Navigating the ESG landscape
Comparison of the “big three” disclosure proposals.
As with any industry where advancement and innovation are outpacing regulation, the complex landscape can be difficult for businesses to navigate their operations. From adapting to new realities in emerging industries such as Web3, evolving regulations, to compliance and commitment to environmental, social, and governance (ESG), it is of great importance for businesses to keep updated on key trends and developments in order to remain internationally competitive.
Here are several key highlights:
- ESG - The International Auditing and Assurance Standards Board has launched a public consultation on a landmark proposed global sustainability assurance standard. Separately, the United Kingdom's Financial Conduct Authority will be consulting in Q1 2024 on proposals to implement sustainability disclosure rules incorporating International Sustainability Standards Board based disclosures.
- Metaverse - The Monetary Authority of Singapore pledges $112 million under the renewed Financial Sector Technology and Innovation (FSTI 3.0) Scheme to support FinTech solutions, including Web3 projects to foster fintech and Web3 innovation.
- Digital assets - The Monetary Authority of Singapore has unveiled its framework for regulating stablecoins following a public consultation in October 2022, which will apply to single-currency stablecoins pegged to the Singaporean dollar or any G10 currency, which would include the U.S. dollar, the euro and the British pound among others. Issuers of such stablecoins seeking regulation in Singapore will have to meet certain requirements related to value stability, capital and redemption capitals.
- Emerging regulatory trends - The Monetary Authority of Singapore will continue to enhance its investigations by leveraging technology, to improve its ability to manage and review large volumes of data obtained during investigation.
Feel free to explore the topics below and we welcome any opportunity to discuss more with our respective PwC representatives.
Main drivers
Environmental, Social and Governance (ESG)
On the regulatory front, the International Auditing and Assurance Standards Board (“IAASB”) has launched a public consultation on a landmark proposed global sustainability assurance standard, where the UK’s Financial Conduct Authority (“FCA”) will be consulting in Q1 2024 on proposals to implement sustainability disclosure rules incorporating the International Sustainability Standards Board’s (“ISSB”) IFRS S1 and S2 standards for listed companies. In the asset management space, Blackstone has raised $7 billion for its largest-ever private credit energy transition fund, with Nuveen launching a $525 million sustainable commercial real estate lending fund.
Regulations and standards
The International Auditing and Assurance Standards Board (“IAASB”) launches public consultation on landmark proposed global sustainability assurance standard
The IAASB has proposed a comprehensive global framework for sustainability assurance engagements in collaboration with key global and regional standard-setting bodies responsible for sustainability reporting. Known as the International Standard on Sustainability Assurance (“ISSA”) 5000, the groundbreaking standard aims to set a global baseline to boost confidence by enhancing the quality and trustworthiness of sustainability information, thereby fostering greater accountability and transparency.
Financial Conduct Authority (“FCA”) issues timeline for United Kingdom's ("UK") International Sustainability Standards Board ("ISSB") based disclosures
The UK financial regulator will be consulting in Q1 2024 on proposals to implement sustainability disclosure rules incorporating the ISSB IFRS S1 and S2 standards for listed companies. The FCA aims to finalise its policy position by the end of 2024, bringing new requirements into force for accounting periods beginning on or after 1 January 2025.
Industry update
Asset management
The Australia Securities & Investments Commission (“ASIC”) launches greenwashing suit against Active Super over ESG investing claims
The Australian securities regulator has filed a lawsuit against Active Super, alleging the superannuation fund of misleading its members about the firm's ethical and environment-friendly investments, by investing in companies in sectors that it had claimed to eliminate from its holdings.
Blackstone raises $7 billion for largest ever private credit energy transition fund
The alternative investment manager has raised $7.1 billion at the final close of its energy transition credit fund, Blackstone Green Private Credit Fund III, representing the largest energy transition private credit fund ever raised. The fund seeks to invest in credit spectrum, ranging from investment and non-investment grade credit to preferred and convertible securities in supporting energy transition, in areas such as products, services, technologies and natural resources, including lending to renewable energy companies supporting energy transition.
