ESG Policy Digest: April 2024

16th 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.

Europe

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.

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.

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.

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.

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.

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 13^th, 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.

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.

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.

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.

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.

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.

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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The SEC’s Climate Rule*

20th March 2024

On March 21st, 2022, the United States Securities and Exchange Commission (SEC) released a draft rule for the Enhancement and Standardization of Climate-Related Disclosures for Investors. The passing of the SEC climate rule on March 6th, 2024, is a landmark moment in U.S. climate policy and sets a precedent for future legislation on sustainability-related financial reporting in the U.S. But what does this mean for companies and investors?

To read the full report, click here

ESG Policy Digest: March 2024

14th March 2024

This month’s Policy Digest covers both triumphs and setbacks in the shaping of sustainability reporting standards and regulations. We start with the positive – the International Sustainability Standards Board (ISSB) standards continue to be adopted by countries across the globe. On the back of this policy momentum, the ISSB has released a jurisdictional adoption guide for countries, acknowledging the specificity of use cases and local needs.

In Europe, a make-or-break vote on the EU Corporate Sustainability Due Diligence Directive (CSDDD) was postponed once again. In effect, this means that until Member States reach a legislative consensus, the fate of the EU’s supply chain due diligence law will hang in the balance. By contrast, EU lawmakers made headway on the EU Nature Restoration Law for the restoration of vulnerable ecosystems and struck a deal on a regulation prohibiting products made with forced labour.

In the same month, the European Council and Parliament reached a provisional agreement on the world’s first voluntary framework for the certification of carbon removals and advanced a new sustainable packaging law. Recognizing the gravity of risks associated with environmental harm, Members of European Parliament (MEPs) also approved legislation establishing penalties, including imprisonment and fines, for environmental offences.

Large EU companies are grappling with the implications of sustainability regulation, none as far-reaching as the Corporate Sustainability Reporting Directive (CSRD). With the reporting deadline for CSRD fast approaching, Sweden has proposed a one-year delay for covered companies within its jurisdiction to comply with the regulation. The EU’s collective policy measures have led to increasing scrutiny of a company’s non-financial performance. With regulators taking on enforcement functions, ESG ratings providers (ERPs) have emerged as intermediaries, bridging the gap between companies and regulators by providing third-party opinions on ESG performance. The EU expects to finalise the regulation for the authorisation of ERPs soon. However, questions on the proportionality of compliance burden for small providers remain.

Moving to the United States, the Securities and Exchange Commission (SEC) finally adopted the much-anticipated climate disclosure rule. Under the new rule, Scope 1 and Scope 2 emissions disclosure will be mandatory for large companies. But disclosure requirements of Scope 3 emissions – those generated by supply chains and the use of products and services – were abandoned in the final proposal, raising the question of whether the legislation goes far enough.

Meanwhile, regulators in Asia-Pacific are working to fast-track the implementation of ISSB standards. Singapore confirmed that it will introduce mandatory climate reporting rules from 2025 and Malaysia launched a consultation on ISSB adoption, proposing to start reporting from December 2025. China is also paving the way forward for transparency by mandating climate disclosures for listed companies. Among other regional updates, the final version of the ASEAN Taxonomy (version 2) has taken effect. Finally, the Reserve Bank of India (RBI) set forth requirements for banks to disclose climate-related risks starting in April 2025.

Combined, these developments mark continuity and consistency in the realm of ESG regulation. As seen in this month’s Policy Digest, global regulators are betting big on policies that support a global baseline for sustainability disclosure requirements.

International

International Financial Reporting Standards (IFRS) foundation releases preview of ISSB adoption guide

In February, the IFRS foundation released a preview adoption guide to support jurisdictions integrating and adapting concepts from the ISSB standards into regulatory frameworks. Several countries have already drafted proposals and strategic roadmaps for the adoption of the IFRS S1 General Requirements for the Disclosure of Sustainability-related information and the IFRS S2 Climate-related Disclosures. The forthcoming adoption guide aims to enhance transparency in the ISSB’s view on varied approaches for global ISSB adoption. The IFRS Foundation revealed ‘four pillars’ of proportionality, transition reliefs, phasing-in of requirements and capacity building to create pathways for the consistent application of ISSB-aligned reporting standards across countries. In many countries, a deferral of disclosure rules will allow first-time reporting entities ample time for the assessment and evaluation of financial material topics and ESG performance.

Decisive vote on EU CSDDD still pending

The EU CSDDD has yet again failed to secure a qualified majority as member states remain divided on the scope and obligation of the regulation. The final text of the regulation published on January 30^thstipulates that in-scope companies must incorporate due diligence policies for monitoring, identifying and mitigating adverse impacts in the value chain. In-scope companies are also obligated to end partnerships with companies responsible for adverse impacts that cannot be prevented or ended. Given the increased policy focus on business sustainability across the supply chain, the legislation is likely to remain a key priority for legislators. However, it may take time and political compromise for it to reach the finish line.

EU Parliament adopts Nature Restoration Law

Members of the European Parliament (MEPs) successfully voted to adopt the EU Nature Restoration Law. The new law sets a target for EU countries to restore 30% of covered habitats (including but not limited to forests, grasslands, and wetlands to rivers, lakes, and coral beds) in poor condition by 2030. EU countries will have to monitor progress towards improving the biodiversity of agricultural ecosystems and restore peatlands as a means to reduce emissions in the agricultural sector. These targets may only be suspended in case of exceptional circumstances such as meeting adequate food production requirements.

EU lawmakers advance regulation for sustainable packaging

The European Parliament and Council have reached a provisional agreement on new rules to enhance sustainability in packaging within the EU. The measures aim to reduce, reuse, and recycle packaging, minimise harmful substances, and promote a circular economy. Key aspects include targets for packaging reduction, bans on certain single-use plastics, and the prohibition of “forever chemicals” in food contact packaging. The agreement also encourages the use of reusable packaging, sets minimum recycled content targets, and mandates better waste collection and recycling practices. The agreement must be formally approved before implementation.

EU to enforce ban on products made with forced labour

The European Parliament and Council have reached a provisional agreement on a regulation that would ban products in the EU market made with forced labour. The regulation establishes a framework for investigating human rights violations across the supply chain. Once a company is found in violation of the regulation, the export and import of those products made with forced labour shall be suspended at the EU’s borders and the company will also be forced to withdraw goods that have already entered the EU market. Furthermore, the Internal Market and International Trade Committees are proposing that reintroduction of previously banned goods to the market would necessitate corrective actions. MEPs have called for the establishment of a list identifying high-risk regions and sectors, and in such cases, the burden to prove compliance with international human rights standards would fall on companies.

EU Council and Parliament reach provisional agreement certification scheme for high-quality carbon removals

The framework may be used voluntarily for certifying carbon farming and carbon removal technologies. This certification framework outlines qualifying criteria for carbon farming such as restoring forests and soils, avoiding soil emissions, rewetting peatlands and efficient farming practices. It also specifies rules for carbon capture and minimum requirements for binding carbon in durable products (35 years). The aim of the regulation is to monitor and measures compliance with EU-wide standards, crack down on greenwashing and ensure credibility to the certification process. The Commision has stated that an EU registry will be established in four years to provide greater transparency on certified carbon removals. This initiative will help unlock financing for innovative carbon removal technologies, thereby supporting the growth of a low-carbon economy.

EU to impose environmental crimes, fines and penalties

MEPs voted to adopt new rules on environmental crimes and sanctions. This includes an updated list of ‘qualified offences’ including illegal timber trade and depletion of water resources. Depending on the severity of environmental harm, offenders may face fines, imprisonment or be required to reinstate the affected environment. The regulation provides that companies may be fined up to 5% of their annual turnover or up to 40 million euro depending on the nature of the crime.

