ESG Policy Digest: July

Global sustainability reporting is entering a promising era of alignment following the issuance of the IFRS S1 and S2 standards last month. The IFRS Foundation has since announced that it will double its responsibilities by inheriting oversight functions for the Task Force on Climate-related Financial Disclosures, starting 2024. This month, the newly introduced IFRS S1 and S2 standards have also formally been endorsed by the International Organization of Securities Commissions (IOSCO), encouraging comparability of current reporting procedures and targeting better alignment across corporate disclosures.
Meanwhile in Europe, MEPs passed the Nature Restoration Law that would mandate Member States to restore certain ecosystems and prevent biodiversity loss. On the climate front, France became the first country to adopt a mandatory ‘Say on Climate’ law requiring publicly traded companies to seek shareholder approval on their climate plans. This approach empowers investors to play a more active role in steering companies towards climate-friendly practices and achieving net-zero goals.
In contrast to the European Union, regulation in the UK came to a standstill as the Financial Conduct Authority announced further delay in releasing sustainability disclosure rules (SDRs). Policymakers in the UK are facing pressure to catch up with other jurisdictions and enhance policy momentum to ensure the country remains competitive in the global push for sustainable reporting and climate action.
Down under, Australia’s competition regulator released guidelines to prevent greenwashing and help consumers make informed choices about the products they purchase for sustainability reasons. Also in the region, Singapore emerged as the first champion of the ISSB standards, proposing mandatory ISSB-aligned climate reporting for all listed companies and large non-listed companies. In India, shortly after the release of the Business Responsibility and Sustainability Reporting  (BRSR) Core Framework, the Securities and Exchange Board of India (SEBI) launched ESG themed sub-categories for equity schemes. Regulators in Thailand also made progress with the adoption of the Thai Green Taxonomy. This marks an important step in the country’s efforts to achieve decarbonization and mitigate the effects of climate change.
Worldwide, there is growing support for the harmonization of sustainability policy and sustainability standards. There is hope that the right regulatory framework adapted in localized contexts would underscore the significance of reconciling economic, environmental and social objectives.

IOSCO endorses the ISSB Standards

Global securities regulators represented by the International Organization of Securities Commissions (IOSCO) have formally embraced the International Sustainability Standards Board’s (ISSB) climate-disclosure standards with a decision issued on 25 July 2023. After an 18-month consultation process, IOSCO endorsed the ISSB’s final sustainability disclosure standards and is urging regulators worldwide to consider adopting them for consistent and comparable climate-related and sustainability disclosures. The IOSCO’s endorsement is seen as a crucial step in advancing climate-risk disclosure for investors, and the Canadian Securities Administrators (CSA) have already expressed their intention to adopt the ISSB standards with appropriate modifications. The International Financial Reporting Standards Foundation will also provide guidance on implementing the ISSB standards by the end of the year. Read more

ISSB Consults on Digital IFRS Sustainability Disclosure Taxonomy
On 27 July 2023, the ISSB released the Proposed IFRS Sustainability Disclosure Taxonomy for public comment, aiming to facilitate structured digital reporting of sustainability-related financial information aligned with IFRS S1 and IFRS S2. The goal is to improve global accessibility and comparability of sustainability data for investors. Feedback is sought until 26 September, with the final taxonomy expected in early 2024. The ISSB aims to simplify information consumption for investors and explore interoperability with other sustainability requirements.Read more

IFRS to take over TCFD monitoring from 2024
The Financial Stability Board (FSB) has requested the IFRS Foundation to assume responsibility for monitoring companies’ climate-related disclosures, taking over from the Task Force on Climate-related Financial Disclosures (TCFD). This decision comes after the publication of the ISSB Standards—IFRS S1 and IFRS S2—which fully incorporate the TCFD’s recommendations. The ISSB aims to facilitate the effective implementation of these standards globally, ensuring widespread use of high-quality sustainability-related disclosures. Starting in 2024, the IFRS Foundation will oversee this monitoring as the ISSB Standards become applicable worldwide. Read more


European Parliament passes Nature Restoration Law

The EU’s new Nature Restoration Law, passed by the European Parliament on 12 July 2023, aims to enhance biodiversity and climate action. It seeks to ensure a habitable environment for current and future generations, where land and seas can continue to provide essential goods and services for our lives and economies. The law aligns with the EU biodiversity strategy for 2030, recognizing that climate action involves both reducing greenhouse gas emissions and protecting nature. The Nature Restoration Law will build on the EU LIFE program’s success, which has funded numerous environmental protection and climate action projects since 1992. As the region faces alarming environmental decline, with more than 80% of habitats in poor condition, the law emphasizes the restoration of wetlands, rivers, forests, grasslands, marine ecosystems, and the species they support. Members of the EU Parliament (MEPs) highlighted ecosystem restoration as vital to combat climate change and biodiversity loss, without requiring new protected areas or obstructing renewable energy projects that serve the public interest. Read more