Nuveen aims for more Commercial Property Assessed Clean Energy ("C-PACE") momentum with fund launch
The New York-based investment management arm has launched the Nuvee CPACE lending fund with $525 million of capital commitments from an initial investor group of six major insurance firms. The financing will allow owners and developers access with active C-PACE programs to capital for energy-related upgrades on existing assets and funding support for new construction projects.
Banking and capital markets
Sustainable bond proceeds disproportionately allocated to climate mitigation over adaptation
According to a new report from the leading credit rating agency Fitch Group, issuers of green and sustainability bonds are directing the proceeds from their issuances primarily on climate change-related projects, and disproportionately focusing on climate mitigation initiatives to reduce emissions over climate adaptation, despite a significant need for capital to address physical climate risks.
Morgan Stanley reaches 70% of $1 trillion ESG funding goal
According to the recent ESG report issued by the investment bank, the Wall street firm has already allocated a substantial sum of US$700 billion in financing, with more than US$550 billion dedicated to green initiatives. This remarkable achievement displays the bank's commitment to clean energy, carbon removal, and social housing. However, critics argue that while substantial, these figures fall short of the global efforts needed to transition away from fossil fuels and tackle sustainability challenges.
Insurance
Fix, not dump, imperfect ESG ratings: The Business Times Editorial
The world of ESG ratings is going through a turbulent moment and regulators in the key markets are trying to bring some order to the chaos. These include:
a) S&P Global Ratings announcing that it would no longer provide ESG scores in its credit rating
b) The Monetary Authority of Singapore is seeking public feedback on a proposal for a code of conduct for ESG rating and data provide, envisioned to establish minimum industry standards of transparency in methodologies and data sources, governance, and management of conflicts of interest.
Technology key to ESG reporting in business: Ping An Co-CEO
The Chinese insurer has further issued insights on how technology is a key enabler for robust ESG reporting in businesses. The firm has been building on robust internal ESG reporting process over the past five years, as well as announcing their commitment to expand green finance, with the aim to achieve carbon neutrality operationally by 2030.
ESG platforms, solutions and tools
S&P launches service for investors to assess portfolio nature and biodiversity risk
The global credit rating agency new ESG and sustainability-focused business will leverage on its Nature and Biodiversity Risk dataset recently launched, allowing companies and investors to assess, manage and address nature-related risks and impacts. The new service will cover more than 17,000 companies and 1.6 million worth of assets, using nature-related risk metrics such as The Ecosystem Footprint to deliver a deeper understanding of a company’s impact and dependency on nature.
Climate accounting platform Persefoni raises $50 million for AI portfolio model expansion
The launch of Persefoni GPT follows recent breakthroughs in AI transformer models, allowing expansion of the company’s AI portfolio model. The new GPT product is aimed at assisting users to become more efficient in their carbon accounting work, making it easier to perform functions including querying data, making calculation selections, learning how to use the platform, and receiving real-time support.
Interesting reads
Google to address business travel emissions with sustainable aviation fuel purchases
The American Express Global Business Travel and Shell Aviation has jointly announced Google's participation in the companies’ sustainable aviation fuel ("SAF”) program, enabling companies to offset business travel emissions through SAF purchases and supporting the scale-up of SAF production. The use of SAF will play a critical role in helping the aviation sector on its path to decarbonize, which currently accounts for 2-3% of global greenhouse gas emissions.
Bayer, GenZero and Shell launch program to address emissions from rice farming
The three firms has announced a new collaboration to develop a robust model to showcase the scalability of methane emissions reductions in rice cultivation, and set a benchmark for similar efforts in the rice decarbonization space. The approach will provide training, support, and guidance for smallholder farmers while utilizing measurement, reporting and verification mechanisms incorporating remote sensing technology.
Related PwC insights
Metaverse
The evolving landscape of the metaverse and artificial intelligence presents new challenges and opportunities. As this digital realm expands, questions arise regarding ownership, protection, and monetization of virtual assets. It is crucial for creators, businesses, and investors to understand these risks in safeguarding innovations and the uptake of new technologies. The convergence of technology and law highlights the necessity to establish a framework that ensures fair and secure practices in this dynamic and transformative digital environment.