EU ESG Ratings Regulation on the horizon with exemptions for small providers

The EU Parliament and member states reached an agreement last month for the authorisation and supervision of ESG ratings providers (ERPs) by the European Securities and Markets Authority (ESMA). The new rules seek to address deficiencies in the operations of ESG ratings providers and enhance transparency around methodologies for sustainability ratings and scores. Regulators have included measures to prevent potential conflicts of interest under the new rules. The latest agreement clarifies that smaller providers will be subject to a lighter touch, optional registration regime of three years for smaller providers. Providers that choose to comply must adhere to general organisational and governance principles, as well as transparency requirements with regard to ratings users. ESMA is authorised to conduct site inspections, investigations and request information at will. Once the temporary exemption is lifted, smaller providers will be within full scope of the regulation and must pay full supervisory fees to comply.

Sweden proposes delay to CSRD implementation

By design, the European Union’s landmark sustainability reporting rule – the Corporate Sustainability Reporting Directive – requires Member States to transpose the directive into national law by July 6^th 2024. The Swedish government has however raised concerns about lack of preparedness for full scale reporting in the upcoming financial year and accordingly proposed a deferred timeline for the adoption of CSRD. The proposal submitted to the Swedish Council on Legislation suggests that listed companies with more than 500 employees should begin following reporting regulations from the fiscal year starting after June 2024. This differs from the EU directive, meaning Swedish companies under the CSRD would start reporting from FY 2025, instead of FY 2024 as required by the EU. If approved, large Swedish companies within scope of the CSRD will lag in sustainability reporting compared to other EU companies.

US SEC adopts long-awaited corporate climate disclosure rule

The United States Securities and Exchange Commission (SEC) recently adopted a regulation mandating climate-related financial disclosures for public companies, aiming to provide investors with decision-useful information to assess climate change risks in their portfolios. This regulation, which follows a protracted rulemaking process, sets a precedent for sustainability-related financial reporting legislation in the U.S. In 2023, California enacted two climate disclosure bills, surpassing the SEC in some respects, notably requiring Scope 3 emissions reporting. Despite controversy and delays, the SEC rule will encourage companies to integrate climate considerations into their strategies and aid investors in making well-informed decisions based on the sustainability characteristics of their assets. However, challenges remain, such as potential obstacles to effective enforcement and concerns over the limited scope of disclosed information. Ultimately, this regulatory push signals a significant step towards enhancing transparency and comparability in climate-related financial reporting, aligning with broader efforts towards convergence of global climate reporting standards.

Singapore switches from ‘comply or explain’ to mandatory climate reporting in 2025

The Accounting and Corporate Regulatory Authority (ACRA) and the Singapore Exchange Regulation (SGX RegCo) released details on the adoption of mandatory climate-related financial disclosures in accordance with the ISSB standards. Based on feedback from the initial consultation, Singapore will introduce a phased approach for the implementation of climate-related disclosures (CRD). Large listed companies will be the first group obligated to report Scope 1 and 2 emissions from FY 2025 and Scope 3 emissions in FY 2026. Mandatory climate reporting (Scope 1 and 2) will take effect in FY 2027 for large non-listed companies and Scope 3 data must be provided by non-listed entities by FY 2029 at the earliest. The regulatory bodies have defined large non-listed companies as entities with minimum annual revenues of SG $1 billion and assets of at least SG$500 million. The timeline also provisions for listed and non-listed entities to obtain limited assurance for Scope 1 and 2 emissions by 2027. Singapore’s CRD notably provides exemptions for large non-listed companies with parent companies reporting against ISSB, ESRS and other national ESG disclosure rules, while those following recognized reporting frameworks like Global Reporting Initiative (GRI) and TCFD will receive transitional relief.

Australian companies advocate for one year delay to mandatory climate reporting

In a recent press release, the Business Council of Australia (BCA) voiced concerns over the expedited implementation of a new law mandating climate-related reporting. Australia’s Treasury released draft legislation earlier this year requiring large companies that meet size, revenue and assets thresholds to report climate-related risks and opportunities and GHG emissions across the value chain. While agreeing with the necessity of climate-related financial disclosures, the BCA has requested additional time to develop skills and capabilities for comprehensive sustainability reporting. The BCA has also called for alignment with international standards and extended liability safe harbors until 2030 to keep climate litigation at bay until auditing requirements take effect.

Malaysia launches consultation on ISSB adoption

The consultation highlights the Malaysian context where alignment with ISSB standards is critical for an ‘export-oriented country that is intricately integrated into global supply chains’. The Advisory Committee on Sustainability Reporting (ACSR) under the authority of the Malaysian Securities Commission (SC) is seeking feedback on the use and application of IFRS S1 and IFRS S2 standards, with transition reliefs as a requirement. The Committee is also weighing its approach in relation to a sustainability assurance framework. Malaysia announced its intent to incorporate ISSB standards into its National Sustainability Reporting Framework last year. The Consultation paper aims to build on existing sustainability reporting requirements and proposes adoption of IFRS S2 with reliefs and IFRS S1 with reliefs for Main Market listed issuers by 2025 and 2026 respectively. The consultation will close on 21^st March 2024.

Chinese Stock Exchanges Announce Mandatory Rules

The Shanghai Stock Exchange, Beijing Stock Exchange and Shenzhen Stock Exchange announced that they will enforce climate disclosure rules for listed companies starting in 2026. Several countries in the region have endorsed convergence with the ISSB standards that takes on a financial materiality approach for the assessment of material risks. According to recent reports, China may go one step further by adopting a double materiality approach for sustainability reporting. This process would mirror the European regulation – CSRD’s – double materiality approach for identifying both impacts of business activities on the environment as well as risks posed by environmental factors on the business. Although the regulations contain provisions limiting the applicability of reporting requirements for listed companies, the disclosures have the potential to capture critical climate-related information including Scope 1 and 2 emissions.

Reserve Bank of India (RBI) releases draft disclosure framework for climate-related financial risks

The RBI has released a draft disclosure framework aimed at addressing climate-related financial risks for regulated entities (REs). The framework establishes baseline disclosure requirements across four pillars – Governance, Strategy, Risk Management and Metrics and Targets – in line with TCFD. Scheduled commercial banks, financial institutions, and larger non-banking financial companies (NBFCs) will need to disclose this information starting from FY 2026, with specific metrics and targets required by fiscal year 2028. The RBI emphasizes the importance of consistent and comparable disclosures to prevent mispricing of assets and misallocation of capital due to inadequate information about climate-related financial risks. The draft framework is open for public comments until April 30.

ASEAN Taxonomy Version 2 takes effect

In 2023, the Association of Southeast Asian Nations (ASEAN) Taxonomy Board (ATB) released the final version ASEAN Taxonomy for Sustainable Finance (Version 2), demonstrating Asia’s commitment to meeting the Paris Agreement commitments. Similar to the EU Taxonomy Regulation, the ASEAN Taxonomy aims to standardize the classification of sustainable activities and assets to provide a “common language” for assessing a company’s sustainability. Version 2 includes advanced assessment methodologies, technical screening criteria, and science-based thresholds to classify activities. The ASEAN Taxonomy’s third Essential Criteria now includes social aspects, alongside “Do No Significant Harm” and “Remedial Measures to Transition.” After receiving feedback from member states and multiple stakeholders, the ATB has released the final version of the Taxonomy. This will serve as voluntary guidance for member states who wish to follow one of two assessment approaches – the Foundation Framework (FF) or the Plus Standard (traffic-light classification system for green and amber activities).

