ESG Policy Digest: April 2024

Reflecting on headlines from the past month, there was a stark contrast between litigation in the United States aiming to strike down the climate disclosure rule and another ruling from Europe’s top court agreeing with 2,000 Swiss women that governments have human rights obligations to combat the adverse effects of climate change. Against this backdrop, global regulators must steadfastly maintain the founding principles of sustainability regulation.

Despite Europe’s exemplary track record in terms of shaping sustainability disclosure, there remain some cases, such the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), where legislative consensus is hard to reach. However, in March, the directive was revived after legislators reached an agreement on a limited scope that would only affect the largest businesses in Europe. The European Parliament also advanced an EU-wide certification scheme for carbon farming and carbon removal technologies.

Following a request for Technical Advice from the Commission, the European Securities and Markets Authority (ESMA) launched a consultation on transparency in credit ratings methodologies incorporating ESG factors. In France, lawmakers are doubling down on climate priorities by introducing a compulsory shareholder vote on transition plans reported under the Corporate Sustainability Reporting Directive (CSRD). The reporting boundaries for ESRS S1 (subsidiaries) were further defined in April by the European Financial Reporting Advisory Group (EFRAG), while in parallel, EFRAG released amendments to the materiality assessment guidance.

Across the pond, the U.S. Securities and Exchange Commission (SEC) is at the centre of a legal battleground as several Republicans states challenge the climate disclosure rule, consolidating lawsuits in the United States Court of Appeals for the Eight Circuit. In contrast, Canadian regulators are forging ahead as planned with the proposed set of Canadian Sustainability Disclosure Standards (CSDS).

In Asia-Pacific, Japan and China are framing the adoption of international standards for sustainability reporting in a localised context. The Sustainability Standards Board of Japan (SSBJ) has released exposure drafts for the transposition of ISSB-aligned standards with certain jurisdictional exemptions. Meanwhile, China is following the EU’s lead in adopting a double materiality approach for sustainability reporting, as confirmed by the latest guidelines for sustainability reporting released by the Shanghai Stock Exchange. Furthermore, in the banking and financial sector, India’s central bank – the Reserve Bank of India (RBI) – published a draft disclosure framework for reporting climate risks.

Regional updates in Africa and the Middle East this month cover Saudi Arabia’s latest policy tool – the green financing framework – for the efficient allocation of capital towards sustainable investments. In Kenya, the central bank is proposing a series of reforms, including higher capital requirements for banks that lag in terms of managing climate risks. These efforts and many more signify a global push from regulators to contextualise the adoption of international standards, such as the International Financial Reporting Standards (IFRS 1 and 2), to align with national priorities and economic growth objectives.




EU Council reaches decision on the CSDDD

The latest draft of the EU’s supply chain due diligence law narrows the scope of the regulation to apply to only the largest organisations doing business in Europe, with over 1,000 employees and over 450 million euros in annual turnover. In effect, 70% of companies that were previously covered under the legislation will now be exempt. CSDDD implementation will be staggered over the next few years based on employee and turnover thresholds. In the first phase, companies with over 5,000 employees and a turnover exceeding 1.5 billion Euros must comply within three years. The amended version of the CSDDD also eliminates the need for separate climate transition plans for companies already complying with the CSRD to ensure consistency. The CSDDD will undergo further deliberation in the European Parliament before being enacted into law. A decisive vote is essential to ensure the due diligence law successfully passes and is implemented.

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EU Parliament approves ‘world’s first’ certification scheme for high-quality carbon removal

The European Parliament adopted a provisional agreement with Member States for a framework that may be used voluntarily to certify carbon farming and carbon removal technologies. The certification framework outlines qualifying criteria for carbon farming such as restoring forests and soils, avoiding soil emissions and specifies rules for carbon capture and minimum requirements for binding carbon in durable products (35 years). The aim of the regulation is to track compliance with the applicable EU-wide standards, crack down on greenwashing and ensure credibility to the certification process. This voluntary initiative can potentially unlock financing for innovative carbon removal technologies, thereby supporting the growth of a low-carbon economy. The European Commission plans to establish an EU-wide registry in four years to provide greater transparency on certified carbon removals.

