Climate Finance Policy Engagement Analysis
Climate Lobbying Overview: The International Swaps and Derivatives Association (ISDA) has some engagement on climate-related policies. It has appeared most heavily engaged in opposition to various policies intended to incorporate climate into investor duties, as well as anti-greenwashing regulation. It does not appear engaged on real economy climate policy.
Top-Line Messaging on Climate-Related Financial Policy: In a 2021 consultation response, ISDA supported EU regulators’ ambition towards Net Zero GHG emissions by 2050. At ISDA’s 2022 ESG Forum, CEO Scott O’Malia supported urgent action to tackle climate change.
Position on Climate Standards/Labels/Benchmarks: In a 2024 consultation response to the UK Financial Conduct Authority’s anti-greenwashing rule, ISDA expressed broad support for the FCA’s efforts to tackle greenwashing, however raised concerns regarding the definition of ‘sustainability claim’. In a 2023 response to the FCA regarding greenwashing, ISDA advocated for regulatory clarity on the treatment of derivatives, and the creation of standardized regulatory training and communication on ESG classification. ISDA also opposed the creation of a broader ESG benchmark in a 2022 consultation response to EU Benchmarking Regulation. In a 2023 ESMA consultation response, ISDA suggested that including derivatives in ESG fund labels would be premature and opposed a mandatory methodology for derivatives in ESG fund labeling, citing lack of industry consensus regarding treatment of derivatives.
Position on Incorporating Climate Factors into Investor Duties: In a June 2024 response to the FCA Sustainability Disclosure Requirements portfolio management measures, ISDA supported fuller disclosure of derivative positions, suggesting risk mitigation derivative positions should be considered 'sustainable' due to cost-of-capital benefits. ISDA has also praised the flexible treatment of derivatives and the non-prescriptive treatment of asset managers by the FCA in a 2024 consultation response. In a 2023 response to the FCA on the same regulation, ISDA suggested the EU climate disclosure framework was too prescriptive, and argued for a principles-based response in the UK. In 2023 comments to ESMA regarding ESG fund naming, ISDA did not support the inclusion of derivatives in the denominator of taxonomy alignment ratios in EU Sustainable Finance Disclosure Regulation. ISDA also responded to a 2022 consultation on sustainability aspects of the Markets in Financial Instruments Directive (MiFID) II, where it supported weakening requirements for financial advisors to provide sustainability information to clients, opposed two-tiered product and portfolio disclosure, and suggested that establishing a client’s sustainability preferences using self-assessment was ‘premature’. In the US context, ISDA’s 2022 comments to the Securities and Exchange Commission on its proposed disclosure rule for investment advisers and companies about climate-related practices did not support the proposed treatment of derivatives in funds’ emissions calculations and called for a delay in the implementation of the rules.
Position on Incorporating Climate Factors into Risk Management/Prudential Regulation: ISDA outlined significant objections to climate-related disclosure standards likely to inform prudential regulation in a joint comment to the BCBS, asserting that banks' climate strategy, financed and facilitated emissions, and physical risk exposures are outside the scope of Pillar 3 disclosures.