EFRAG announces public consultation on draft XBRL Taxonomy for ESRS Set 1. Read more
Hong Kong Monetary Authority (HKMA) to launch physical risk assessment platform. Read more
UNPRI introduces ‘Progression Pathways’ to support responsible investment practices. Read more
UNPRI unveils 2030 EU Policy Roadmap. Read more
SGX Regco consultation seeks feedback on mandatory sustainability reporting. Read more

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ESG Policy Digest: February 2024

12th February 2024

As organizations gear up for a fresh reporting year, regulators and standard-setting bodies are actively working to provide enhanced guidelines, with the aim of facilitating the disclosure of usable sustainability information.

Early this year, the Global Reporting Iniative (GRI) announced a series of updates including a new Biodiversity Standard, Mining Sector Standard and interoperability considerations for GHG emissions for companies applying GRI and ISSB standards. These initiatives aim to ease the reporting burden for entities and offer comprehensive guidance to improve the availability of consistent and comparable sustainability information. Once the reporting process is complete, auditors and experts in the field are tasked with verifying the credibility of sustainability information, which presents its own set of ethical challenges. Recognizing this, the International Ethics Standards Board for Accountants (IESBA) released Exposure Drafts on global standards for ethical considerations in sustainability reporting and assurance.

Moving to EU news, regulators maintained the ambitious policy momentum in the ESG realm. On 5^th February, the EU Council and Parliament reached a provisional agreement on an ESG ratings regulation, creating a lighter-touch regime for small providers. In the banking and financial services sector, the EBA launched a consultation on draft guidelines on the management of ESG risks for the active supervision and management of risks as a measure of resilience.

Building on previous efforts, the European Financial Reporting and Advisory Group (EFRAG) also released exposure drafts to facilitate the implementation of a simplified standard for listed SMEs and non-listed SMEs. Separately, EU lawmakers announced a delay in the adoption of sector-specific standards for the implementation of the European Sustainability Reporting Standards (ESRS), from 2024 to 2026. Members of the European Parliament (MEPs), as evidenced by the approval of the Greenwashing Directive on January 17, 2024. We observe that EU regulators have so far exhibited a high standard for establishing a rules-based system to efficiently allocate capital towards sustainable economic activities. Recently, the Platform on Sustainable Finance’s published a- ‘compendium of market practice’ – which underscored the legitimacy of the EU sustainable finance framework.

Sustainability regulation can progress on several fronts, including the enhancement of existing rules. We see this in the UK, with the Financial Reporting Council (FRC) taking measures to enhance existing ESG reporting rules by updating its Corporate Governance Code for listed companies. In North America, Canadian regulators announced the next steps towards the adoption of localized ISSB standards.

In Asia-Pacific, we examine a range of policy measures supporting alignment with international standards and rules. Australia’s government is consulting on mandatory climate-related reporting standards which would be consistent with the IFRS S2 Climate-related Disclosures. In Hong Kong, the Green and Sustainable Finance Cross-Agency Steering Group announced plans to further sustainable finance initiatives this year and revealed a roadmap for the adoption of IFRS Sustainability Disclosure Standards that is in the works.

This month’s ESG Policy Digest highlights regulators’ efforts to demystify and streamline the sustainability reporting process, particularly for first-time reporting entities, while also working towards establishing best practices for entities already engaged in ongoing reporting. Collaborative initiatives, such as the one between GRI and ISSB highlight the need for standard-setters to streamline reporting criteria. The global policy landscape continues to evolve, with regulators exemplifying a broader trend towards alignment with international standards and model ESG reporting regulations.

International

IFRS GRI publish GHG Emissions Reporting Guidelines

In a new joint publication, the IFRS Foundation and GRI have outlined interoperability considerations for companies disclosing Scope 1, 2 and 3 GHG emissions using GRI and ISSB standards. The analysis includes a mapping table with a comprehensive comparison of GHG emissions metrics, illustrating a high degree of alignment between the two disclosure frameworks. These insights can enhance reporting efficiency for companies by identifying cross-cutting requirements between GRI: 305 Emissions and IFRS S2 Climate-related Disclosures.

GRI launches new Biodiversity 2024 Standard

On 24th January, GRI launched a revised version of GRI 304: Biodiversity 2016 which aligns with international best practices and key intergovernmental instruments in biodiversity. GRI notes that the significance of monitoring, assessing and disclosing biodiversity-related risks was underscored by the adoption of the Kunming-Montreal Global Biodiversity in 2022. The new GRI 101: Biodiversity 2024 differs in its scope from GRI 304, covering new and complementary disclosure requirements such as supply chain, direct drivers of biodiversity loss, location-specific information. Overall, the standard emphasizes site-level reporting and supports alignment with TNFD and the UN Convention on Biological Diversity. GRI 101: 2024 was launched against the backdrop of increasing focus on nature-related financial disclosures. It will come into effect on January 1st 2026, however organizations can adopt it earlier. Companies can provide information on relevant biodiversity information on a voluntary basis as GRI has not established baseline disclosure requirements.

GRI launches sector-specific mining standard

The GRI Mining sector program introduces standards for 40 sectors, emphasizing those with major impacts, including site-specific disclosures for biodiversity, waste, and water. It recommends gender-sensitive human rights due diligence, sector-specific health and safety measures, and community engagement, including seeking consent from Indigenous Peoples. Detailed disclosures are required for involuntary resettlement and artisanal mining impacts on the environment and communities.

IESBA initiates consultation on ethics standards to enhance sustainability reporting

The International Ethics Standards Board for Accountants (IESBA) initiated a public consultation on two Exposure Drafts (EDs) outlining global standards on ethical considerations in sustainability reporting and assurance. As reporting entities prepare to comply with global sustainability disclosure regulations, these drafts seek to consider the ethical matrix within which the reporting process is embedded. One of the drafts focuses on International Ethics Standards for sustainability assurance and the other addresses the use of external experts. With increasing demand for sustainability information across various sectors, the consultation provides a feedback loop for key actors in the sustainability reporting ecosystem, including regulators, investors and accountants. The IESBA encourages feedback by May 10, 2024, for the Sustainability Assurance ED and by April 30, 2024, for the External Expert ED. This initiative is part of a broader push for the robust implementation of sustainability rules by regulators and standard-setters alike. So far, it has received support from the International Organization of Securities Commissions (IOSCO) – a leading organization in the global financial regulatory landscape.

EU Council and Parliament reach agreement on ESG ratings regulation

On 5 February 2024, the Council and Parliament reached a provisional agreement on a regulation for the oversight of ESG ratings providers. The purpose of the regulation is to increase transparency in ratings and scoring methodologies, verify integrity in operations of providers and prevent potential conflicts of interest. As the ESG reporting landscape matures, European regulators aim to underscore the importance of investor confidence in ESG ratings to scale sustainable finance and transition initiatives in the EU. The provisional agreement clarifies which ESG ratings and products fall under the scope of the regulation and explains exemptions for authorization by the European Securities and Markets Authority (ESMA). As the regulation focuses largely on the supervision of EU-based providers, the agreement also looks at territorial scope and what constitutes operating in the EU. In parallel, the Council and Parliament have added conditions for the recognition of non-EU providers. The agreement goes a step further by incorporating amendments from the Sustainable Finance Disclosure Regulation (SFDR) establishing requirements for financial market participants and advisers to disclose methodologies on their websites if ESG ratings are used as part of marketing communications. The agreement also includes guidelines for weighting of ESG factors for a single rating as well as separate E, S and G ratings. A sticking point of the negotiations during the trilogue was stringency of rules for small providers. In conclusion, the Council and Parliament agreed to introduce a lighter-touch regime and optional registration for three years for small undertakings and proportional supervisory fees. These providers will have to comply with basic transparency requirements and adhere to certain governance principles.