EBA seeks input on draft templates for Fit-for-55 climate risk scenario analysis

The European Banking Authority (EBA) has initiated a public consultation on draft templates to collect climate-related data from EU banks for the one-off Fit-for-55 climate risk scenario analysis. The consultation, which includes template guidance, aims to gather information on credit risk, market risk, and real estate risk. Banks are required to report aggregated and counterparty level data as of December 2022. The consultation process is open until 11 October 2023, and a public hearing is scheduled for 28 September 2023. After the consultation, data collection will begin in November, involving 70 banks. The analysis is expected to commence by the end of 2023, with results anticipated to be published by Q1 2025. Read more

France approves mandatory Say on Climate Law

The new legislation, which includes the proposals put forth by the French financial regulator AMF’s commission on climate and sustainable finance, mandates that publicly traded companies must present their climate strategies to shareholders for approval every three years through an advisory vote. Additionally, there will be an annual vote on the implementation of the strategies each year. The terms governing the publication of the annual report will be determined by the French council of state, which serves as the government’s advisory body for bill preparation, ordinances, and certain decrees. The French SIF has proposed specific requirements for climate plans this year, encompassing absolute scopes 1, 2, and 3 emissions in the medium- and long-term, along with detailed actions to attain the targets. This includes providing clarity on the allocation of capital expenditure due to the insufficient climate strategies observed in some companies.Read more

United Kingdom

FCA postpones rollout of sustainability disclosure rules

In the UK, policymakers announced further delay in establishing ESG disclosure rules for issuers and investors. The UK Financial Conduct Authority (FCA) postponed the publication of its Policy Statement on Sustainable Disclosure Requirements (SDRs) and investment labels consultation to Q3 2023, resulting in adjusted effective dates. The FCA initiated the consultation due to concerns about firms making misleading sustainability-related claims about their investment products. The proposed labels aim to increase transparency and trust for consumers seeking sustainable investment products. The delay allows the FCA time to study the regulatory burden imposed on firms by the proposed SDRs. This assessment period would also provide asset managers ample time to prepare and assess the implications of the SDRs if implemented and consider how these rules align with other jurisdictional regimes, such as the EU’s Taxonomy Regulation and Sustainable Finance Disclosure Regulation (SFDR). Read more

Asia pacific

Australia combats greenwashing with new sustainability claims rule

This month, the Australian Competition and Consumer Commission (ACCC) released draft guidance on environmental and sustainability claims to promote transparency and protect consumer rights. The draft guidance outlines the responsibilities under the Australian Consumer Law (ACL) that businesses must adhere to when making green claims. The key objective of these guidelines is to promote accuracy and transparency among businesses that make sustainability claims and propel them to provide consumers with clear, evidence-based information about their environmental performance. Another significant objective is to reduce instances of greenwashing. By providing consumers with reliable information, the guidance seeks to empower them to make more informed decisions when considering environmental or sustainability factors in their purchasing choices.Read more

Singapore set to introduce mandatory climate reporting standards aligned with ISSB for all listed companies
Singapore’s Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo) have launched a public consultation on Singapore Reporting Advisory Committee’s (SRAC) recommendations to advance climate reporting in Singapore, running from July 6 to September 30, 2023. The two regulatory bodies have proposed mandatory climate reporting for all listed Issuers from FY2025 and for large non-listed companies from FY2027. External assurance on emissions will be required for listed issuers from FY2027 and large non-listed companies from FY2029. The SRAC’s recommendations aim to maintain Singapore’s position as a hub for global finance while contributing to the sustainable development goals of the Singapore Green Plan 2030. If adopted, Singapore would be the first country in the region to prescribe standards aligned with ISSB requirements for reporting. Read more

Securities and Exchange Board of India launches new ESG mutual fund scheme

Indian securities regulator SEBI has recently made significant changes to the investment landscape by introducing a new sub-category for ESG investments under the ESG mutual fund scheme. ESG-focused schemes can now be launched with various strategies like exclusion, integration, positive screening, impact investing, sustainable objectives, and transition-related investments. However, mutual fund houses can only launch one ESG scheme for now. To ensure the credibility of these schemes, SEBI mandates that at least 80% of the scheme’s assets must be invested in equity and equity-related instruments based on its chosen ESG strategy. Furthermore, a minimum of 65% of the assets should be invested in listed entities with assured Business Responsibility and Sustainability Reporting (BRSR) Core, while the remaining assets can be invested in companies with BRSR disclosures. These measures will be implemented from October 1, 2024, and are expected to drive more investment in transition activities to support a greener future. Read more

Thailand launches Green Taxonomy
After much deliberation, Thailand adopted a Green Taxonomy on July 5th emphasizing the importance of embedding economic activities in climate-related objectives. Although Phase 1 of the taxonomy currently covers only the energy and transportation sectors, together, they account for up to two-thirds of the country’s total emissions. The taxonomy is expected to expand to other key sectors in the future, encompassing up to 95% of the country’s emission-relevant activities. Similar to the ASEAN Taxonomy’s traffic light system, Thailand’s Taxonomy includes green and amber categories, facilitating the upgrade of existing non-green activities in line with the Paris Agreement climate mitigation objectives. The Taxonomy showcases a conditional acceptance of a regional classification system with Thai-specific criteria aligned with the country’s decarbonization trajectory. Read more