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ESMA initiates consultation to enhance transparency of ESG factors within credit ratings methodologies

ESMA is consulting on proposed amendments to the Credit Ratings Agencies Regulation (CRAR) following a request for Technical Advice from the European Commission last year. The proposed amendments would require CRAs to disclose ESG factors incorporated in credit rating methodologies. Specifically, CRAs must list quantitative and qualitative ESG factors, where these are considered in the methodology, and provide a rationale for using these factors to determine creditworthiness. Overall, the proposal emphasises transparency by requiring CRAs to publicly disclose the full scope of judgement within methodologies, data sources and other underlying characteristics used in the credit ratings process. The consultation will be open until December 2024.

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France tables amendments to generalise ‘Say on Climate’ for companies reporting under CSRD

French legislators have recently put forward two amendments to a bill which would make it mandatory for listed companies reporting under CSRD to submit climate transition strategies to shareholders. Shareholders would receive two resolutions on climate transition strategy and the implementation of climate transition strategy. If either resolution is rejected, it would directly result in a 50% reduction in company director bonuses. The amended version of the bill aims to facilitate dialogue between companies and investors that should be made aware of credible plans and targets for meeting climate commitments.

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EFRAG publishes amendments to materiality assessment guidance

EFRAG’s Sustainability Technical Expert Group (TEG) approved the draft Materiality Assessment Implementation Guidance (MAIG) with adjustments, adding new sections and FAQs addressing group and subsidiary considerations. The guidance stresses the need for diverse methodologies in group materiality assessments, indicating aggregation may not fit all sustainability issues. The draft clarifies evidence sourcing and impact assessment methods, notably for environmental concerns. ESRS 2 disclosure requirements on management awareness of material impacts are highlighted. The draft now moves to EFRAG’s Sustainability Reporting Board for final review.

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North America


US SEC pauses implementation of climate disclosure rule

After facing several legal challenges from states and business groups, the SEC has voluntarily stayed the adoption of the climate disclosure rule. The Commission acknowledges that lawsuits have created ‘regulatory uncertainty’ for affected companies and therefore plans to resume implementation after establishing the validity of the rule in a court of law. The SEC argues that it has the authority as an independent financial regulator to require the disclosure of investor-useful information. In March, the Commission finalised the much-awaited rule after two years of debate and deliberation. The regulation requires registrants to report greenhouse gas emissions (Scope 1 and 2) and other climate-related financial information. Despite repeatedly facing roadblocks, the rule signifies a significant advancement in reinforcing international norms of sustainability reporting established under the European Sustainability Reporting Standards (ESRS) and the ISSB standards. It also follows California’s example of progressive rulemaking for the disclosure of material climate-related risks. Read more


Canada opens consultation on sustainability disclosure standards adoption

On March 13th, 2024, the Canadian Sustainability Standards Board CSSB released two exposure drafts: the CSDS 1 General Requirements and CSDS 2 Climate-related Disclosures replicating the structure of the ISSB standards. The CSSB also released further details on additional considerations for the Canadian context. Once finalised, these standards will be voluntary. The CSSB offers temporary relief in multiple ways – first, by suggesting the standards take effect a year later than the ISSB’s (2025 onwards),  second – by allowing companies to focus on climate-related disclosures and extending the requirement to furnish details by two years (2026), and lastly, providing an additional year for Scope 3 emissions disclosure.