EFRAG proposes Sustainability Reporting Standards for SMEs

EFRAG has released exposure drafts proposing sustainability reporting standards for small and medium-sized enterprises (SMEs) in line with the EU’s Corporate Sustainability Reporting Directive (CSRD). The drafts include the Exposure Draft for listed SMEs (ESRS LSME) and the Exposure Draft for the voluntary reporting standard for non-listed SMEs (VSME). The Exposure Draft on ESRS LSME addresses public-interest SMEs, including those listed on regulated markets, and is designed to be effective from January 1, 2026, with a two-year opt-out option. The second ED on VSME offers a voluntary reporting tool for non-listed SMEs to respond efficiently to sustainability information requests. Both drafts are part of EFRAG’s efforts to support SMEs in unlocking sustainable finance and are open for public consultation until May 21, 2024, including a field test that focuses on feasibility, costs, challenges, benefits, and suggested improvements. Concurrently, EFRAG has published two working papers on ESRS sector-specific standards SEC1 and SEC2. SEC1 highlights standards for high impact sectors including agriculture, financial institutions and mining and SEC2 outlines a general approach to sector-specific ESRS and considers interoperability with GRI, Pillar 3 and other reporting frameworks.

EU delays adoption of sector specific ESRS

EU lawmakers agreed for a two-year extension in the adoption of sector specific ESRS for the implementation of CSRD rules. The decision to allow a breathing period for the adoption of ESRS was highlighted in the 2024 Commission Work Programme released last year. The proposed delay was agreed upon by MEPs, despite the CSRD mandate to finalize sector specific standards by the end of June 2024. Sector-specific standards are expected to add clarity on reporting topics for companies based on their industry and sector. However, the rationale to delaying the adoption of these standards was based on the assessment of regulators that companies would face undue regulatory and compliance burden in the near-term. The new proposal also contains a recommendation to delay ESRS disclosure for non-EU companies operating in the EU who were initially set to start reporting in 2028. During this 2-year timeframe, companies can focus on the disclosure of the first set of ESRS and the EFRAG can also develop new standards

EBA releases draft guidelines on the management of ESG risks

The European Banking Authority has launched a consultation on ‘Guidelines on ESG risks management’. These guidelines seek to establish minimum standards and methodologies for identifying, monitoring, measuring and managing ESG risks. The EBA has recommended a range of measures for managing ESG risks including robust data processes and varied methodologies such as exposure-based, portfolio-based and scenario-based approaches. According to the guidelines, institutions must conduct materiality assessments and identify ESG risks systematically, over short, medium and long-term horizons, including a time horizon of at least 10 years. To ensure the resilience of institutions, EBA calls for the integration of ‘forward-looking’ ESG risks into institutions’ strategies, policies, risk management framework and internal controls. Notably, the regulator has identified environmental factors as a primary risk impacting other financial risk categories. The draft Guidelines were developed in line with the EBA’s roadmap on sustainable finance and will address the mandate of setting specific climate-related scenarios. These guidelines outline the necessary tools and plans to address transition risks as the EU accelerates its ambitious plans to become a climate neutral economy.

EU finalizes rule to ban greenwashing

Members of the European Parliament (MEPs) have approved a new directive aimed at improving product labeling and prohibiting misleading environmental claims, addressing issues like greenwashing and premature obsolescence of goods. The directive seeks to protect consumers by adding misleading marketing practices to the EU’s list of banned commercial practices. The rules include a ban on general environmental claims without proof, regulation of sustainability labels based on official certification schemes, and the promotion of goods with extended guarantees through a new harmonized label. The directive also prohibits unfounded durability claims and prompts to replace consumables prematurely. The law, which aims to promote transparency in marketing and combat throwaway culture, is expected to change the way Europeans make purchasing decisions. The directive awaits final approval from the Council before being published in the Official Journal, with member states having 24 months to transpose it into national law. The directive will work in conjunction with the upcoming green claims directive, which will provide more detailed conditions for using environmental claims.

The Platform on Sustainable Finance publishes its report on the ‘compendium of market practices’

The Platform on Sustainable Finance, an advisory body to the European Commission, has released a report on a compendium of market practices related to the EU sustainable finance framework. The report highlights the effective adoption of the EU sustainable finance tools, such as the EU taxonomy and the European Green Bond Standard, by various market stakeholders. These tools are being utilized for setting transition strategies, structuring financial transactions, and reporting sustainability efforts. The report includes case studies for different stakeholder groups and emphasizes the positive impact of the EU sustainable finance framework on the ground. The report identifies challenges and recommends peer-to-peer recommendations to enhance the framework’s value. The Platform on Sustainable Finance will present the report in a webinar, and the EU Commission will collaborate with the Platform to monitor tool uptake and provide guidance for effective implementation.

UK FRC updates the 2018 Corporate Governance Code

The UK Corporate Governance Code for 2024, effective from 2025, has been updated with a focus on Board Leadership and Company Purpose, Division of Responsibilities, Composition, Succession and Evaluation, Audit, Risk and Internal Control, and Remuneration. Operating on a ‘comply or explain’ basis, the Code includes changes such as a new provision (Provision 29) requiring boards to declare the effectiveness of material internal controls. A new Principle encourages companies to report on outcomes and activities. The Code applies to companies with a premium listing on the London Stock Exchange. The 2024 Code will be in effect for financial years beginning on or after January 1, 2025, with Provision 29 applicable from January 1, 2026.

Canada to open consultation on sustainability disclosure standards adoption

In March 2024, the Canadian Sustainability Standards Board (CSSB) plans to initiate a consultation on the initial sustainability standards for Canada, referred to as CSDS 1 and CSDS 2. Canada has been progressing towards aligning its standards with the global baseline since the introduction of the IFRS Standards last year. The CSSB collaborates with the International Sustainability Standards Board (ISSB) to promote the adoption of ISSB standards in Canada, address pertinent Canadian issues, and ensure compatibility between ISSB and future CSSB standards. The Canadian Securities Administrators (CSA) are overseeing the development of climate-related disclosure requirements for reporting issuers in Canada. CSA staff intend to conduct additional consultations to adopt disclosure standards based on ISSB Standards, with necessary modifications for the Canadian context.

Australian Treasury proposes mandatory climate-related disclosure rule

The Australian government unveiled Exposure Drafts on a new legislation proposing mandatory requirements for large and medium sized companies and financial institutions to disclose their climate-related risks and opportunities. Importantly, the legislation would enforce mandatory reporting of greenhouse gas emissions across the value chain. The legislation would apply to public companies and large proprietary companies meeting specific size thresholds. Scope 3 emissions reporting are likely to be phased-in as the proposed law also introduces assurance requirements for climate-related reporting. The consultation period is open until 9th February.

Hong Kong confirms plans to further sustainable finance initiatives this year

In a recent regulatory update, Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group outlined three key initiatives to capitalize on sustainable finance opportunities in the Asia-Pacific Region’s low-carbon transition. The group, co-chaired by the Hong Kong Monetary Authority and the Securities and Futures Commission, is developing a roadmap for the local adoption of International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards. Additionally, they plan to leverage technology for sustainability reporting, showcasing green fintech use cases, and enhancing their website with digital tools. The Steering Group is also prioritizing the development of transition finance, aiming to broaden the local taxonomy and collaborate with regional and international partners for capacity building, thereby reinforcing Hong Kong’s role as a leading sustainable finance hub.

China amends Company Law to protect small and medium shareholders

China has adopted revisions to its Company Law aimed at enhancing corporate governance structures. The amendments focus on strengthening the role of the board of directors, specifying the responsibilities and authority of independent directors, and encouraging the establishment of specialized committees. The changes also introduce provisions related to the protection of shareholders’ rights and interests, emphasizing transparency and accountability in corporate decision-making processes. These revisions reflect China’s commitment to improving corporate governance practices and aligning with international standards to foster a more robust business environment.

