GLASGOW, Scotland–In an unseasonably warm day in Scotland, credit union leaders from around the globe who are gathered here were urged to prepare for coming regulations around sustainable finance, including those related to climate change.
Panya Monford, assistant general counsel for international advocacy for the World Council of Credit Unions, told the World Credit Union Conference here, “Regulations are coming. It’s going to create a significant regulatory burden. A lot of climate related reporting is coming.”
Coincidentally, Monford’s remarks and related comments made elsewhere during the meeting came at the same time Great Britain was experiencing a record heatwave, with one newspaper headline on Tuesday in Glasgow declaring, “Hottest Day Ever,” while the air conditioning in the room where Monford was speaking was straining to cool the room.
At same time credit unions were meeting in Glasgow and talking climate change regulations, local newspaper reinforced issue.
Those regulations credit unions should be watching, according to Monford, are coming out of the four international regulatory standards-setting bodies—the Basel Committee, the European Commission, the International Accounting Standards Board, and the Financial Stability Board—which have in place or will have in place rules around sustainability. While credit unions have successfully lobbied some of those bodies to keep the smaller size and limited complexity of credit unions, known as “proportionality,” in mind, the presentation made clear that rules will be coming in some form.
NCUA Chairman Todd Harper has also spoken often for greater risk management by credit unions related to climate change.
‘Need to Get Ahead of This’
“I feel like we need to get ahead of this, that you need to start thinking about this,” Monford said.
Monford noted the Basel Committee wants to address climate-related financial risks by strengthening the regulation, supervision and practices of financial institutions worldwide with the purpose of enhancing financial stability.
“The principles are geared toward large, internationally active banks,” said Monford. “We have consistently asked them to provide clear guidance to national-level regulators and that proportionality is an option. The Basel committee actually heard us.”
Panya Monford speaking to WOCCU meeting.
Indeed, if there is good news for credit unions it is, as CUToday.info recently reported, that the Basel Committee on Banking Supervision has endorsed proportionality, which allows national and regional financial regulators to prescribe compliance standards for credit unions that are less burdensome than those required by Basel III and other international financial regulatory standards.
Regulators Come to Understanding
“I think that regulators are understanding if we support small institutions like credit unions, we are supporting financial inclusion, we are helping the underserved and the underbanked,” Monford said.
Monford related how she attended one conference where a regulator remarked that “financial inclusion is expensive.” But she believes it’s the opposite.
“Financial inclusion is imperative,” Monford said, stating that it’s underserved areas that are expensive and that providing them with financial services helps to underpin an economy.
Six Environmental Objectives
According to Monford, there are six environmental objectives of a taxonomy, as outlined in the slide below.
Environmental objectives are based on science, but a social taxonomy must be based on “international authoritative standards of topical relevance,” according to regulators’ standards, said Monford.
A social taxonomy has three objectives”
- Decent work
- Adequate living standards and wellbeing
- Inclusive and sustainable communities and societies.
Monford noted that the IASB has created the International Sustainability Standards Board to form accounting standards to address environmental, social and governance (ESG) matters.
“They are currently working on guidance and standards related to sustainable and climate-related risk disclosures,” she said.
Roadmap Released
The Financial Standards Board, meanwhile, has released a roadmap for addressing climate-related financial risks.
“It is working with other standard-setting bodies to coordinate efforts to address climate related financial risks,” said Monford. “You are probably going to have to keep better records in terms of sustainability.”
The World Council, meanwhile, said Monford, will be working to make credit unions more visible as a “sustainable source” of finance. “It’s a sustainable model, she said.