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Asia Pacific


Japan releases draft ISSB aligned sustainability reporting standards

The SSBJ issued three exposure drafts (EDs) aligned with ISSB sustainability disclosure standards. These drafts incorporate key elements from the IFRS S1 General Requirements and IFRS S2 Climate-related disclosures and offer jurisdiction-specific exemptions. The SSBJ has divided IFRS S1 into two parts: a ‘Universal Sustainability Disclosure Standard’ and a ‘Theme-based Sustainability Disclosure Standard No.1’. The Universal clarifies central concepts embedded in the IFRS framework while Disclosure Standard No.1 contains ‘core’ reporting content in IFRS S1. The third draft, ‘Theme-based Sustainability Disclosure Standard No.2’, focuses on climate-related reporting following ISSB’s IFRS S2 guidelines. The SSBJ has opened consultation on the EDs until July 31st, 2024. These proposed standards build upon Japan’s previous regulatory initiatives to promote and enhance mandatory sustainability reporting over time. The FSA expects to finalise rules by 2025 to align with regional peers like Malaysia, Singapore and Australia in harmonising global sustainability disclosure.

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China finalises double materiality guidance as part of listing rules

Chinese stock exchanges have upheld the concept of Double Materiality in their recently released final guidelines, signaling a positive move towards integrating ESG factors into corporate reporting. Key highlights of the guidelines include provisions on stakeholder engagement, with specific articles emphasising engagement protocols, as well as a clear definition of stakeholders encompassing various groups affected by a company’s activities. Notably, the guidelines do not mandate third-party assurance, offering flexibility in reporting mechanisms. Additionally, an Annex provides an index of 21 topics for reference, streamlining reporting processes and ensuring comprehensive coverage of ESG aspects. This development reflects a significant step forward in aligning Chinese corporate reporting practices with global sustainability standards and underscores a growing commitment to transparent and responsible business practices.

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India’s central bank releases Disclosure Framework on Climate-related Financial Risks

 The Reserve Bank of India (RBI) has incorporated the four thematic TCFD pillars (governance, strategy, risk management, metrics and targets) into the framework and set forth baseline and enhanced disclosure requirements for each pillar. Covered entities can provide information on a voluntary basis relating to policies and procedures for identifying, monitoring and mitigating climate-related financial risks and opportunities. Metrics and targets can also be used to assess exposure to climate risks. This can include Scope 1, 2 and 3 GHG emissions and specific targets to measure alignment with climate commitments. The RBI has specified that the guidelines are applicable to all scheduled commercial banks (excluding local area banks, payments banks and regional rural banks), all Tier-IV Primary (Urban) Co-operative Banks (UCBs), all all-India financial institutions, and all top and upper layer non-banking financial companies.

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Africa & Middle East


Saudi Arabia launches green finance framework

Saudi Arabia has become the second country in the region after Oman to publish a sustainability finance framework. The Green Financing Framework focuses on enabling sustainable funding for climate mitigation and adaptation measures. It delineates eight types of projects eligible for funding through green bonds, including renewable energy, energy efficiency, sustainable transport, climate adaptation, carbon capture and storage, green hydrogen, emissions reduction across industries, and sustainable water management practices. Additionally, the framework organises projects across key environmental objectives including sustainable management of natural resources and land use, pollution prevention and control and biodiversity. Two committees in the Ministry of Finance (MoF) will be tasked with the assessment of eligible projects based on the degree of negative or positive impact.

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Kenya announces plan to raise capital requirements for banks exposed to climate risks  

The Central Bank of Kenya (CBK) is currently working on a policy measure that would penalise banks for poor management of climate risks by levying higher capital requirements.  In parallel, the central bank has announced that it will release ISSB aligned standards of reporting for banks. The CBK will release more details on the “second phase of reforms” for the banking and financial sector, which include a Green Taxonomy and other regulatory initiatives to promote financial market stability.

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Other News & Resources

  • GRI and TNFD announce interoperability guide slated for Q2 2024. Read more
  • UK Transition Plan Taskforce releases sectoral guides. Read more
  • UN completes draft report on ESG index and data provider human rights responsibilities. Read more


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