Global sustainability and climate reporting standards released

The International Sustainability Standards Board (ISSB) – which was launched in November 2021 by the International Financial Reporting Standards (IFRS) Foundation at the COP26 climate conference in Glasgow – has issued its new global sustainability and climate disclosure standards.

These are expected to form the basis for emerging sustainability reporting requirements by regulators around the world and mark a major step towards the integration of sustainability reporting into the broader financial reporting process.

The new standards will start applying for annual reporting periods from January 2024 onwards, with companies beginning to issue disclosures against the standards in 2025.

Erkki Liikanen, Chair of the IFRS Foundation Trustees, said: “The global baseline approach, supported by the G20 and others, will provide investors with globally comparable sustainability-related disclosures that have the potential to move market prices, without constraining jurisdictions from requiring additional disclosures. This will help companies and investors by tackling duplicative reporting.”

The ISSB was tasked at its formation with developing IFRS Sustainability Disclosure Standards, in response to demands from investors, companies, governments and regulators to provide a global baseline of disclosure requirements enabling a consistent understanding of the effect of sustainability risks and opportunities on companies’ prospects.

Speaking at a London Stock Exchange Group (LSEG) event marking the launch of the new standards, ISSB Chair Emmanuel Faber said: “Our objective is to bring information that is useful to the primary users of general-purpose financial reporting when they are considering providing resources to entities.

“Essentially, what we are doing here is bringing a solution which is an accounting-based language. It is not a suite of environmental, social and governance (ESG) metrics or disclosures – it is a comprehensive language which is deemed to be consistent, verifiable and therefore decision useful.”

Regulators in major jurisdictions around the world have introduced or are preparing mandatory sustainability reporting requirements for companies, and most will be heavily influenced by the ISSB standards, which include “IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information,” and “IFRS S2 Climate-related Disclosures.”

 

Don’t underestimate the task of taming inflation, warns IMF

The world’s major central banks may need longer to get inflation back down to target and a fresh bout of financial turbulence could make the process even more protracted, a top official at the International Monetary Fund (IMF) has warned.

Central banks have regularly raised interest rates since the end of 2021-to mitigate an upsurge in prices, but they have persistently underestimated inflationary pressures.

Gita Gopinath, the IMF’s deputy managing director cited several “uncomfortable truths” and said that the financial community may be overly optimistic about the cost and difficulty of taming inflation, which then raises the sort of stability risk central banks might not be equipped to handle.

“Inflation is taking too long to get back to target,” Gopinath told an audience at the European Central Bank’s (ECB) annual forum on central banking in Sintra, Portugal. “While headline inflation has eased significantly, inflation in services has stayed high, and the date by when it is expected to return to target could slip further.”

Such a delay would be costly, so central banks need to keep policy tight, despite an obvious cost to growth, she said.

Gopinath argued that investors appear to be overly optimistic about the inflation path and do not see much of a hit to economic growth, an unlikely combination, especially if high rates persist for longer than currently predicted,

“It is useful to bear in mind that there is not much historical precedent for such an outcome,” she reminded her audience.

Once the reality hits, asset prices could reprice, potentially setting off the sort of financial turbulence seen around the collapse of Silicon Valley Bank and the sale of Credit Suisse in March this year, she warned.

While central banks insist that they have the tools to manage both price and financial stability risks, the reality is that their powers are limited when financial stress threatens to morph into a systemic crisis, she added.

It is then up to governments to forestall a crisis, but their fiscal capacity is quite limited now, so central banks might need to let inflation come down even more slowly to avoid their own policy triggering a crisis.

“Financial stresses could generate tensions between central banks’ price and financial stability objectives,” Gopinath said. “While central banks must never lose sight of their commitment to price stability, they could tolerate a somewhat slower return to the inflation target to avert systemic stress.”

For the time being though, policy is not tight enough and central banks need to expect more persistent price pressures than in the past decade, that was characterised by anaemic price growth, Gopinath said. “Monetary policy should continue to tighten and then remain in restrictive territory until core inflation is on a clear downward path.
 

Japan-backed fund bids US$6.3 billion for semiconductor firm JSR

The Japanese Investment Corporation (JIC), a fund backed by the country’s government, has bid yen (JPY) 903.9 billion (US$6.3 billion) to acquire semiconductor material producer JSR. The company is one of the biggest names in the semiconductor supply chain in an area known as photoresists, where Japan is among the world leaders.

JIC proposed an offer of JPY4,350 per share to buy JSR, marking a 35% premium to Friday’s closing price.

The bid underlines the strategic emphasis governments around the world are putting on the critical technology of chips. Countries are attempting to secure their own supply chains and build up their domestic chip industries, focusing on areas where they are traditionally strong.

JSR has made its name in photoresists, which are light-sensitive materials needed as part of the process to etch patterns into wafers. These eventually are the design for the circuit of a chip.