Industry update
Financial services
DBS unveils metaverse game to tackle global food waste
The Singaporean bank introduced the firm's metaverse concept for DBS BetterWorld, a gamified adventure game where players can engage in activities inspired by businesses in addressing the global food waste challenge. The game aims to raise awareness and address important ESG issues, which includes delving into the challenges of food waste and food resilience, issues that the bank have been championing in a unique and engaging way.
The Housing Bank for Trade and Finance enters the Metaverse
The Jordan based bank has made its first foray in the virtual world, one of the pioneering banks in the region to adopt this cutting-edge technology, with the aim to incorporate technology in the banking industry and improve its customer relationship management. It will be present on two popular Metaverse platforms, namely the Decentraland and Spatial platform.
Banco Bilbao Vizcaya Argentaria (BBVA) bank opens its first meeting room in the metaverse
The bank has launched a pilot testing in launching an immersive meeting room, created in partnership with Legendaryum, the first global metaverse developed with a hyper-realistic appearance and focused on social meetings, commercial stores and training and leisure spaces. The new virtual space will also allow the BBVA team to analyze how people's perceptions and ways of interacting in these environments are changing.
Technologies
Bank of America uses artificial intelligence (AI), virtual reality (VR) and the metaverse for employees
The bank is using digital tools to provide a hands-on and interactive training approach to staff to help them to better understand the complexities of their jobs and the bank itself. More than 200,000 staffers around the world, both new recruits and existing employees have used at least one of the technologies for training. The move reflects a larger shift in the banking sector, as firms develop technology to enhance performance and cut down costs.
Animoca Brands partners with Amazon Web Services (AWS) to boost Web3 development and digital property rights
The Hong Kong based game software and venture capital company announced that it has achieved the status of an official AWS Activate Provider, a strategic move aimed at accelerating the development of Web3 technology and enhancing true digital property rights. The partnership will open doors to a comprehensive suite of tools, resources, expert guidance, and content, serving as a vital support for development projects hosted on the AWS platform, further bolstering the capabilities of participating startups.
Binance Labs invest in Delphinus Lab Web3 to support next era of Web3 applications
The venture capital and incubation arm of the cryptocurrency exchange will repurpose funds to support the ongoing development of Delphinus Lab’s zk WebAssembly (WASM) based application rollup platform, zkWASM Hub, which provides automated proving and batching services for application workloads with customizable WASM extensions. The technology will introduce zero-knowledge proof technology combined with WASM, allowing for enhanced security and privacy of applications, paving the way for a more trustless and decentralized digital landscape.
Artificial intelligence (AI)
Google introduces AI NotebookLM, an advanced AI language model
The notebook environment will allow users to experiment, collaborate, and iterate on their AI projects efficiently and empower developers with powerful AI capabilities while facilitating innovation in natural language processing applications.
Amazon bulks up in AI by investing up to $4 billion in start-up Anthropic
The investment will be seen as one of the most promising use of AI, which will see start-ups adopting the use of Amazon’s data centers, cloud-computing platform and AI chips. Various tech giants such as Google and Microsoft have each poured billions of dollars into AI research, as well as partnering with up-and-coming AI startups by providing them with computing power and cash to help them develop new models and applications.
Investments
Thailand's Kasikornbank (KBank) starts $100 million fund targeting AI and Web3 startups
The Thailand-based bank has been given the approval for setting up the Kasikorn X Venture Capital fund as a regional gateway to help global founders in the space to create financial innovations in the APAC region. The fund aims to serve traditional financial stakeholders in the consumer, corporate and small and medium-sized enterprises, with a special focus on consumer and problem-specific AI, cybersecurity, nodes validators, ZKP, wallets and consumerization of non-fungible tokens.