Other News & Resources

  • IRSG, ICMA launch consultation on Draft Code of Conduct for ESG Ratings and Data Product Providers. Read more
  • ESMA publishes expectations on sustainability disclosures in prospectuses.Read more
  • Provisional agreement reached on reviewing AIFMD and UCITS. Read more
  • Japan’s Financial Services Agency (FSA) introduces draft guidelines for impact investing. Read more


Have we missed anything?
ESG Book manages the world’s largest repository of sustainability reporting provisions with over 2,400 regulations across 80 jurisdictions globally. If there is a recent ESG regulatory development we have missed, we would like to hear from you and invite you to contribute below.
Click here to access the ESG Regulatory Provisions Contributor Form

Challenging road ahead

In a comprehensive analysis of companies’ alignment with the EU taxonomy, ESG Book reveals that the majority of businesses today are struggling to meet these new sustainability standards.

Read the full article here.

Are markets ready for ISSB?

The launch of the first set of ISSB Standards on 26th June 2023 marked one of the first endeavors towards establishing a global baseline in sustainability reporting.

Read the full article here.

Beyond 1.5°C

Much public discussion over the past few weeks has suggested that a key objective of the Paris Climate Agreement, only seven years old, has already been broken.

Read the full article here.

ESG Policy Digest: June

With the 30th June SFDR PAI reporting deadline looming, June 2023 has proven to be a decisive month for the evolution of ESG regulation globally. In a bold move to combat climate change and foster sustainable practices, the European Commission has unveiled a groundbreaking sustainable finance package. This comprehensive set of measures encompasses crucial regulations targeting ESG ratings providers while expanding the EU Taxonomy to encompass new criteria for environmental objectives. Simultaneously, the Commission has proposed rules to modernize EU maritime safety and curb water pollution caused by ships. Furthermore, the European Commission has taken a significant stride towards establishing reporting standards for sustainability, empowering companies to determine the specific aspects of the Corporate Sustainability Reporting Directive (CSRD) that are obligatory for their operations. Swiss voters have embraced an ambitious plan to attain climate neutrality by 2050, emphasizing energy consumption reduction and the promotion of climate-friendly technologies. The European Parliament has also demonstrated its commitment by adopting its position on the Corporate Sustainability Due Diligence Directive, thereby demanding that businesses address human rights and environmental risks in their operations. Meanwhile, the EU Council has sealed an agreement on a far-reaching nature restoration law, setting ambitious targets for the safeguarding and rejuvenation of EU land and sea areas. On the other side of the world, Australia has mandated the incorporation of climate change-related risks into the operations of the APRA, the nation’s financial services regulator, while endorsing climate reporting standards for regulated entities.

Additionally, the recent launch of IFRS S1 and S2 for ESG disclosures generated mixed reactions. While some criticize the standards for primarily addressing business sustainability rather than broader social and planetary concerns, others argue that any progress is valuable, even if it’s not fast enough. IFRS S1 requires disclosing sustainability-related risks and opportunities that impact an entity’s cash flows and access to finance, but entities can choose to disclose only financially material aspects. Going forward, key areas of interest include recognizing the financial materiality of social issues, advocating for a social standard grounded in human rights, and observing the global uptake of SASB’s standards. These initiatives underline the global community’s ongoing efforts to foster sustainability, confront climate-related challenges, one policy-making step at a time.

ISSB standards Launch

26th June marked the launch of the long-awaited IFRS ISSB Standards, aiming to create a global baseline for financially material sustainability reporting. The International Sustainability Standards Board (ISSB) released IFRS S1 and IFRS S2, marking a major step in sustainability disclosures. The standards aim to enhance trust and confidence in company disclosures about sustainability, enabling informed investment decisions. They introduce a common language for communicating the impact of climate-related risks and opportunities on a company’s prospects. They are designed to be used globally alongside financial statements, creating a comprehensive baseline. The ISSB will support adoption, establish a Transition Implementation Group, and collaborate with jurisdictions and reporting standards organizations to ensure effective implementation and reporting. Read more


European Commission unveils sustainable finance package, imposes transparency requirements on ESG ratings providers

The European Commission has introduced a comprehensive sustainable finance package that covers ESG ratings, the EU Taxonomy, and transition finance. The package includes a proposed regulation to enhance transparency and oversight of ESG ratings providers, requiring them to disclose methodologies and data sources. It also expands the EU Taxonomy to include new criteria for economic activities related to environmental objectives. Additionally, the Commission has issued draft recommendations on transition finance, advising undertakings to assess their needs and align with the EU Taxonomy and climate benchmarks. The regulatory measures aim to promote transparency, accountability, and sustainability in the financial sector. By addressing deficiencies in ESG ratings and strengthening the EU Taxonomy, the EU seeks to guide investors and foster a transition towards a greener future. Read more