“Japan wants to double down on its comparative advantage in materials ... needed for semiconductor manufacturing,” said Pranay Kotasthane, chairperson of the hi-tech geopolitics programme at the Takshashila Institution.

The potential acquisition comes at a time when semiconductors are at the centre of a broader technology battle between the US and China. Last October, the US announced sweeping export restrictions on semiconductor tools and certain chips to China. Countries such as the Netherlands, home to chip firm ASML that specialises in the development and manufacture of photolithography machines, as well as Japan followed suit with similar restrictions.

“JIC’s investment in JSR means that the government might have a higher say over its decisions,” Kotasthane said. “Geopolitically, this would make China uncomfortable. Especially since Japan has gone along with its own version of export controls against the Chinese semiconductor industry.”

 

Deutsche Bundesbank denies that it may need a bailout

Germany's Bundesbank has denied a Financial Times report that it might need a bailout to cover losses arising from the European Central Bank's (ECB) bond-buying scheme.

The business daily cited a report by Germany's federal audit office as saying possible losses by the central bank were substantial and could require recapitalisation with budgetary funds.

The Bundesbank said its balance sheet would probably be considerably burdened in the future by the rapid and strong rise in interest rates in connection with large bond holdings. In 2023, the financial buffers would probably still be sufficient, it said, but subsequently the burdens could temporarily exceed the buffers.

However, it said that would not necessarily cause a need for recapitalisation by the federal government. Instead, the Bundesbank would report losses carried forward, which it could offset with future profits.

Even in the case of a loss carry-forward, the Bundesbank’s balance sheet would be sound, it said, adding it had considerable own funds, including valuation reserves.

In March this year Germany’s central bank reported losses for the first time since 1979 as rising interest rates put pressure on net interest income and it suffered losses on reserves. The Bundesbank said that it had lost €172 million (US$184 million) – shortly after the ECB had itself reported a €1.6 billion loss – and was not expecting to distribute profits to the government for a third year running.

It added that further losses were likely as interest rates keep rising, reducing the value of bonds accumulated during the years when inflation was very low.

 

HSBC rolls out cryptocurrency services in Hong Kong

Three crypto exchange traded funds (ETFs) listed on the Stock Exchange of Hong Kong are now reportedly available for trading after Hong Kong and Shanghai Banking Corporation (HSBC) — the biggest bank in Hong Kong —introduced its first local cryptocurrency services.

HSBC, Hong Kong’s largest bank, has enabled its customers to buy and sell Bitcoin based ETFs, local journalist Colin Wu reported in a tweet on June 26 

According to the report, HSBC will specifically offer cryptocurrency ETFs listed on the Stock Exchange of Hong Kong. At the time of writing, the exchange lists three crypto ETFs, including CSOP Bitcoin Futures ETF, CSOP Ethereum Futures ETF and Samsung Bitcoin Futures Active ETF.

The new services come as HSBC is reported also to have launched the Virtual Asset Investor Education Center. The initiative is designed to protect investors from cryptocurrency-related risks, requiring them to read and confirm educational materials and risk disclosures before investing.

The education centre is reportedly available on HSBC’s virtual asset-related products like the HSBC HK Easy Invest app, HSB CHK Mobile Banking app and online banking.

The news comes soon after media reports earlier this month suggested that the Hong Kong Monetary Authority (HKMA) pressured major banks to accept crypto exchanges as clients. The region’s central bank and regulator specifically questioned companies like HSBC and Standard Chartered on why they were not taking any crypto exchanges as clients.

 

ABS launches registry to reduce trade finance fraud

The Association of Banks in Singapore (ABS) has launched an industry utility that will securely maintain a centralised record of trade finance transactions in Singapore, according to a media release from ABS.

Launched at the ABS's 50th-anniversary dinner on June 23, the Trade Finance Registry (TFR) is supported by Singapore’s’ key trade financing banks. The industry initiative aims to mitigate the risk of duplicate financing for the same underlying trade, enhance trust and confidence among banks and traders, and strengthen Singapore's role as a key trading hub.

TFR will remove the information asymmetry faced by banks and facilitate the detection of duplicate financing. Participating banks will register new trade financing transactions on TFR, and notifications will be triggered if any of the new transactions are found to be duplicated in near real-time for further action.

Only information on corporate customers will be provided to the TFR. In addition, data on the TFR is hashed into an encrypted format that enables matching of duplicate trades can be done without exposing the banks' underlying data fields to other participating banks.

TFR will also improve the transparency of trade financing transactions by enhancing their ability to validate the authenticity of trade, through API connections to the Singapore Trade Data Exchange, a public digital platform that facilitates trusted and secure sharing of data between supply chain ecosystem partners.

Director of ABS Ong Ai Boon said:  “The launch of TFR is a testament to the collaborative spirit and collective focus of the banking industry to address issues of national importance. ABS is pleased that in bringing the industry together, we have created a utility that will bolster the confidence of all stakeholders in undertaking trade finance in Singapore."