Dunhill Family Office and Mocha Ventures to anchor fund investing in firms transitioning to Web3
The London based family office and regulated EU digital assets fund firms are seeking to raise 30 million euros for fund backing traditional companies looking entering the Web3 space. The advisory division will assist Mocha Ventures in raising the rest of the money through its inner circle of family offices by the end of 2023.
MoonPay launches investment arm to drive Web3 adoption
The Web3 infrastructure company will provide capital and access to resources, mentorship and industry expertise to early-stage companies, with the goal of driving industry-wide value and promoting the adoption of Web3 technology. This will be performed by leveraging on the firm's experience and extensive network, providing access to emerging business models and go-to-market playbooks in Web3, for allowing startups to accelerate the development scaling of their projects.
Singapore commits $112 million to support fintech solutions
The MAS aims to support various technology solutions, where funds will be spent in three years under its renewed Financial Sector Technology and Innovation scheme. The scheme aims to accelerate and strengthen innovation by supporting projects that use cutting-edge technologies. The new scheme would continue supporting adoption in Web3 such as artificial intelligence, data analytics and regulation technology.
Strategic alliances
Zilliqa forges strategic alliance with Google Cloud to power Web3 ventures and strengthen blockchain infrastructure
The Singaporean blockchain firm announced a strategic multi-year alliance to enhance the scalability, resilience, and data availability of the Zilliqa layer 1 blockchain protocol. Google's investment will allow ventures within the firm and the wider ecosystem to benefit from a more robust platform underpinning the range of open, secure, scalable, and energy-efficient infrastructure and Web3 services and decentralized applications to strengthen the flexibility, resilience, and data availability of its blockchain. The firm is also using Google Cloud's native security and risk management platform, Security Command Center, to detect and remediate potential vulnerabilities and threats in the environment that hosts its nodes and applications.
Hong Kong based software company Animoca Brands and Asian Web3 market advisor Tiger Research forge strategic Web3 alliance in South Korea
The partnership seeks to enhance their business growth and marketing initiatives within the Web3 entities and community within South Korea. The collaboration will leverage Tiger Research’s extensive industry connections and market expertise to broaden the companies’ presence in this rapidly advancing sector, and aims to bring about a promising amplification of Animoca Brands’ business techniques and marketing tactics.
Grab partners Circle Internet Financial to pilot Web3 features in Singapore
The global payments firm has partnered with the ride-hailing operator to test out a Web3, blockchain-based wallet, available as the Grab Web3 wallet that holds digital assets. Users are able to earn rewards and collectibles, as well as use non-fungible tokens vouchers with the new wallet. Launched as a pilot for the SG Pitstop Pack, the collaboration supports the MAS's Project Orchid initiative as a real-world demonstration of Purpose Bound Money.
Key regulatory developments
Governments race to regulate AI tools
With the rapid advances in artificial intelligence such as Microsoft-backed OpenAI's ChatGPT, it has seen to be complicating government efforts to agree laws governing the use of the technology. The article summarizes the key regulatory developments and steps national and international governing bodies are taking in the regulation of AI tools.
United Kingdom moves towards regulating cryptocurrency, seeks to become global hub
With the Financial Services and Markets Bill formally passed as a law by the royal decree, it will enable the country’s treasury, the Financial Conduct Authority and its central bank to treat crypto as a regulated activity, where secondary legislation can now be introduced to regulate the sector. The next top agenda for secondary legislation is private stablecoins, where the government is optimistic to have the regulation to be enacted within 1 year.
UK Parliament greenlights online safety bill and metaverse protections
The long-discussed bill has been passed in Parliament, which now extends its regulations to the metaverse, aiming to protect users from illegal and harmful content. The comprehensive framework and legislation is designed to protect internet users to assess and mitigate the risks of users, where platforms that fail to act swiftly to block and remove illegal content and keep kids from seeing harmful material face fines, with executive subject to jail time. The law also requires social media companies to enforce age limits and age-verification measures and to ensure the dangers posed to children are made clearer.