UNPRI releases new guidance on corporate governance and human rights. Read more
TNFD announces early adopters. Read more
Financial Services Agency (FSA) establishes dialogue on enhancing sustainability investment products. Read more
FSA publishes annual booklet introducing best practices in financial disclosure. Read more

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ESG Policy Digest: January 2024

18th January 2024

The sustainable finance policy and regulation landscape continued to evolve and mature at the end of 2023 and the hope is that policymakers double down on the impetus to bolster sustainable investment this year. A new year of sustainability reporting will require global regulators to confront challenges relating to sustainability data, making the release of International Capital Markets Association’s (ICMA) code of conduct for ESG ratings and data providers a timely policy intervention. Europe is one jurisdiction where formal regulation is progressing on this front. In December, legislators agreed on a negotiating position for the regulation of ESG ratings providers in the EU with some newly highlighted points on the scope of application and registration of providers.

Overall, December 2023 was a very busy month in Europe, as regulators voted on key pieces of legislation including the Corporate Sustainability Due Diligence Directive (CSDDD). MEPs decided that the directive will temporarily exclude the financial sector from its scope. The banking sector will, however, be subject to certain ESG disclosure requirements as the EU Commission would soon adopt the final elements of Basel III and implement the framework into EU law. Additionally, the European Banking Authority (EBA) released final guidelines on benchmarking diversity practices and gender pay gaps to further transparency in the financial services sector.

Meanwhile, the European Supervisory Markets Authority (ESMA) announced a number of updates including a delay in the release of guidelines for using sustainability-related terms in fund names and new draft guidelines for the enforcement of sustainability information prepared under EU law. Furthermore, ESMA has launched a common supervisory action (CSA) to systematise national-level oversight of benchmarks with an ESG objective. European regulators have also indicated that at the beginning of this year, there may be more certainty on the status of the Sustainable Finance Disclosure Regulation (SFDR). On December 4th, European Supervisory Authorities (ESAs) published a revised list of principle adverse impact indicators and will review the draft RTS in the coming months. Moving to insurance and pension funds, the European Insurance and Occupational Pensions Authority (EIOPA) has opened a consultation on the prudential treatment of sustainability risks until March 2024.

Over to the UK, the Competition and Markets Authority (CMA) released informal guidance on how competition law applies to environmental sustainability agreements. The UK Government’s advancements in the climate policy realm included the finalisation of a Carbon Border Adjustment Mechanism (CBAM) by 2027 and an upcoming Emissions Trading Scheme (ETS).

Asia-Pacific also closed the year with notable policy news as the Monetary Authority of Singapore (MAS) launched the Singapore-Asia Taxonomy and simultaneously, a code of conduct for ESG ratings and data providers. Further south in Australia, legislators agreed on a nature repair market bill for biodiversity loss prevention and restoration.

These developments and many more will shape the future of ESG regulation for years to come. We anticipate a flurry of regulatory activity in 2024 and will do our best to keep our readers informed on the latest news in sustainable finance regulation. Please continue to watch this space!

International

ICMA publishes voluntary code of conduct for ESG data and ratings providers

Following a mandate by the UK’s Financial Conduct Authority (FCA), on December 14, 2023, the International Capital Market Association (ICMA) released a voluntary code of conduct which may be applied in global jurisdictions where there is no regulation currently in place. This is intended to serve as a globally consistent, voluntary Code of Conduct for ESG ratings and data providers, aligning with IOSCO recommendations. Emphasising transparency and good governance, the Code aims to establish international standards in the sector. ICMA, appointed by the FCA in 2022, developed the Code together with the International Regulatory Strategy Group (IRSG). Following a consultation period ending on October 5, 2023, the final Code was published, with ICMA taking ownership. The Code promotes transparency and trust in the ESG data and ratings market, endorsed by Sacha Sadan, FCA Director of ESG. A January 31, 2024 event at the London Stock Exchange will discuss the Code’s practical implementation and international implications, encouraging engagement from ESG data and ratings providers. Read more

Europe

European Council and Parliament reach provisional agreement on partial inclusion of the financial sector under CSDDD

On 14 December 2023, the Council and Parliament reached a provisional deal on CSDDD that finalised the scope of the regulation. For corporates, the directive will apply to large companies with more than 500 employees and net turnover over €150 million. Three years from the directive’s entry into force it will also apply to non-EU companies with a net turnover over €150 million generated in the EU. The deal last month reinforces CSDDD provisions concerning the obligation of large companies to adopt and implement a (means based) transition plan for climate change mitigation. After prolonged negotiations between MEPs, the directive will temporarily exclude the financial services sector from its scope. The decision to include the financial downstream sector will be revisited later based on a comprehensive impact assessment. Other parts of the directive focus on liabilities for non-compliant companies and outline an exhaustive list of specified rights and prohibited activities in line with UN human rights conventions. Similarly, the deal defines environmental impacts more broadly to include any measurable environmental degradation. Read more

The Commission Banking Package adds final elements of Basel III

The Commission has finally decided to adopt remaining elements of Basel III in the banking package and implement the framework into EU law. On the ESG side, European co-legislators are focused on the disclosure and management of climate and social risks in the banking sector. Specifically, the Commission Banking package would introduce a mandate for banks to draw up transition plans under the prudential framework which must uphold the commitments made by banks under various pieces of legislation included in the EU Sustainable Finance Action Plan. The Commission has proposed that supervisory authorities oversee how banks integrate ESG risks and factors in the annual supervisory examination review. ESG disclosure requirements will also start to apply to all EU banks, with proportionality of burden for smaller banks. Finally, it was agreed that banks financing infrastructure projects or activities with a positive or neutral environmental impact may be authorised to enjoy a favourable risk weight treatment. This system of checks and balances is designed to bolster financial stability, enabling the EU’s banking sector to demonstrate resilience in the context of climate and social change. Read more

ESMA postpones guidelines on using sustainability-related terms in fund names

ESMA has announced a new timeline for the release of guidelines on the use of ESG and sustainability-related terms in fund names. This decision comes due to advancements in AIFMD and the UCITS Directive which specify circumstances where the name of an AIF or UCIT is unclear, misleading or unfair. If the amended texts are released on time, ESMA’s guidelines will be published and formally adopted in Q2 2024. The Guidelines will take effect three months after their publication. Managers of newly managed funds must adhere to the Guidelines for those funds starting from the application date. For managers of funds already in existence before the application of the Guidelines, compliance with the Guidelines for those funds is expected within six months from the application date. Read more

ESMA launches “common supervisory action” (CSA) for ESG disclosures under EU BMR

The European Securities and Markets Authority has launched a CSA with National Competent Authorities (NCAs) to provide oversight of ESG disclosures made under the EU’s Benchmark Regulation (EU BMR). The objective of this exercise is to establish a system for the “consistent and effective” supervision of benchmark administrators across the EU. Specifically, the CSA will assess compliance of EU-based and global benchmark administrators against requirements for the disclosure of ESG risks in Annex II of EU BMR with further explanation of ESG factors considered in the benchmark methodology statement. The CSA will also cover the disclosure requirements for climate benchmarks methodology. A key feature of BMR is the year-on-year decarbonisation trajectory for EU climate benchmarks with stricter thresholds for those aligned with the Paris agreement climate scenario of 1.5/2C. Read more

EIOPA consults on the prudential treatment of sustainability risks

The European Insurance and Occupational Pensions Authority (EIOPA) has launched a consultation on the prudential treatment of sustainability risks, as mandated by the Solvency II Directive. This marks the second phase of EIOPA’s approach, assessing whether dedicated prudential treatment for assets or activities linked to environmental or social objectives is justified. Sustainability risks are increasingly relevant for insurers, and EIOPA aims to ensure the prudential framework adequately addresses these, prioritising consumer protection and financial stability. Stakeholders can provide feedback via the EU Survey until March 22, 2024. In addition, EIOPA announced a new catastrophe data hub which captures EU wide data on insured losses for past events and other exposure data on flood and windstorm disasters. Read more.

