something like that. I hope it can feel like a healthy competition to ensure that we get more and more data on the e s G. Performance of companies and organizations as a whole. Yeah, it's certainly not fair to say, well, then we should do nothing because other people are working on it. There's definitely need. I was playing Devil's advocate there in a few different respects.

Is invariably Idea. Definitely do see and understand the need for harmonization in this world of lots of different taxonomies. So final thought on what the SEC is doing in the US, this seems like an excellent step forward. Let's let's play both sides of this coin. Actually, so malory. How about you say, is this a good initial step?

And what do you see is the change that it may spur in the future, And Maya do, where do you see this falling in terms of what additional steps do need to take place in order for the US to really be competing, if you will, with other countries with more sophisticated or let's say, developed frameworks in place. Thanks so much, Dana, I love that question because Maya

and I often love to debate these kinds of things. So, you know, putting one of us on one side, one of us on the other side is is a great exercise, So thank you. I think it's a great first step. And you know, Maya mentioned earlier that we ran company excuse me countries as UM part of you know, want research, you know, research insights. We have sort of a tool ranking the G twenty on there sort of sustainable finance and E s G disclosure regulatory landscapes, and the US

falls pretty low. One of the things that we found in that analysis is that often times, what for for countries or markets that you know have been developing sustainable finance related than the SU disclosure regulations. Over time, there's sort of a natural progression at the beginning picture sort of like a graph with years on the x axis,

you know, looking over time. The beginning is usually across countries starting with UH corporate E s G disclosure, just like what you're we're we would be seeing with the with the SEC proposal, and then over time you see sort of a shift. There's no more of a need to put forward new policies within a given country on UM on just disclosure from co Brits because that's already established.

And then you start with more investor disclosure, and then you start with mandating the incorporation of E s G into investment decisions, you get things like taxonomy. Is if we're thinking about different types of policies, you start with something usually like a corporate sue disclosure, and then you build from there. I'm not saying that, you know, this couldn't be leap frogged or incorporated into a big policy, but it seems like we're seeing something very similar in

a nascent climate policy world, that is the US. You know, we're starting out with something like that that's just corporate disclosures, and they're gonna move from there. It is pretty ambitious in my mind because it's requiring that scope three and to disclose on transition plans. So it's doing a lot more than just saying like, hey, if you think you know a climate risk is important, you know, disclose it.

It's it's giving more specific guidelines that help that transparency and that comparability, which we were just talking about a question or so ago. So you know, I think that this is ripe as a first step because we've seen this in other markets as well. But one of the benefits of you know, being a latecomer, even though it's not good in terms of climate stuff, is that you

already have examples in place to build off of. So you know, when the EU taxonomy was being developed, there was no other you know, big taxonomy to look at as a as an example and build off of. But now we see that other taxonomy's that are arising across across the globe are hearkening to the EU version because

they don't have to reinvent the wheel. There's something that's been established and they can you know, they can get through it quicker because it's already been done somewhere, and the US can leverage its position as a bit of a laggard in terms of setting sustainable finance policies because many other jurisdictions have done it already and they can

use that to their advantage. I think it would be actually very prudent to look at what other regions are doing and say, okay, now we now we sort of know the landscape, this is what we're gonna do, this is what're I'm gonna do, try, you know, tried and tested by others, because it helps again not reinvent the wheel, but it also promotes that comparability, it helps you look

at other regions and nowhere to align. And then the other side of that coin, I think is a bit of the SEC proposal and something they should do more of is using existing well established frameworks, whether that be mandatory or voluntary, so not just in another country's taxonomy, but also something like the tcf D. Many people already use that. You know, number of tcf D supporters goes

up and up over time. And when you establish based off of a well understood and respected um, you know, something that is comprehensive and thought of as being very reasonable and sound framework, even if it's voluntary, you're sort of already ensuring some buy in because there's recognition at

the beginning. You're not starting from scratch. So I think that's those are a couple of good points in favor of you know, what the SEC has done, you know, in addition to just the fact that they brought it forward, which I think is a good thing for promoting transparency for investors and companies of and other financial participants alike, but also they should leverage their position as one of the bottom third countries that we rank and use it in a way, you know, as as you know, a

benefit to get ahead in the future. I think we should have sort of a race to the top in terms of making ambitious policies that coordinate and at the most recent cop for you know, when countries came together, there was a dedicated finance day, So I think you know, I'll say this word again, but coalescing around country level, company level, you know, whatever else it is, investor level initiatives will only help promote the future sort of skyrocketing

of these types of institutions because everybody will be working in tandem. The question here really has to do with is it enough like essentially what the US is doing, and not only is it enough, like what else needs to really trace place take place? Where do you see the gap between what the SEC has put forward and what is happening potentially in Europe and other parts of the world that are have been more developed in terms of their stance on a lot of these things. Basically,

what is the gap? What is the gaptical? It's a great first step, and one thing I've realized by working with Malory is that it was a difficult one to get in the US. Let's let's put it into context. Under the Trump organization, the Trump administration, we were talking about preventing pension fund to promote E S G investing, and we're like, and now we're moving to an administration that is trying to do stuff. Even if what Mathery explained it's probably going to pass at the SEC level,

there is a litigation risk afterwards. Like it's a whole different world from what's happening in the EU, where we have like like a market that is eager to see these relations coming. But yet, even if that's the circumstances, I still can't say for me that it's enough and it's big. I agree with the scope three emission, but it's only if there are material So I'm sure there's going to be a lot of like playing with the words like who it's not. It's almost like a complex

complier or explain kind of legislation. It's not for everyone. So that's already like a big caveat for me. And the other thing is then what I want to see is that indeed, great first step, amazing, it's a strong

first step. But now we need this to move to the investor side first and the bank side, because right now it's mostly looking at registrants, which are they're going to be reporting at the company level, So even if you're an investor, you're you're like report as an investor, but as a company, which is completely different than having legislation that are really going to force them to integrate it into their investment process, integrate sustainability in their investment process,

and also stop seeing sustainability just as a way to head yourself against the risk. So what I would love to see is also having legislation like what we saw in the in the you with and s R and in the UK with s d R having legislation that says you need this angle of double materiality. It sounds like a swear word, but basically what it means is that how the US as on the first part, which is how is sustainability risk impacting your investment impacting your business? Well,

at the moment they just looked at the business. In in the EU, they look out through at your investments and your lending, but how is this impacting therefore your future profits ability? And then the second angle is like how are your investments, how is your company impacting the environment, impacting the sustainability of social matters for instance, and that's the point that I wanted to and then after that

having central banks stepping in the e TB. The European Central Banks just announced that they are thinking of putting capsula look like capital requirements on the back of climate risk. That is a massive step. And I wish we could see the same in the US because once the US will move oll like, it would show that everyone can move. So let's see, let's play with the different mandates of

the different regulators. The SEC has one one day, it's maybe like the the executive power will play another role, and then the the US like the Federal Reserve will play another role. Like there are so many levers that we can back on. All right, We'll continue to watch these countries and the different developments they make on these

different frameworks. It's sustainable finance, but it's this fusion between sustainable finance and really policy in so many ways, and how it's all interrelated that is so fascinating eating at the moment, and it does feel like there is this sense that there is change afoot all around as people are organizing and looking at E s G and taking

it more seriously. So Maya and Mallory, thank you very much for joining and being giving us such clear views on what is coming down the pipe and what we should be watching in terms of a few of the changes that are taking place in the US and Europe, and well, I guess with g fans, which is in many respects global. Thank you, so thank you so much, Dana for having us. Today's episode of Switched On was

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