European Commission sets forth rules on maritime safety and water pollution

The European Commission has presented five legislative proposals aimed at modernizing EU rules on maritime safety and preventing water pollution from ships. These proposals seek to support clean and modern shipping while aligning EU rules with international regulations. The European Maritime Safety Agency (EMSA) will be charged with implementing the new requirements and supporting Member States’ administration. The proposals focus on modernizing maritime safety rules, enhancing port State control and accident investigations, tackling ship-source pollution, and updating EMSA’s mandate. The goal is to improve maritime safety, prevent accidents, and reduce environmental pollution. The proposals will now be considered by the European Parliament and the Council for further action. These initiatives are part of the EU’s broader efforts to achieve sustainable and smart mobility and promote zero emissions, pollution, and accidents in the shipping sector. Read more

The European sustainability reporting standards delegated act 

In the first delegated act, the European Commission outlines essential reporting information in relation to cross-cutting standards and EU legal frameworks. Central to the act is the concept of ‘materiality’, requiring companies to determine which aspects of the Corporate Sustainability Reporting Directive (CSRD) are mandatory for them. All standards and corresponding disclosure requirements will undergo double materiality assessment, except for those in the ‘General disclosures’ section, allowing companies to focus exclusively on those sustainability-related impacts, risks and opportunities which are most relevant to them. Smaller companies have flexibility in the initial years, allowing omission of certain disclosures such as Scope 3 GHG emissions and workforce-related information. Proposed mandatory reporting metrics may become voluntary, providing an extra year for disclosure. An interpretation mechanism and educational resources will ensure clarity and support in implementing the standards. The aim is to strike a balance between comprehensive reporting and reducing the burden, particularly for smaller businesses. Stakeholders have until July 7 to provide input on the draft act. Read more

Swiss voters approve plan to achieve climate neutrality by 2050

In an effort to reduce environmental pollution and decrease dependence on other nations, the Federal Council and Parliament have formulated a plan to gradually decrease the consumption of oil and gas and increase domestic energy production. The primary objective of the Climate and Innovation Act is for Switzerland to achieve climate neutrality by 2050. The bill includes measures to curb energy consumption, such as providing financial assistance to individuals who replace their oil, gas, or electric heating systems. Additionally, companies that invest in climate-friendly technologies will receive support. It is worth noting that this bill does not aim to outright ban fossil fuels like petrol, diesel, heating oil, and gas. Swiss voters approved the climate law on 18 June 2023. Overall, the Climate and Innovation Act seeks to address Switzerland’s energy challenges by promoting energy efficiency, reducing reliance on foreign fossil fuels, and fostering the adoption of climate-friendly technologies. The upcoming referendum will determine the fate of this legislation and shape Switzerland’s approach to climate change mitigation and energy security in the years to come. Read more

EU adopts position on Due Diligence Directive

The European Parliament has adopted its position on the Corporate Sustainability Due Diligence Directive (CSDDD). The regulator has a strong message promoting sustainable and responsible corporate practices through the integratation of human rights and environmental risks into companies’ operations and governance. The rules require businesses to address the adverse impacts of their actions within and outside of Europe, including in their value chains. These rules will apply to EU-based companies with over 250 employees and a turnover of over EUR 40M and to parent companies with 500 or more employees and turnover of EUR 150M, regardless of sector. The recognition of the financial sector is seen as a gamechanger and an important step forward. However, some amendments, such as the deletion of Article 26 on overseeing due diligence, were regrettable according to stakeholders. The final position of the European Parliament will now enter inter-institutional negotiations, and discussions are expected to be finalized by the end of the year.Read more

EU Council reaches agreement on Nature Restoration Law
The European Council has announced its agreement on a comprehensive nature restoration law that sets ambitious targets for the protection and restoration of EU land and sea areas. The agreement, which will serve as the Council’s negotiating position, aims to enable the recovery of degraded ecosystems, contribute to climate objectives, and support the EU Biodiversity Strategy. Despite facing a close vote in the EU Parliament earlier this month, the proposed legislation has advanced to a full parliamentary vote scheduled for next month. The law includes targets for various habitats, such as wetlands, grasslands, forests, and marine ecosystems, and addresses issues like declining pollinator populations and drained peatlands. Read more

Asia pacific

Australia mandates financial services regulator to adopt climate reporting standards

The Australian government has mandated that the APRA (Australian Prudential Regulation Authority) must incorporate climate change-related risks into its operations. This requirement, outlined in an updated Statement of Expectations for APRA, entails promoting responsible practices and transparency regarding climate-related financial risks, as well as endorsing climate reporting standards for regulated entities. Australian Treasurer Jim Chalmers emphasized that this is the first time the government explicitly obligates the regulator to address climate change risks in its duties. The directive aligns with the government’s efforts to establish a climate risk disclosure framework and make such reporting mandatory for large-scale entities. Recognizing the significant threat of physical and transition climate risks to global financial stability, the government aims to manage these risks through disclosure and is developing a comprehensive sustainable finance strategy with climate risk disclosure as a key component. APRA has already initiated initiatives to assess climate risks in the financial system, including a Climate Vulnerability Assessment with the country’s five largest banks, which examines the potential financial impact of climate change and the banks’ responses to these risks. Read more

