LSEG Mark Manning Transcript
Jane: Hello. And a very warm welcome to the LSEG Sustainable Growth podcast, where we talk to leading experts about sustainability and finance and everything in between. I'm Jane Goodland, and this week, I had the chance to talk to Mark Manning about the state of sustainable finance regulation. Now he's incredibly well placed to share his perspectives on this topic. Having worked in asset management during the early part of his career. He then went on to the Bank of England and the reserve Bank of Australia. He was also at the FCA w here he advised on this strategic sustainable finance policy with a specific focus on sustainability disclosure and climate transition planning. He's now an advisor to a whole array of organisations on sustainable finance, including the WBCSD, the World Bank, the IFRS Foundation and he's also a visiting senior fellow at the London School of Economics. So we are in good company. But before we hear from Mark, a quick reminder to follow us and rate us on Spotify, Apple Podcasts or any other platform you use. Enjoy the show.
Jane: Well hello and a very warm welcome Mark, I'm so pleased that you're joining us on the show this week. Now you've worked on the buy side in central banking, securities regulation, to name just a few things. As well as now being an advisor to a number of different organisations, including, like I mentioned in the intro, you are a senior fellow at the London School of Economics. So I'd say that you're the perfect guest, actually, to talk to us today about sustainable finance regulation, because that is the topic of the day. So welcome to the show.
Mark: Thank you so much. Absolutely delighted to be here.
Jane: So there's been a lot of regulatory activity in this sphere, in the sustainable finance sphere for a number of years. So, can you help us, kind of let's set the scene, shall we. Tell us what's gone on and where we are now.
Mark: Yeah, absolutely. You're dead right. There's been a huge amount of activity. It's really accelerated over the past decade since the Paris Agreement was adopted back in 2015 at COP21, and also in that year, actually 2015, Mark Carney delivered his seminal tragedy of the horizon speech. And this really set the tone for some of the initial actions that we then saw from financial regulators in the sustainable finance space. Importantly Mark Carney acknowledged that it's not for central bankers or financial regulators to advocate for a particular public policy direction on climate or sustainability. That's firmly for governments. But he put the emphasis of financial regulatory policy squarely on ensuring the resilience of the financial system to climate risk and to enabling the financial system to allocate capital efficiently. And it was in that speech that we started to hear about this idea of better information as a foundation for better understanding of tomorrow's risks, better pricing for investors, better decisions by policymakers, and a smoother transition to a lower carbon economy. And so the first actions that we saw in the late 20 tens from many regulators, was action in the areas of climate risk, climate, government governance and climate related financial disclosure. It was in Mark Carney's role as chair of the FSB, the Financial Stability Board, that he went on also in 2015, right at the end of the year, to launch the Task Force on Climate Related Financial Disclosures. TCFD, which published its recommendations in 2017.
Mark: And these recommendations were pivotal, really to a number of things. First of all, they paved the way for the development of formal, climate related and then eventually wider sustainability related disclosure standards. Paving the way, really for the launch a few years later, 2021 of the International Sustainability Standards Board, which built from the TCFDs recommendations to issue the first set of corporate reporting standards in 2023. And these are standards designed to meet the information needs of investors and other providers of capital and designed to be adopted as a global baseline on a mandatory basis across jurisdictions. These standards were then endorsed by the International Organisation of Securities Commissions, IOSCO, and they're currently being adopted by jurisdictions around the world. In fact, more than 30 jurisdictions are already on that journey. But the other main thing that TCFD did, corporate disclosures more generally did, was act as the first step towards a comprehensive package of measures designed together to build the foundations and set the guardrails for what is effectively a trusted, transparent and resilient market for sustainable finance. And I think you can probably group those additional measures in the following way. First of all, on the market conduct side building trust and transparency through measures such as the classification, labelling and disclosure of products and activities, for instance taxonomies, anti-greenwashing, regulation, naming, marketing and labelling rules for financial products. The second group is probably that prudential set of measures. So capital requirements, capital weights, climate stress testing and governance interventions. Third group is mobilising capital for the climate transition. So this is interventions in areas like transition planning, transition plan disclosure and transition finance. And then the final one is ecosystem building. So building a trusted ecosystem of data providers and other providers of analytics for the market as well as upskilling, training and certification. So that's a raft of different types of sustainable finance intervention, which in many cases build from that core information set from the corporate sector but ultimately come together to set us on a path towards the mainstreaming of sustainable finance across the markets and in the EU the framework for delivering interventions in many of those areas has been the Sustainable Finance Action Plan, which was launched back in 2018. In the UK. It was the UK government's first green finance strategy back in 2019, which set out interventions under two streams greening finance and financing green. And off of the back of that, regulators were mandated to have regard to the government's climate commitments in the Climate Change Act and later also the Environment Act, and they've taken steps in many of these areas consistent with that mandate. So I hope that kind of sets the scene a little bit how we've built from those TCFD foundations and really seen a host of different interventions across different branches of sustainable finance.