European Supervisory Authorities publish revisions to SFDR

As the Sustainable Finance Disclosure Regulation continues to evolve, ESMA, EIOPA and EBA have jointly published their proposed revisions to the list of principle adverse indicators (PAIs). The ESAs are adding additional social indicators to the list and will add further nuance to climate reporting by introducing product disclosures on greenhouse gas emissions reduction targets. Additional changes include some technical amendments to the treatment of derivatives and the calculation of sustainable investments, among others. The Commission will review the draft RTS and decide on whether to endorse them in the next three months. Read more

EC agrees negotiating position on ESG ratings regulation

The EU Council agreed on a negotiating mandate for a regulation on ESG ratings to boost investor confidence in sustainable products. The rules aim to improve the reliability of ESG ratings by enhancing transparency, requiring authorization and supervision by the European Securities and Markets Authority (ESMA), and addressing conflicts of interest. Key points include clarification of scope, exemptions, and the introduction of a temporary registration regime for small ESG rating providers. This agreement, alongside the European Parliament’s mandate in December 2023, sets the stage for interinstitutional negotiations expected to commence in January 2024. Read more

EBA publishes final guidelines on DEI and gender pay gaps for financial services sector

On 18^th December 2023 the European Banking Authority (EBA) released final Guidelines on benchmarking diversity practices, encompassing diversity policies and gender pay gaps under the Capital Requirements Directive (CRD) and Investment Firms Directive (IFD). These guidelines enhance transparency on the EBA’s work regarding diversity and gender equality, improving data quality and stakeholder awareness. Applicable to institutions and investment firms, the guidelines mandate data provision on management body diversity and gender pay gaps, collected every three years from a representative sample. The EBA Board of Supervisors determined technical aspects for the sampling of institutions. The reporting format, effective from 2025, will collect data as of December 31, 2024, in accordance with legal mandates outlined in the CRD and IFD. Read more

ESMA launches consultation on the enforcement of sustainability information prepared under EU law

ESMA is seeking input until March 15, 2024, on draft Guidelines for the Enforcement of Sustainability Information. The guidelines aim for consistent supervision by national authorities over listed companies’ sustainability information, ensuring alignment with the Corporate Sustainability Reporting Directive (CSRD), European Sustainability Reporting Standards (ESRS) and Article 8 of the Taxonomy Regulation. The objectives include fostering convergence in supervision and robust approaches to both sustainability and financial information, enhancing reporting connectivity. The consultation targets listed companies, investors, users of sustainability information, auditors, and assurance service providers. ESMA plans to release the final Guidelines in Q3 2024 after considering the feedback received. Read more

United Kingdom

CMA issues its first informal guidance to help green initiatives

The UK’s Competition and Markets Authority (CMA) has responded to a request for informal guidance under its Green Agreements Guidance, which clarifies how competition law applies to environmental sustainability agreements. The CMA’s open-door policy allows businesses and organisations to seek guidance on proposed sustainability agreements. The response pertains to the Fairtrade Foundation’s Shared Impact initiative, targeting sustainability and resilience in food supply chains, particularly addressing emissions in the food and drinks industry. The initiative aims to offer longer-term contractual stability for producers adopting environmentally sustainable farming practices. Read more.

Addressing carbon leakage risk to support decarbonisation

After a consultation from March 30 to June 22, 2023, gathering over 160 submissions, the UK government has decided to implement a carbon border adjustment mechanism (CBAM) by 2027. The CBAM will levy charges on carbon emissions in imports from sectors like aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron, and steel. Further refinement of CBAM delivery will be subject to additional consultation in 2024. The government also plans to collaborate with industry for voluntary product standards promoting low-carbon products and to develop an embodied emissions reporting framework, with both measures undergoing further technical consultations in 2024. Read more.

UK Emissions Trading Scheme: consultation and future markets policy

The UK Emissions Trading Scheme (UK ETS) Authority, comprised of the UK, Scottish, Welsh Governments, and Northern Ireland’s Department of Agriculture, seeks input on proposals to enhance future market policies. The consultation, closing on March 11, 2024, aims to optimize ETS markets policy for managing risks effectively in a maturing scheme, fostering stable conditions for decarbonization. Stakeholders, including companies in various sectors, ETS market traders, financial institutions, investors, and environmental groups, are invited to provide views on identifying significant risks, assessing policy options, and designing individual market stability policies. Read more.

Asia Pacific

MAS releases multi-sector Sustainable Finance Taxonomy

Singapore’s latest initiative exemplifies its status as a regional leader in sustainable finance policy and regulation. This will be the first Taxonomy to include guidance on identifying and classifying activities that can be considered green or transitional, thereby considering starting positions and ensuring just transition in the region. MAS has adopted the traffic light system to distinguish between investments towards “green” activities, which can be identified based on specific metrics and thresholds, and “amber” or transition activities “that do not meet the green thresholds now but are on a pathway to net zero or contributing to net zero outcomes”. The Taxonomy will cover eight sectors and will use a “measures-based approach” that encourages capital allocation towards decarbonisation processes that are aligned with a 1.5C outcome. An additional section of the Taxonomy document provides criteria for transitioning away from coal-fired plants, allowing transition finance to support early coal phase out deals. Read more

Singapore finalises code of conduct for ESG ratings and data providers

The Monetary Authority of Singapore has also released its code of conduct (CoC) which largely relies on ratings and data providers to self-attest adherence to the CoC ‘Checklist’ for compliance. The CoC aims to crack down on black box methodologies which may obscure analysis around ESG ratings and data. The industry standards are based on recommendations from IOSCO. Similar to legislation in the EU, there is emphasis on preventing conflicts of interest and reforming governance structures to ensure integrity of ESG scores and data. MAS has added that although not necessary, those that adopt the CoC can provide assurance or audit where possible. A list of providers that adopt the CoC will also be available on the ICMA website. Read more

Australia has passed a nature repair market bill to restore biodiversity habitats.

The Australian government and Greens have agreed on a nature repair scheme, fast-tracking the expansion of the water trigger to all unconventional gas projects. The deal prohibits trades in the new nature market as offsets for habitat destruction. The nature repair bill aims to establish a market encouraging private investment in biodiversity projects, with businesses receiving tradeable certificates. Amendments, including the exclusion of trading credits as offsets, addressed earlier controversies. The expanded water trigger now covers all unconventional gas forms. Read more.