Interesting reads
How Singapore is redefining Web3’s public-private landscape
Singapore has poised itself as the linchpin in the global shift towards Web3, as the global hub actions towards supporting the cryptocurrency in a strategic balance. While the nation actively promotes digital asset innovation, it remains eagle-eyed against unchecked crypto speculation. This dual strategy crafts an ecosystem nurturing for crypto ventures and a bulwark for investor protection. This is evidence in how the country has become an attractive market for firms eager to expand and grow, solidifying its unique position in global rankings as a leading crypto hub.
China issues three year strategy on development of metaverse industry
The country has outlined plans to strengthen the integration of new-generation information technologies such as AI, blockchain, cloud computing and virtual reality. The strategy will focus on 5 key tasks, namely constructing advanced technological and industrial systems, fostering a 3D interactive industrial metaverse, creating immersive and interactive digital life applications, building systematic and complete industrial support, and establishing a safe and credible industrial governance system, with a series of concrete measures.
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Digital assets
The cryptocurrency derivatives market is poised for significant growth and gaining traction albeit the bear market, which is largely driven by challenges in spot market liquidity and a shift towards derivative instruments. With the spot market liquidity suffering, it appears that a significant portion of the future growth of cryptocurrency volumes will be in derivatives.
Industry update
General market
Non-zero Ethereum (ETH) addresses reach historic 100 Million milestone
In a remarkable feat for the Ethereum network, the number of Ethereum addresses holding any amount of ETH, even the smallest fraction known as wei, has surged to an all time high of 104,076,868 since 2021. This growth trajectory is a significant testament to the resilience and attractiveness of the Ethereum network, as it continues to draw attention and engagement from a diverse range of stakeholders.
Custody, payments and tokenisation are key trends in digital assets, say market players
As regulation becomes clearer in the various different jurisdictions and global regulatory bodies to implement more consistent set of rules for the industry, bigger names will start to move into this space, post the string of collapses in the market. There are expectations to put in place more clarity on rules and improvements in blockchain technology and user experience would bring large firms into the Web3 industry.
Central Bank Digital Currency (CBDC)
Singapore's central bank proposes Stablecoin standards with Amazon, Grab collaborates
The MAS, in collaboration with the IMF and other central banks, is proposing common conditions for retail payments with digital money on a distributed ledger, which includes CBDCs and tokenized bank deposits. The authority has set out a technical white paper proposing a common protocol that specifies the conditions upon which an underlying digital money can be used. The protocol is designed to work with different ledger technology and forms of money, where users will be able to access digital money using the wallet provider of their choice.
The National Bank of Kazakhstan (NBK) establishes regulatory agency to implement CBDC
A separate entity, the National Payment Corporation, will oversee and lead the development of the national payment system, including interbank clearing services, money transfers and digital identification. Additionally, it will also be responsible for the development of “digital financial infrastructure,” including the implementation of the digital tenge.
Trading services
US authorities grant Coinbase permission for cryptocurrency futures trading
The approval opens doors for Coinbase to tap into the sizeable global derivatives market and potentially expand its services while boosting the cryptocurrency market's volatility.
Financial sector
Valkyrie files for Ether futures ETF with U.S. Securities and Exchange Commission
The move follows the investment firm's prior adjustment of its Bitcoin futures ETF strategy to align with regulatory guidelines. Their focus will seek to purchase a number of ETH futures contracts instead of directly investing in Ether used for peer-to-peer transactions within the decentralized network. In addition, the ETF will invest its remaining assets directly in cash, cash-like instruments or high-quality securities such as bills, notes and bonds issued by the U.S. government, along with money market funds and corporate debt securities.
Crypto derivatives are the next key source of growth in the crypto industry
Genesis Trading, which focuses on over-the-counter trading services for institutional investors and high-net-worth individuals, have highlighted that options volumes at the Chicago Mercantile Exchange have experienced a significant increase of nearly 25% in July 2023, reaching approximately $1 billion. The surge was attributed partly due to the decline in futures trading volumes, with the trend that options are increasingly seen as the go-to instrument for institutional players.