Jane: I think that’s a really useful summary. Mark, thanks for setting out so clearly. And I think that it also helps us to sort of zoom out of this, because quite often when we're in the sort of thick of some of these regulatory changes or changes on changes, sometimes you're really in the weeds of the technicalities, aren't you? And actually, I think it's also really useful just to go back out and sort of think, what are we trying to achieve here? And like you say, it's really about creating this trusted, transparent and resilient market for sustainable finance. Sustainable finance that we know is going to be needed in order to achieve and address some of the challenges that the global economy faces today. So thanks for that summary. And also, I should say that the tragedy of the horizons. I mean, I can't believe that's ten years ago now. I mean, I think back to that speech and sort of the geek in me sort of loves that speech, because actually it was for me I remember that being a real milestone of a different voice coming into this debate. Right. You know, I've worked in this space for almost 30 years and when the governor of the Bank of England starts talking about climate risk and financial stability, then it's a bit of a game changer. And so you know, perhaps people who are perhaps newer into this area, I would absolutely encourage you to take a look at that speech. It's called The Tragedy of the Horizons. It's easy to find on the internet. Take a read. And I think it's a powerful piece from Mark Carney.
Mark: Absolutely.
Jane: So let's think about kind of sustainable finance regulation and how it either is similar to or different from other areas of regulation. Can you talk to me a bit about that in terms of what's different about sustainable finance regulation, other than there's a lot of it right now, but what are we seeing from regulators in this space?
Mark: So it's a really good question and as you, as you mentioned in the intro I've got the experience of having been involved in the development of some of this regulation at the Financial Conduct Authority. And back in 2022 I contributed to a piece of work that King's College London Professor Megan Bowman carried out looking at regulatory approaches taken by some of the first mover jurisdictions in climate financial regulation. And her paper is excellent and it really characterises the climate financial regulatory space as unprecedented, uncertain and urgent. And given those three characteristics, it really has required a very different regulatory approach and the distinguishing features of that different regulatory approach. Megan Bowman calls experimentalism and cooperation, and this really does resonate with my experience from inside the FCA. The level of cooperation, the level of collaboration, both among regulators and between regulators and private actors and civil society, has just been at a very, very different level to anything I'd experienced in other parts of financial regulation previously. For instance, we've seen the emergence of very active regulatory convenings, both within jurisdictions and across jurisdictions in the UK, for instance.
Jane: What does that mean when you talk about regulatory convenings?
Mark: So it's the coming together of different regulators to solve problems collectively.
Jane: Right. Okay. Which is very important for kind of like trying to solve an issue like climate change, which is, of course, global in nature.
Mark: Exactly, exactly. And to get things done quickly and to leverage expertise from far and wide and to also avoid, as far as possible regulatory fragmentation which can really serve to slow things down. So there's a couple of examples. In the UK, we saw really strong collaboration among financial regulators and relevant government departments to develop and then take forward the recommendations from the Green Finance strategy after 2019 and internationally, we've seen examples of convenings such as the network for Greening the Financial System, which brings supervisors together from right around the world. I'm not sure what the most recent number is, but it's north of 100 regulators come together in that network and in the international Organisation of Securities commissions (IOSCO) the Sustainable Finance Task Force was launched in 2020 and carried out a huge amount of work in the areas of corporate reporting, greenwashing, the oversight of the activities of data and ratings providers, a whole host of initiatives coming through in that in that forum. And that has been incredibly important in accelerating progress globally in this area.
Jane: And then in respect of the experimental element of that. So you talked about kind of collaboration. And I do think that it feels like a very different approach than perhaps we've seen in different areas of the financial regulation. But the experimental nature. Tell me a bit more about that. Is it are we getting comfortable with sort of trying things which then may need refining and working out, or is that because it's just an uncertain world and we need to kind of do our best attempts in a first version? Or how does the experimental side of things play out?
Mark: Yeah, and I think the experimental side of things is quite linked to the other branch of collaboration that I mentioned, and that's the collaboration between regulators, private actors and civil society. So I think there's probably three main ways in which that engagement has unfolded and that has given us an opportunity to try different things. Let me let me unpack that a little bit. So the three main ways, I think, are leveraging the private sector to drive market led solutions. Perhaps as a first step towards regulation. So a good example here is the data and ratings code of conduct working group. So the Financial Conduct Authority asked ICMA, the International Capital Markets Association and the and the International Regulatory Strategy Group to convene An industry working group to develop a code of conduct for ESG data and ratings providers based on recommendations coming out of IOSCO. And that was an opportunity, first of all, to leverage the private sector and make progress quickly to start building a framework for oversight and best practice in that marketplace. And that was an opportunity also to test how this might play out, starting with a softer approach in the first instance, which is industry led action to then determine whether and how to take forward regulation in that space.