Other News & Resources

The IFRS Taxonomy Consultative Group is seeking new candidates from April 1, 2024. Read more
NGFS released recommendations for the development of nature-related financial risk scenarios. Read more
The EFRAG and TNFD signed a cooperation agreement to advance nature-related sustainability reporting. Read more
The Dubai Financial Services Authority and the Hong Kong Monetary Authority announced a partnership to enhance cross-border collaboration for the development of sustainable finance policies and regulations across the Middle East and Asia regions. Read more
ESMA publishes methodological approach for modeling climate risks in the fund sector, along with analysis of the financial repercussions of greenwashing.
The US Treasury Internal Revenue Service issue guidance on sustainable aviation fuel credit. Read more

2023: Year in Review:

Below are the main ESG Regulatory Developments that took place in 2023:

Adoption of Global ESG Standards and Frameworks

Evolution of international sustainable taxonomies: EU, Singapore, Brazil, UK Green Taxonomy

ESG Ratings providers regulation: SEBI, EU, Japan, Singapore Code of Conduct

US Climate focus: SEC Climate rule postponed, California climate disclosure package passed

Supply chains: CSDDD and EUDR adoption

Global fund labelling regimes: US SEC Fund Labelling Rule adopted, UK Sustainability Disclosure Requirements (SDR), SFDR proposed formal product categories, SEBI ESG mutual fund scheme

COP28 aims to restore faith in Voluntary Carbon Markets

*ESG Book manages the world’s largest repository of sustainability reporting provisions with over 2,400 regulations across more than 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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Beyond 1.5C – January 2024 Update

15th January 2024

Scientists at the EU’s climate agency Copernicus released their findings last week on the state of the planet’s climate. It made for stark, if not unexpected reading. The headline was that the planet was 1.48° Celsius hotter in 2023 compared to pre-industrial times. That’s a mere whisker below the 1.5° Celsius target set by countries in the 2015 Paris Climate Agreement to avoid the most severe effects of warming. But is it strictly right to compare this 1.48°C with the target set in Paris?

To read the full article, click here

ESG Book Response to Targeted consultation on the implementation of the Sustainable Finance Disclosures Regulation

20th December 2023

Last week (14th December), ESG Book submitted its response to the latest EU Commission Targeted consultation on the implementation of the Sustainable Finance Disclosures Regulation (SFDR), addressing concerns about the regulation’s current ambiguity and lack of clarity in defining ‘sustainable investment.’

ESG Book’s response underscores the importance of clarity, standardization, and collaboration in implementing SFDR to enhance transparency and comparability in sustainable finance reporting.

To read the full article, click here

ESG Policy Digest: December 2023

15th December 2023

In this month’s Policy Digest, we dive into various developments that reflect the evolving status of the Sustainable Finance Disclosure Regulation (SFDR). Most recently, the European Supervisory Authorities’ (ESAs) Final Report on Regulatory Technical Standards (RTS) included new and updated indicators for reporting entities under SFDR. Meanwhile, the European Securities and Markets Authority (ESMA) issued high-level guidance on the interpretation of key concepts and definitions embedded within the sustainable finance framework. In the banking and financial services sector, the European Banking Authority (EBA) released the final templates and guidance for a one-off Fit-for-55 climate risk scenario analysis, involving approximately 110 EU banks. Regulation is also progressing on the sustainability ratings and data front, as European Parliament members made changes to the draft ESG ratings regulation, requiring providers to disclose the weighting of environmental, social, and governance factors. Additionally, the European Council adopted a proposal for centralized sustainability information, establishing the European Single Access Point (ESAP).

In the UK, the Financial Conduct Authority (FCA) finalised a sustainable investment fund labeling regime, introducing four labels and an Anti-Greenwashing Rule. The UK Parliament is also taking steps to enshrine “reasonable” human rights and environmental due diligence (HREDD) into law.

Moving to Taxonomy-related news, the Monetary Authority of Singapore (MAS) launched a multi-sector transition taxonomy to aid financial institutions in identifying green and transition activities. MAS also released a voluntary code of conduct (CoC) for ESG data and ratings providers. Also featured in the Asia-Pacific region update is Australia’s plan for a new Sustainable Finance Strategy. Australia’s Treasury has proposed mandatory climate-related financial disclosures, a sustainable finance taxonomy, and a labeling system for sustainable investment products under the new Strategy.

With the release of both ISSB standards and the European Sustainability Reporting Standards (ESRS) this year, regulators and standard setters alike are signaling a promising new era of alignment. Once these standards are formally adopted and rendered in varying contexts, global regulators will start to examine the building blocks of sustainability reporting– ESG data and ratings – that have so far been outside the sphere of regulation in many jurisdictions.

Europe

ESAs release Final Report on Regulatory Technical Standards for SFDR

European financial regulators are finalising the list of mandatory and optional Principle Adverse Impact indicators as part of the disclosure rules for financial products under the Sustainable Finance Disclosure Regulation (SFDR). The SFDR, effective since March 2021, mandates financial market participants and advisers to disclose sustainability integration at both entity and product levels. On 4^th December, European Supervisory Authorities (ESAs) announced the publication of their Final Report amending the draft Regulatory Technical Standards (RTS). The RTS proposes new climate and social reporting metrics, including greenhouse gas (GHG) reduction targets and mandatory social metrics such as inadequate wages and exposure to tobacco cultivation and production. Importantly, there is an ongoing targeted consultation on SFDR. The European Commission is seeking feedback from stakeholders on how SFDR has been implemented so far and even proposed a revised system of product categorisation, given that the regulation has become a de facto fund labeling regime. The targeted consultation additionally explores the relevance of the existing list of PAIs. Areas of focus include the methodology of adverse impact indicators (materiality assessment for certain indicators), disclosure costs, data quality, and clarity of legal concepts embedded within the framework. Read more

ESMA publishes explanatory notes on key concepts in EU’s sustainable finance framework

The European Securities and Markets Authority (ESMA) has also acknowledged the recent focus on SFDR and questions around the assessment of the sustainable investment definition carried out by taking into account PAI indicators. ESMA has published three explanatory notes clarifying: a) the definition of sustainable investments; b) the application of the do no significant harm (DNSH) principle and; c) the use of estimates. These documents may be used as guidance supporting the implementation of the sustainable finance framework which includes both SFDR and the Taxonomy Regulation. SFDR introduces the key concept of ‘sustainable investment’ while the Taxonomy defines ‘environmentally sustainable’ economic activities. The Taxonomy Regulation interacts with SFDR mainly by necessitating DNSH checks for ‘environmentally sustainable’ economic activities. Despite similarities between these concepts and definitions, there may be differences in interpretation that could create practical challenges for both market participants and regulators in terms of legislative coherence. Read more

European Parliament advances ESG ratings regulation

MEPs have proposed significant changes to the draft ESG ratings regulation. The newly adopted changes would require ESG ratings providers to disclose the weighting of environmental (E), social (S), and governance (G) factors in the aggregation of ESG scores. Furthermore, the breakdown of ESG ratings should include information on the extent to which a rating considers alignment with the decarbonization objective outlined in the Paris agreement and compliance with international conventions and standards across the ‘S’ and ‘G’ dimensions. Black box methodologies have been a longstanding issue plaguing the ESG ratings industry and the European Commission’s new rule would dig deeper into ESG scoring by imposing transparency requirements in two ways. First, the MEPs have adopted a ‘double materiality’ approach as best practice for the industry and are imposing a requirement for ratings products to explicitly disclose the selected materiality approach which may consider: i) both material financial risk and the overall impact on society and the environment; ii) only one of these. Second, to prevent providers from obscuring analysis around ratings, they must publicly disclose methodological information, models and key assumptions. Therefore, while there are no prescriptive methodological standards for the industry, the rule puts the onus on providers to create better governance systems to ensure that the methodologies for assessment, underlying data and analysis are sound. Additionally, to reduce barriers to entry for new players, the rule provides that an entity seeking to obtain more than one ESG rating will have to select at least one provider with a market share below 15%. Read more

EBA finalises template for one-off climate stress test

The EBA has finalised templates and guidance for a one-off Fit-for-55 climate risk scenario analysis, with approximately 110 EU banks set to participate. Commencing on 1st December 2023, and concluding on March 12, 2024, the exercise aims to collect climate data to assess the resilience and preparedness of EU banks in the context of climate change. The templates cover credit, market, and real estate risks, as well as interest, fees, and commission income. Banks must report aggregated and counterparty level data based on December 2022 balance sheet data. Aggregated data will inform climate-related risks in the financial sector more broadly, whereas the aggregated data will give an idea of ‘concentration risk of large climate exposures’. The EBA will also use aggregated data to study amplification mechanisms and second round effects. Read more