Other News & Resources

  • OECD launches updated version of Guidelines for Multinational Enterprises on Responsible Business Conduct. Read more
  • International Public Sector Accounting Standards Board (IPSASB) begins development of a climate disclosure standard for the public sector.Read more
  • SBTi opens public consultation on three draft resources for the financial sector. Read more
  • ICMA updates Sustainability-Linked Bond Principles. Read more


Have we missed anything?
ESG Book manages the world’s largest repository of sustainability reporting provisions with over 2,400 regulations across 80 jurisdictions globally. If there is a recent ESG regulatory development we have missed, we would like to hear from you and invite you to contribute below.
Click here to access the ESG Regulatory Provisions Contributor Form

The next ESG reporting challenge

In this latest ESG Quick Takes podcast episode, ESG Book’s Isabel Verkes speaks to Tata Consultancy Service’s Navin Rauniar about how multi-sector and emerging market companies approach ESG differently. How can sustainability data be more standardized? What are the limits to that standardization – given the different business environments across the globe? Nav shares his observations, including those based on his work leading sustainability within TCS and the Tata Group.

Surprise Package

On 13 June 2023, the European Commission unveiled its latest sustainable finance package which covers crucial aspects of environmental, social and governance (ESG) regulation in the EU including the EU Taxonomy, ESG ratings, and transition finance. Prior to the release of the package, the ESG ratings industry had been put on notice as policy action for increased oversight had been gaining momentum. One of the key measures in the package is a proposed regulation seeking to address deficiencies in the operations of ESG ratings providers and enhance transparency around sustainability ratings and scores. A second part of the package expands the Taxonomy Regulation to include new criteria for economic activities related to environmental objectives. In its efforts to facilitate transition finance, the Commission also released a draft recommendation outlining the concept of transition finance, linking it to the Paris Agreement and EU climate neutrality. The latest policy initiative shows that regulators are zeroing down on a balanced approach for providing market certainty and clarity, while not stifling innovation.

Regulation on the transparency and integrity of Environmental, Social and Governance (ESG) ratings activities

The landscape of sustainable finance regulation in the EU continues to evolve, with the spotlight now turning to ESG ratings providers, and their implications on financial stability. In the latest sustainable finance package, the European Commission included a measure to regulate the ratings industry based on the recommendations of the International Organization of Securities Commissions (IOSCO). The European Commission is proposing to establish an authorisation system for EU-based ESG ratings providers, subjecting them to formalised rules and supervision. The proposal emphasizes transparency and would require ESG ratings agencies to publicly disclose their methodologies, data sources and characteristics. The regulation would have major implications for large industry players who could face fines of up to 10% of total annual net revenue for violations and have authorization to provide ratings revoked. This marks a substantial shift in an industry that has experienced rapid growth outside the sphere of regulation.

The purpose of ESG scores is twofold, first – they establish whether a company has sound ESG management policies and internal controls and measures for mitigating sustainability-related risks; secondly – scores adjusted based on a company’s industry provide a universal rating across industries and benchmark a company’s performance relative to its peers. So far, ESG ratings criteria across the industry have been varied and seemingly opaque to users, eliciting criticism from corporates and investors alike. Black box methodologies have been a longstanding issue plaguing the industry and the European Commission’s new rule would dig deeper into ESG scoring by imposing rules on organizational requirements, qualifications of personnel, record-keeping, conflict of interest prevention, and disclosure obligations. To meet these transparency requirements, providers would likely have to reform their governance structures and create guardrails against undue influence that could compromise the objectivity of scores and scoring methodology. With this regulation, the Commission’s key policy objective is to provide clarity to users and improve the functioning of the European single market in relation to sustainable investments.

The new initiative specifically targets legal entities providing ESG ratings to the public or subscribers, excluding financial institutions and other market participants developing ESG ratings for internal use. With the growing importance and influence of ESG ratings, it is essential to have consistent and reliable information to guide investors and promote sustainable finance. To prevent conflicts of interest, the proposed regulation would prohibit ESG ratings providers from engaging in consulting services, investment activities, benchmark development, credit rating issuance, as well as banking and auditing activities. The regulation excludes in-house ratings used by asset managers and benchmark administrators, as they serve different purposes and do not require public disclosure. One might consider this exemption unbalanced, as the same level of transparency is not guaranteed for clients of such asset managers.

The Commission delegates supervision of ratings providers to the European Securities and Markets Authority (ESMA) based on parallel experience in the supervision of credit ratings. ESMA would have the authority to grant or deny authorizations and issue penalties or impose fines for non-compliance. As a first step towards the implementation of the proposed regulation, the European Commission has tasked ESMA with developing draft Regulatory Technical Standards (RTS) that specify the information required for the authorisation of ratings providers. These standards would cover, among others, metadata, data structure, and formats (including specifications for machine-readable authorisation forms). Non-small or medium-sized ESG rating providers are expected to apply for authorization within six months of the regulation’s entry into force.

The proposal includes exemptions and a grace period of 24 months for SMEs applying for authorization. Smaller ratings providers benefit from exemptions and a transition regime during the initial months. Supervision fees are proportionate to annual net turnover to promote a diverse ecosystem of sustainable finance service providers. The proposal also advocates for proportional supervision based on risk assessment, with disclosure of fines and penalties imposed by ESMA to the public in most cases.