And then I think you know, the other two areas of private sector and public sector engagement and collaboration are first of all, lending private sector, civil society and academic expertise to policy development. So early consultation advisory groups working groups such as the Transition Plan Taskforce, which sort of came together and co-created policy with public sector actors and then the final one accelerating the embedding of new regulation and best practice. So a good example here is the Climate Financial Risk Forum, which over the period since it was launched back in 2019, has done work on risk management, scenario analysis, adaptation, strategic embedding within organisations, all really trying to get people up the curve more quickly. Establish best practice early on and in many ways do things in a sort of less hard edged way so that we can learn from each other and refine over time.
Jane: Yeah. I mean, I think it's definitely when you kind of map it out like that, it's very clear that there is kind of innovation, experimentation and a different way of problem solving going on. And well, it gives me some hope. So that's good. I want to move on to climate transition planning. It's a topic we talk about quite frequently here on the show. I'm kind of keen to sort of understand the regulatory element of this. And we know that obviously the transition plan task force guidance that you referred to earlier has now been effectively kind of brought towards the ISSB who have taken responsibility for that guidance going forward. Tell me more about how we might see that evolve or how we can see the regulatory angle help for kind of climate transition plan adoption, because at the moment, you know, we're in that kind of softly stage. It feels like that compulsion to have a climate transition plan isn't quite there yet, although, you know, best practice is certainly aligned with that. And we have the guidance about what good looks like. But what are regulators thinking about climate transition plans?
Mark: Yeah, it's really an interesting one. I think, first of all regulators around the world have acknowledged that how a company navigates the climate transition will increasingly be a driver of its future value. So transition planning and transition plan disclosure. Will deliver this really important forward looking perspective on how companies and financial institutions are responding and contributing to a low emissions and climate resilient future. How they plan to adapt their business models, their operations, their products and services, their financial plans, etc. and how they are going to turn their targets into concrete and accountable actions. What needs to be done? When? In what sequence? By whom? At what cost? So I think the UK was really quite prescient in launching the transition plan task force. Back at Cop26. I think the fact that a number of government departments and the FCA and the bank were actively involved in that task force really gave it the impetus to drive forward and deliver a really high quality outcome. And I think the evidence since then has very much been that many other regulators and international organisations have similarly engaged on this topic. We've seen workstreams on transition planning and transition plans at Iosco, at the network for Greening the Financial System, the Financial Stability Board, the G20, everyone's done work in this space. And I think Iosco's Publication at the end of last year was quite interesting on this one. They carried out quite an extensive fact finding exercise, gathering views on gaps and challenges in transition plan disclosure and what does the industry need? And they heard loud and clear that market participants want consistent and comparable transition plan disclosures put into the market. And I think we've also seen a really strong recognition coming through from a lot of this work that transition plans can then be a strong foundation for credible transition finance, bringing quality and integrity to the financing activities that firms carry out and ultimately by leveraging transition plans and assessing transition plans of investee companies and lending clients. Investors and lenders have greater confidence to commit capital, and we've seen quite a lot of activity in that area within the UK through the work of the transition finance market review over the course of 2024. So where do we go from here? Well, we have the IFRS Foundation as you say, has assumed responsibility for the disclosure of specific materials that were published by the Transition Plan Task Force and has committed over the next few months to use those materials to develop educational materials that will support disclosure against the transition plan related provisions of the ISSB climate related disclosure standard. The TPT already had envisaged that its materials would have to sort of sit seamlessly within the global reporting landscape, and there was a mapping to the ISSB provisions provided as part of the TPT suite of publications. And I think that was a really important step, because it actually makes the IFRS Foundation's job much easier to ensure that these materials can indeed be globally applicable and can be used as a basis for providing guidance and examples to improve companies disclosures about transition plans without changing the requirements that are already in the climate disclosure standard.
Jane: I guess we're also seeing in the European context as well of course the Corporate Sustainability Reporting Directive as well, also referring to climate transition planning. But of course we know that there's lots of change with the omnibus around CSRD. So we've probably got to hold our horses for a little while longer to see how that plays out. But so are you basically kind of saying that from a direction of travel perspective, you would expect climate transition plans to become far more of a requirement from a regulatory perspective ultimately.
