Global Trustee and Fiduciary Services Bite Sized Issue 12 2024

11 QUICK LINKS COSTS & CHARGES CSDR CRYPTOASSETS EMIR FINTECH FSB FUND LIQUIDITY MIFID II/MIFIR NBFI OPERATIONAL RESILIENCE SUSTAINABLEFINANCE/ESG T+1 ASIA NORTH AMERICA UNITED KINGDOM Global Trustee and Fiduciary Services Bite-Sized | Issue 12 | 2024 The climate stress test was conducted against three scenarios developed by the European Systemic Risk Board (ESRB), with the support of the ECB. The scenarios incorporate transition risks as well as macroeconomic factors, under the assumption that the Fit-for-55 package is implemented as planned. • Under the baseline scenario , the Fit-for-55 package is implemented in an economic environment that reflects the ECB’s June 2023 forecasts, while still facing additional cost related to the green transition. • Under the first adverse scenario , transition risks materialise in the form of “Run-on-Brown” shocks, whereby investors shed assets of carbon-intensive firms. The ESAs say that this hampers the green transition, since “brown” firms don’t have the financing they need to green their activities. • Under the second adverse scenario , the “Run-on-Brown” shocks are amplified with other standard macro-financial stress factors. To measure the impact of the scenarios on the respective financial sectors (the so called “first- round effects”), and to assess the potential for contagion and amplification effects across the financial system (the so called “second-round effects”), the ESAs and the ECB used top-down models. The ESAs state that the results of the exercise show that estimated losses stemming from a “Run- on-Brown” scenario have a limited impact on the EU financial system. Over the 8-year horizon, total first-round losses stand between 5.2% and 6.7% of starting point exposures, in each sector. The second-round losses are mostly relevant for investment funds, and amount to 11.2% of starting point exposures. However, given the novelty of the methodological approaches and the data-related challenges, the ESAs warn that the results are subject to a large margin of uncertainty. Link to the Scenario Analysis here Consultation on UK Green Taxonomy On 14 November 2024, HM Treasury (HMT) issued a consultation paper to gather views on the value case for a UK Green Taxonomy as part of the UK’s wider sustainable finance framework. HMT says the purpose of implementing a green taxonomy is to support investment into activities aligned with sustainability goals, and to mitigate greenwashing. HMT says that this consultation is seeking views on whether a UK Green Taxonomy would be additional and complementary to existing sustainable finance policies, including in supporting market participants to make sustainable investment decisions, and the specific market and regulatory use cases which facilitate this. HMT says this will inform an assessment of the value of implementing a UK Taxonomy, and exactly how it could be targeted to ensure it is as effective as possible. The consultation closes on 6 February 2025. Link to the Consultation here