By prioritizing public disclosure and accountability of ESG rating providers, this regulation aligns with the broader objectives of the EU’s sustainable finance framework. In furtherance of increased transparency and legislative coherence, ESMA will maintain a register of authorized ERPs on its website and ensure that information is accessible through the European Single Access Point (ESAP). Overall, this proposal reflects a commitment to building a more sustainable and transparent financial system, encouraging data-driven investment practices, and fostering the transition towards a greener future.

EU Taxonomy Delegated Acts

The second measure under the sustainable finance package is designed to enhance the usability of the EU Taxonomy. The European Commission has presented a positive assessment of the current coverage of Taxonomy data, which is a key pillar of the EU’s sustainable finance framework. The data indicates that the Taxonomy is ‘functioning as intended’, with companies in the STOXX Europe 600 index reporting alignment with the Taxonomy for various categories. On average, these companies reported alignment of around 23% for capital expenditure, 24% for operational expenditure, and 17% for revenues. Additionally, almost two-thirds of companies disclosing taxonomy-eligible capital expenditure reported some level of alignment, while half of the companies disclosing eligible revenue also reported alignment. To further strengthen the Taxonomy, the sustainable finance package proposes targeted amendments to the Taxonomy Climate delegated Act and the adoption of technical screening criteria in the Taxonomy Environmental delegated Act.

Targeted amendments to the Climate Delegated Act would expand the coverage of economic activities that contribute to climate change mitigation and adaptation. The focus is on the manufacturing and transport sectors. The amendments illustrate the importance of manufacturing in relation to key components for low-carbon transport and electrical equipment. They also address transitional activities in the transport sector, specifically waterborne transport and aviation, where zero-carbon alternatives are not yet sufficiently advanced. These measures would “incentivize improvements beyond the status quo” while also accounting for economic activities that currently lack feasible low-carbon alternatives but are necessary for the transition toward climate neutrality.
Taxonomy-related enhancements extend to the adoption of the Environmental delegated act technical screening criteria. These amendments are centered around the approval of the remaining four environmental objectives covered in the Taxonomy Regulation. The Act will establish clear and defined technical screening criteria to assess the extent to which economic activities contribute to the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, as well as the protection and restoration of biodiversity and ecosystems. The package also includes disclosure obligations for financial undertakings, set to be implemented from January 1, 2024.

Overall, the proposed enhancements to the EU Taxonomy illustrate the European Commission’s commitment to continuously refining and strengthening the sustainable finance framework. By expanding coverage and defining eligibility criteria, the EU has provided clarity for sustainable finance actors operating in various sectors while also ensuring environmental protection and accountability. The amendments texts are supplemented with a notice that offers guidance on the interpretation and implementation of the Taxonomy Regulation and its connection to the Sustainable Finance Disclosure Regulation (SFDR). The guidance includes frequently asked questions related to the role of minimum safeguards, their definition, expectations for undertakings, and the qualification of taxonomy-aligned investments as “sustainable investments” under the SFDR. The Commission clarifies that investments in taxonomy-aligned environmentally sustainable economic activities can automatically qualify as sustainable investments under the SFDR.

Recommendation on transition finance

The EU’s sustainable finance regulatory framework reinforces the significance of investing in the transition of economic activities, assets, and companies to accomplish climate and environmental objectives. The newly introduced draft recommendations on transition finance in the sustainable finance package advise undertakings to evaluate their transition finance needs through a materiality assessment, taking into account sustainability impacts, risks, and opportunities. It is recommended to define transition targets and pathways based on science-based scenarios and credible transition plans. To further compatibility with EU sustainability regulations, the recommendations contain guidance for undertakings seeking to define transition targets and financial requirements within the broader architecture of EU Taxonomy, EU climate-transition benchmark (CTB) and EU Paris-aligned benchmark (PAB).

The EU Taxonomy provides a framework for undertakings to articulate transition finance needs, especially for covered economic activities under the Taxonomy Regulation. The Taxonomy can be used to plan investments and set milestones and intermediate targets for transitioning economic activities. The recommendations suggest aligning investments with the Taxonomy criteria within a short timeframe and ultimately aiming for full Taxonomy alignment. References to full Taxonomy alignment may seem ambitious. Instead, undertakings may benefit from defining an achievable ceiling for alignment, thereby restoring investor optimism in the pace of transition. Undertakings are encouraged to specify their transition finance needs in terms of capital expenditure, operating expenditure, and revenue associated with achieving climate and environmental targets, as well as revenue related to transitions.

The EU climate benchmarks, in contrast, provide useful tools for investors looking at portfolio decarbonization. The recommendations for transition finance provide that undertakings may use publicly available decarbonization scenarios and pathways, aligned with the Paris Agreement, as references to set science-based targets and determine transition finance needs. The use of EU climate benchmarks and methodologies can complement science-based scenarios and pathways, helping define individual pathways and transition targets. In summary, by aligning with the EU Taxonomy, utilizing science-based scenarios, and leveraging EU climate benchmarks, undertakings can contribute to the achievement of climate and environmental objectives while ensuring long-term sustainability and financial stability.