Mark: So I guess where I'm going with this is that as the ISSB standards are mandated around the world there will be a number of provisions in the ISSB standards that relate to transition plans, and the development of guidance materials drawn from the TPT will help preparers improve their disclosures and be more harmonised in how they make their transition plan relevant disclosures in all of those jurisdictions in which the ISSB standards are ultimately adopted. Importantly, though, the ISSB standards are a disclosure standard, and you will disclose information about your transition plan and the outcomes of your transition planning activity. If you have a transition plan and if you have carried out those actions. Any requirement placed upon a company to actually have a transition plan has to come from government. That has to be a legislative mandate. A disclosure standard can only go so far. Of course, we're already seeing policy initiatives that extend beyond transition plan, disclosure. We have the corporate sustainability, due Diligence Directive in the EU. And we're expecting a consultation here in the UK, too. Also a new international network. The International Transition Plan Network or ITPN was established late last year, and this network works with governments, regulators, supervisors, private sector actors, civil society and academia to advocate for global norms on transition plans and transition planning. I should also note that the international organization of standardization or ISO is developing a new globally applicable ISO standard. In fact, 2, 1 overarching net zero standard and one focus specifically on transition planning for financial institutions. Again, this will hopefully support harmonized good practice in this area beyond disclosure.
Jane: Yeah, I think that's a really important distinction, actually. And worth kind of pointing that out. So we need to move to the last question, actually, because we're running out of a bit of time, but I want to know. Get your crystal ball out, Mark, tell me what's going to be down the pipe in terms of sustainable finance regulation in the context of geopolitical situation we find ourselves in where things are perhaps a little bit more uncertain than they have been historically. So if you were gazing to the next five years, what do you think that we may see? What are some of the key things on the horizon?
Mark: Well, I think you're absolutely right to acknowledge that it is a more challenging environment globally. And we have probably sort of past the peak, if you like, in terms of momentum behind sustainable finance regulation. And we're probably moving into a different phase, but I think it's a phase in which we can still make progress, especially if we collectively demonstrate the commercial opportunity of a sustainable future and the commercial opportunity of building resilience across the economy as the world transitions to a more sustainable future. We have an opportunity, first of all, to embed what has already been put in place. We can focus on effective and strategic implementation. I think a lot of what has been put in place enables us to mature the market for sustainable finance, for instance, all of the work around labelling, naming and marketing rules have forced closer scrutiny, has forced accountability for green claims and hopefully given more clarity to market participants. There's also, as I've already mentioned, good momentum towards adoption of the Issb's corporate reporting standards. And it was late last year that a new network of the Growth and Emerging Markets Committee of Iosco was launched to really help equip emerging markets and developing economies to make progress in their adoption of the Issb standards. So we should see continued momentum in building that solid corporate reporting foundation.
And I think another area where we can continue to see good progress is on transition finance, including through the Transition Finance Council that was launched following the transition finance market review last year, and that Transition Finance Council is just kicking off work in a number of areas. Credibility and integrity of transition finance being one. Policies, pathways and governance being a second. So this really recognises that in order to make good progress in transition planning across the economy you need a good steer from government. And that can manifest as a clear government transition plan with sectoral pathways incorporated within it, that really give a strong direction to actors across the economy, and that bring into play strong mechanisms for public and private to continue to collaborate effectively together. And the third workstream of the Transition Finance Council is going to be on mobilising transition finance. So thinking about the instruments that can be used to support transition finance, and we can perhaps expect to see more work in areas such as blended finance coming out of those sorts of initiatives. So I think there is a lot that we can expect to see by way of continued progress in this space not withstanding some of the challenges and the headwinds that you've mentioned.
Jane: [00:29:08] Yeah. I like the phrase you used effective and strategic implementation. And I think we are most definitely going into a phase where that really counts. It seems very clear to me that we've had a great momentum and it's really now about kind of the execution and the embedding and making this real economy wide globally. So I hear that there's more to do. That's what I'm hearing so sustainable finance regulation is definitely here to stay. And it's really just entering the next phase of its maturity. So there's more to look forward to. Mark, thank you so much for sharing your insights and your experience and your expertise and carry on doing what you're doing because you are a very sensible voice amongst what is a very busy part of the market right now. Thank you very much again for your time. And do come back again another time.
Mark: I will certainly do that. Thank you so much for the opportunity. It's been fantastic to talk to you today.
Jane: Thank you. So that's it for this week. I hope you enjoyed that conversation with Mark. And it certainly was good to make sense of what's going on in the world of sustainable finance regulation. If you've got questions, comments or someone you want us to talk to, then do get in touch by email at
[email protected]. That's all from me. But watch out for the next episode very soon.