Marcus Lim, assistant managing director of the Monetary Authority of Singapore (MAS), said: “Collective action is needed to effectively deal with the risk of duplicate trade financing, and we are supportive of this industry initiative.”

TFR will be an important tool to strengthen banks’ risk management capabilities, thereby bolstering trust in Singapore's trade finance ecosystem, he added.

 

Banks partner with WHO to strengthen healthcare

Three multilateral development banks (MDBs) have joined with World Health Organisation (WHO) to launch the new Health Impact Investment Platform. The initiative will provide investment aimed at strengthening essential, climate and crisis-resilient primary healthcare (PHC) services in low- and low-and-middle income countries (LICs and LMICs).

The platform will make an initial €1.5 billion (US$1.64 billion) available to LICs and LMICs in concessional loans and grants to expand the reach and scope of their PHC services, especially for the most vulnerable and underserved populations and communities.

The African Development Bank (AfDB), European Investment Bank (EIB), Islamic Development Bank (IsDB) and WHO are the platform’s founding members. As this is a global challenge, the Inter-American Development Bank (IDB) is also considering joining the partnership with a view to extending the initiative to the Latin America and the Caribbean region.

WHO will act as the platform’s policy coordinator, responsible for ensuring alignment of financing decisions with national health priorities and strategies. The platform’s secretariat will support governments to develop national health and prioritise PHC investment plans. The platform will also aim to catalyse wider PHC investments in support of government health strategies.

 

UK mid-sized firms scale back plans due to scarce capital

Difficulty accessing capital is forcing more than nine in 10 (91%) of the UK’s mid-sized businesses to curb growth plans, according to the latest research from accounting and advisory firm BDO.  

The bi-monthly survey of 500 leaders of medium-sized businesses, which looks at the challenges and opportunities facing UK companies, reveals nearly one in four (24%) are being forced to scale back the business or make redundancies as a result of difficulty accessing capital; 22% are unable to finance plans for expansion; and 20% struggle to invest in new technology or software to improve their business for this reason.

An additional fifth say they are unable to raise salaries while 24% are also struggling to invest in initiatives or benefits to retain current employees. Concerningly, this comes as 24% of businesses cite staff and skills shortages as one of their biggest challenges over the next six months.

Amid growing concerns about their access to capital, record levels of inflation or increased operating costs, such as energy bills, commercial rent and payroll, are the biggest challenges facing 56% of mid-sized businesses. Improving cash flow, generating new sources of revenue or raising new financing from existing funding sources are also the top priorities for 44% of companies over H2 2023.

Against this backdrop, businesses are turning to private capital markets for potential funding solutions. Private equity investment is the most attractive source of capital for 32% of those in need of new funding, followed by equity capital markets (28%) and government support schemes (25%).

As a result of tough economic challenges, 40% will need to raise funds over the next year, while 33% plan to source new financing in the next 13 to 18 months.

Mid-sized companies, which employ eight million people and provided a around a quarter of UK jobs according to further research,¹ are now calling on the Government to support them with rising costs and improve access to capital to make the UK a more appealing place to do business.

More support from policymakers to address high costs from inflation was the most common call among business leaders. Almost 30% want the Government to do more to improve access to private sources of funding, including bank loans, regional banking and private equity investment.

Even more (32%) are calling for better public financing, such as government grants, specifically targeted at businesses in the mid-market. More than one in three want the government to introduce or improve tax incentives to help support their business and 33% believe the UK government could do more to offer support with energy bills, whether through subsidies or improving insulation for commercial buildings to cut demand altogether.

 

Five banks in Singapore tokenisation trials on public blockchain

The Monetary Authority of Singapore (MAS) has released its latest public blockchain tokenisation trials. In the latest iteration of Project Guardian in conjunction with the Bank for International Settlements (BIS), it outlined a framework to address how to approach public blockchain – or open interoperable networks – and the perceived risks.

The latest tests involve 11 institutions including five systemically important banks: Standard Chartered, HSBC, Citi, UBS and JP Morgan.

Japanese tokenised government bonds have been used in previous and current iterations of Project Guardian and the Japan Financial Services Agency (JFSA) has therefore joined the project. 

The driver behind the project is the proliferation of permissioned digital asset platforms, particularly for bonds, which each represents a silo and potential fragmentation. There is a need for interoperability with existing systems and each network. In contrast, the permissionless Ethereum blockchain enables an immediate audience of millions. Given these are networks, size matters to achieve network effects.

The report addresses the potential risks, including the risk of a public blockchain going offline without recourse.

“While MAS strongly discourages and seeks to restrict speculation in cryptocurrencies, we see much potential for value creation and efficiency gains in the digital asset ecosystem,” said Leong Sing Chiong, Deputy Managing Director (Markets and Development), MAS.