It is worth noting that the European Supervisory Authorities (ESAs) and national regulators will play a crucial role in supervising and combating greenwashing practices, ensuring the integrity of sustainable finance efforts.


In its current form, the package of measures underscores the need for governance on multiple fronts to ensure the principles of sustainable investing are enshrined across all Union policies. The proposal to regulate ESG ratings providers signals the reckoning of black box methodologies that obscure analysis around ESG ratings. If implemented, the regulation will probe into aspects of the ratings process including analysis and regularity of review, through a system of public disclosure. This system of checks and balances is arguably better than having a voluntary code of conduct for ESG ratings providers, but it might still leave questions unanswered for investors who want to drill down into source data. The regulation acknowledges that all ratings providers are not created equal or alike. Instead of fully-fledged reform by way of prescriptive methodological standards, ratings providers are given carte blanche for formulating unique, proprietary methodologies for assessment, provided the data and supporting analysis is sound. Those awaiting the issues of the four remaining objectives finally have clarity on assessment criteria for activities with environmental objectives with the release of the updated Taxonomy delegated acts. The addition of other climate objectives also shows that this will be a continuously evolving framework that informs other policy documents including the recommendations for securing transition finance. Framing transition finance using the vocabulary of the EU Taxonomy and climate benchmarks may be an effective way of positing sustainability initiatives for a low-carbon future. The three policy measures combined address a range of issues directly influencing capital allocation towards sustainable investments.

Scope 3

Awareness around the benefits and challenges of measuring Scope 3 emissions – those connected with a company but not produced as a result of their own direct operations or energy consumption – has grown rapidly over the past year.

This article demonstrates how Scope 3 emissions are essential in determining who is at the forefront of the race to net-zero, and why material reporting is key in being able to accurately assess corporate decarbonisation progress.

To read the full article, click here.

ESG Policy Digest: May

Last month, the EU Parliament proposed stringent minimum requirements for verifying and communicating green claims, explicitly banning carbon offsetting-based claims. This move aims to ensure that environmental claims made by businesses are backed by credible evidence, fostering consumer trust in sustainable products and practices. In parallel, the European Commission (EC) adopted the Retail Investment Package, a comprehensive set of measures designed to safeguard long-term investments and enhance consumer protection. Addressing environmental, social, and governance (ESG) concerns, the European Supervisory Authorities submitted draft regulatory standards to the EC. These standards seek to enhance ESG disclosure in securitization regulations, enabling market participants to make more informed investment decisions aligned with sustainability goals. To facilitate access to vital financial and sustainability-related information, the EU reached provisional agreement to establish the European Single Access Point (ESAP). This centralized platform will provide investors with valuable insights into EU companies, planned to release in 2027.

Across the English Channel, the United Kingdom is undertaking a review of its non-financial reporting requirements. Seeking to streamline reporting burdens and align with the EU framework, the UK aims to create a general framework that measures non-financial performance, benefiting companies operating within the EU.

In North America, Canada has taken a pivotal step to combat issues of forced labour and child labour in supply chains by enacting the ‘Fighting Against Forced Labour and Child Labour in Supply Chains Act’.

Meanwhile, the New Zealand government launched a consultation to reform the Emissions Trading Scheme (ETS) considering changes such as auction limits, reserve prices, and cost containment mechanisms. Taking a page from OECD’s Guidance on responsible business conduct, Japan’s Ministry of Environment released a complementary handbook on environmental due diligence. This is just a snapshot of the ESG policy updates that we are featuring this month. Scroll further to read more.

EU Parliament to ban green claims based on carbon offsetting

The Commission and EU Parliament have proposed minimum requirements for businesses to verify and communicate green claims. The proposed rule aims to promote environmentally friendly choices and sustainable products. If enforced, companies would have to provide independent verification of environmental impacts related to their products. The EU Parliament also added a ban on carbon offsetting-based claims and backed the validation of “carbon and climate neutral” labels with science-based targets and detailed implementation plans. Products that fail to substantiate environmental claims would face a ban in the EU market. To promote the EU’s central sustainability objective of a circular economy, the proposed rule would further prohibit product design features promoting premature obsolescence and limited product durability. Read more

EC adopts Retail Investment Package to protect long-term investments

The Retail Investment Package aims to empower retail investors, ensure fair treatment and protection and build trust in the EU’s Capital Markets Union. The objective is to make the EU a safer place for long-term investment and encourage participation in capital markets. Measures to address consumer protection include improving information disclosure to investors, increasing transparency of costs, providing clear investment performance views, addressing conflicts of interest and protecting against misleading marketing. The package revises existing rules in various directives and regulations, including MiFID, covering different financial instruments. Read more

European Supervisory Authorities submit draft RTS to enhance ESG disclosure in securitisation regulations