Non-fungible tokens (NFTs)
Coca Cola unveils new NFT collection on Coinbase blockchain
The collection consists of some iconic artworks by emerging talents and budding artists in Web3 and on chain art Timeless artistic treasures such as Girl with a Pearl Earring, which have gained a fresh dimension and perspective as artworks are transformed into collectibles on the blockchain. It aims to bring stories together globally and celebrating different types of art.
Key regulatory developments
U.S. Federal Reserve implements new program to oversee crypto banking activities
The fresh crypto guidance have set out expectations of banks to obtain pre approval for engaging in stablecoin operations, with requirements for lenders under its authority to seek the necessary approvals before engaging in digital assets activities. The level and intensity of supervision will vary based on the level of engagement in novel activities by each supervised banking organization.
Singapore central bank introduces stablecoin regulations for enhance stability
The framework sets out criteria including value stability, capital maintenance, redemption timelines, and disclosure obligations for stablecoin issuers. The framework outlines several requirements across four main pillars namely redemption timelines, disclosure, reserve management and capital requirements.
Interesting reads
Chinese technology giant Huawei embraces Web3 with new cloud service
The expansion includes the upgrading of the firm's documentation and user guides, as well as simplifying blockchain management, and offering stable and secure infrastructure for Web3 applications. This move has demonstrated the firm's will for a friendlier approach to cryptocurrencies, blockchain, Web3 industry developers, and for usual investors and users.
Ripple's legal victory against SEC seen as a positive black swan
With regulatory clarity emerging as an unexpected boon for the cryptocurrency market, it has seen potential benefits for investors and developers The firm's victory has now set a legal precedent that challenges the SEC’s stance, as many sales of its XRP cryptocurrency tokens are not securities, and it is expected for implications to be profound.
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Emerging regulatory trends
The velocity of risks in the financial services sector has increased significantly in recent years. Managing and mitigating emerging risks (e.g. financial crime, conduct risk) have become the top agenda of our clients.
In addition, the MAS has reemphasized its high expectations for AML/CFT processes. FIs need to stay on top of their anti-money laundering programmes in response to heightened risk.
Industry developments
APAC's derivatives reporting rule rewrites – What to know
The interview includes the top considerations for reporting rule rewrites for over the counter derivatives in Asia Pacific, including recommendations on how in-scope firms can prepare for the rewrites.
ABS launches Trade Finance Registry to counter trade finance fraud
This initiative aims to mitigate the risk of duplicate financing for the same underlying trade. Key features include data encryption and trade authenticity validation via SGTraDex.
Anti-money laundering developments
MAS Information Paper - Strengthening AML/CFT controls
This paper sets out typologies, case studies as well as supervisory expectations of effective controls on risks of misuse of legal persons/arrangements and complex structures.
MAS Circular - Ensuring effective detection of sanctions-related risks
Specifically, financial institutions should ensure strong board and senior management oversight, and continue to strengthen its sanctions-related detection capabilities.
Key regulatory developments - Singapore
MAS' Enforcement Report (January 2022 to June 2023) on robust enforcement outcomes and enhances disclosure of statistics
In addition to MAS' evergreen enforcement priorities, two areas of focus for 2023 and 2024 includes digital asset ecosystem, and the continued focus on asset and wealth managers.
Consultation Paper on proposed framework for Single Family Offices (“SFOs”)
This consultation paper sets out a proposed framework to introduce a harmonised class exemption with specific requirements to ensure that all SFOs are subject to AML controls.
FAQs on Licensing and Business Conduct (Other than for Fund Management Companies)
MAS updated the FAQs, which provides guidance on the scope of capital markets services licensing, appointment of representatives, business conduct rules.
MAS responds to Consultation of Group Capital Notice for Designated Financial Holding Company (Licensed Insurer)
The Group Capital Notice sets out the valuation and capital requirements based on Risk Based Capital 2 consolidation approach. MAS will revise the implementation date to 1 Jan 2024.
Consultation Paper on enhancing pre and post-transaction safeguards for retail clients
Following feedback, MAS will extend the transitional period from 6 months to 9 months to implement the enhanced requirements.
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