The three European Supervisory Authorities (EBA, EIOPA, and ESMA) have jointly submitted Draft Regulatory Technical Standards (RTS) to the European Commission regarding the disclosure of environmental, social, and governance (ESG) impacts for Simple, Transparent, and Standardised (STS) securitisations under the Securitisation Regulation (SECR). These standards aim to provide market participants with information to make informed decisions about the sustainability impact of their investments, particularly for STS securitisations involving residential loans, auto loans, and leases. The proposed technical standards align with those developed under the Sustainable Finance Disclosure Regulation (SFDR), distinguishing between mandatory indicators (such as energy efficiency) and additional indicators (such as emissions) for disclosure. The European Commission is expected to endorse these RTS within three months of their submission.Read more

Provisional agreement on easy access to corporate sustainability information

The European Union (EU) has reached a provisional agreement to establish a centralized platform – European Single Access Point (ESAP) – that will provide access to public financial and sustainability-related information about EU companies and investment products. The platform will enhance the integration of financial services and capital markets within the EU, aligning with the objectives of the Capital Markets Union. Additionally, the platform will prioritize sustainability information, aligning with the goals of the European Green Deal. ESAP will not impose additional reporting requirements on European companies. Instead, it will grant access to information already disclosed in compliance with relevant European directives and regulations. The ESAP platform is expected to be available from summer 2027, with a phased implementation to ensure robustness. The initial phase will include information related to EU regulations on short-selling, prospectus information and the transparency directive.Read more

United Kingdom
UK conducts review of non-financial reporting requirements, aiming to streamline reporting burden and align with EU framework

The Department for Business and Trade (DBT) in collaboration with the Financial Reporting Council (FRC) is conducting a review of the UK’s non-financial reporting requirements. In the UK, the non-financial reporting requirements are primarily governed by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. Additionally, requirements may differ based on the size and nature of the company. The purpose of the review is to ease the reporting burden for companies operating across the EU by co-opting a general framework to measure non-financial performance. The review will also consider the appropriateness of the current company size thresholds, which determine specific non-financial reporting requirements, and the preparation and filing of accounts with Companies House. Read more

North America
Canada enacts the Fighting Against Forced Labour and Child Labour in Supply Chains Act

Canada’s Modern Slavery Act (MSA) to combat forced labour and child labour in supply chains, was successfully passed on May 3, 2023. This significant legislation will be enforced starting from January 1, 2024. Following its implementation (as of May 31, 2024), government institutions, private-sector entities, and importers that meet a specified threshold are obligated to report on the measures taken to prevent and mitigate the risk of forced labour and child labour across their supply chain operations. Canada’s MSA also amends the Customs Tariff, effectively enabling the prohibition of importing goods that have been wholly or partially manufactured or produced using forced labour or child labour, as defined in the Act. Read more

Asia pacific
New Zealand government launches consultation for the reform of emissions trading system

The New Zealand Emissions Trading Scheme (NZ ETS) is a vital tool in the government’s response to climate change, as it places a price on greenhouse gas emissions to help achieve emissions reduction goals. Businesses are required to surrender carbon credits (NZUs) for their emissions, which can be obtained through government auctions or traded in the secondary market. The government regularly updates auction limits, price controls, and other settings. Based on recommendations from the Climate Change Commission, the government is considering reducing auction units, increasing reserve prices, and introducing a two-tier cost containment reserve. Public consultation is currently open to gather input on these proposed changes, and submissions from stakeholders in the NZ ETS are welcome.Read more

Japanese Ministry of Environment publishes guidelines on environmental due diligence

Building on the OECD’s Responsible Business Conduct guidelines, the Ministry of Environment unveiled a handbook titled ‘Introduction to Environmental Due Diligence in the Value Chain – Implementing Environmental Management Systems (EMS) for Practicing Environmental Due Diligence.’ As regulatory demands for sustainability reporting continue to rise, Japanese companies and investors have taken the initiative to adopt ‘Environmental Management Systems’ that promote environmental preservation throughout their business practices and administration. The recently introduced guidance aims to enhance the standardization of procedures, enabling compliance with due diligence obligations outlined by the OECD, while also supplementing ongoing processes of incorporating environmental factors in governance and risk management.Read more

Other News & Resources

  • SBTN launches science-based targets for freshwater and land. Read more
  • The Network for Greening the Financial System (NGFS) issues a call for expression of interest to develop short-term climate scenarios with submissions accepted until June 15 and analytical implementation anticipated in the third quarter of 2023. Read more
  • ISSB seeks feedback to enhance the international applicability of SASB standards. Read more
  • UK FRC launches public consultation to strengthen directors’ responsibilities and reporting practices. Read more


Have we missed anything?
ESG Book manages the world’s largest repository of sustainability reporting provisions with over 2,300 regulations across 80 jurisdictions globally. If there is a recent ESG regulatory development we have missed, we would like to hear from you and invite you to contribute below.
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The role of nature in the corporate climate transition

In this latest ESG Quick Takes podcast episode, ESG Book’s Isabel Verkes speaks to WWF’s Tanya Steele on the role of nature in the corporate climate transition. In the podcast, Tanya discusses the work of WWF UK, and how companies can integrate nature in their net-zero planning.