EFRAG and GRI announce joint release of an ‘Interoperability Index’

In a recent board meeting, the European Financial Reporting Advisory Group (EFRAG) announced the release of a draft ESRS-GRI Interoperability Index. The Index is a mapping tool which will help companies identify the ‘commonalities between ESRS and GRI Standards’ and reduce the corporate reporting burden. The mapping establishes a connection between the paragraph-level ESRS disclosure requirements and their corresponding GRI disclosures and requirements. Based on the mapping, companies that are reporting under ESRS can be considered as reporting “with reference” to GRI standards. Furthermore, if a company reporting under ESRS voluntarily discloses additional GRI requirements not covered under ESRS, it will be “in accordance” with GRI standards. In terms of materiality assessment, the joint initiative has clarified that GRI Disclosures can be reported as entity-specific disclosures in the ESRS report, provided that ESRS does not cover the material impact of the company or to a sufficient level of granularity. The mapping file will be publicly available in Excel format once it is finalised and approved by both GRI and EFRAG. The collaboration is a clear signal that regulators and standard setters alike are working towards a global baseline for sustainability reporting. Read more

European Council adopts the proposal for centralized sustainability information

On 27th November 2023, the Council adopted the proposal for the regulation establishing the European Single Access Point (ESAP). ESAP will function as a centralized platform for public financial and non-financial information on EU companies and investment products. The platform will give investors access to sustainability data in a free, digital and user-friendly manner. Overall, the regulation aims to empower a broad range of investors with decision-useful information and facilitate the allocation of capital towards sustainable investments. The ESAP platform is expected to launch in summer 2027 and is set to gradually become the one-stop shop for sustainability-related information by collecting data disclosed against key regulations in the EU’s Sustainable Finance Action Plan – SFDR, EU Taxonomy and the Corporate Sustainability Reporting Directive (CSRD). Read more

United Kingdom

UK FCA finalises sustainable investment fund labelling regime

On 28^th November, the FCA released its final Policy Statement outlining Sustainability Disclosure Requirements (SDR) for investment labels. Based on feedback received from various stakeholders, the regulator has introduced four labels – ‘Sustainable Focus’, ‘Sustainable Improvers’, ‘Sustainable Impact’ and a newly launched ‘Sustainable Mixed Goals’ category. Firms will be able to use sustainability labels starting 31 July 2024 provided they meet the general and label-specific criteria. Each voluntary sustainability level has a distinct objective. These include criteria such as a minimum of 70% of assets aligning with the sustainability objective and general criteria applicable to all labels. The SDR also mandates sustainability disclosures at both product and entity levels, encompassing retail and professional investors. To support the implementation of SDR, specific naming and marketing rules will be established, preventing certain terms from being used in fund names. Lastly, the package of measures introduces an Anti-Greenwashing Rule that will be in force by 31^st May 2024. Read more

UK Introduces draft Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill

Baroness Young of Hornsey introduced the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill to the House of Lords, aiming to make human rights and environmental due diligence (HREDD) mandatory in the UK. The bill aligns with global standards, and companies are advised to prepare for potential legal requirements. The bill mandates that commercial organisations prevent human rights and environmental harms in their operations and supply chains, emphasising stakeholder engagement. Annual reporting would be required for companies surpassing a turnover threshold. Non-compliance may result in civil penalties, fines, and exclusion from public contracts. The bill provides guidance on tailoring HREDD to an organisation’s specifics, stressing integration into policies and public reporting. Best practices include establishing board-level processes, monitoring legislation, engaging stakeholders, conducting impact assessments, and reinforcing complaint mechanisms. Read more.

Asia Pacific

Monetary Authority of Singapore launches multi-sector transition taxonomy

With the release of the latest global taxonomy, MAS has integrated the unique feature of ‘starting positions’ and emphasised inclusive economic and social development. The aim of this classification system is to aid financial institutions in identifying green and transition activities. The ‘multi-sector’ taxonomy sets out environmental objectives and activities that are in scope. It also provides metrics and thresholds for the delineated objectives, explaining how an activity can be considered ‘green’ or the levels of alignment needed to be considered ‘transitioning’. Singapore has become a regional leader in sustainable finance, due in part to of MAS’s active participation in local, regional and global taxonomy initiatives, aiming to enhance the coherence of taxonomy frameworks on a broader scale. Read more

Singapore releases voluntary code of conduct for ESG data and ratings providers

Singapore’s MAS has also launched a code of conduct for ESG data and ratings providers in a bid to enhance transparency in the industry, improve comparability and reliability ESG data and scores. This marks a substantial shift in an industry that has experienced rapid growth outside the sphere of regulation. However, the code of conduct will be rolled out on a voluntary basis, incorporating a ‘comply or explain’ approach for providers. This will be accompanied by a checklist for providers to attest to their compliance. Providers are expected to have governance structures, including written policies and procedures for assuring that the methodology and supporting analysis is sound for all data ratings products. Regulators are focused on transparency of ESG ratings methodology and data sources and preventing conflicts of interest. Read more

Australia’s Treasury announces plans for legislative reform under the new Sustainable Finance Strategy

Australia’s Treasury department has announced the proposal of a Sustainable Finance Strategy, featuring key initiatives such as establishing a framework for sustainability disclosures, creating net-zero transition plans, developing a sustainable finance taxonomy, and introducing a labeling system for sustainable investment products. The government aims to implement mandatory climate-related financial disclosure requirements for companies and financial institutions, starting in 2024 for large businesses and phased in over the next three years for smaller entities. The proposed taxonomy, initially developed by the Australian Sustainable Finance Institute (ASFI), aims for international alignment. Additionally, the government plans to create a labeling regime for investment products marketed as ‘sustainable,’ focusing on retail investors, with Treasury commencing work on this initiative in 2024. The regime will include requirements for issuers to provide additional information on how sustainability is integrated into the investment process. Read more

Other news & resources

Bursa Malaysia to launch platform for mandatory ESG reporting. Read more
The Partnership for Carbon Accounting Financials has published standards on how its signatory banks should account for financed emissions.
EFRAG and CDP announce cooperation to drive market uptake of ESRS. Read more
TCFD has officially disbanded and integrated into ISSB. Read more

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How Generative AI Enables Corporate ESG Reporting

11th December 2023

This year, 2023, is considered by many to be the year of generative AI. It is also the year of ground-breaking ESG regulatory announcements impacting corporations, including the launch of the long-awaited global IFRS ISSB standards and the signing of two pioneering California bills, SB-253 and SB-261.

In this blog post, ESG Book and C3 AI provide a roundup of key 2023 ESG regulatory announcements worldwide and examples of AI use cases that corporations can leverage to facilitate compliance and generate new sources of strategic insight, including:

1. Drafting questionnaire responses and natural language summaries.

2. Continuous stakeholder materiality analysis to improve stakeholder engagement and support double materiality.

3. Question and answer in natural language for interrogating and translating legalese and internal policy documents.

4. Data validation and surfacing alerts on data anomalies and errors to improve audit confidence and disclosure readiness.

To read the full article, click here.

ESG Policy Digest: November 2023

3rd November 2023

In October 2023, there was a noticeable uptick in ESG policy developments worldwide. The world’s first green bond standards were issued as a regulation in the European Union. Meanwhile, efforts to dilute the European Sustainability Reporting Standards (ESRS) were thwarted as the Members of European Parliament maintained that ESRS would be implemented without modifications, but introduced a delayed timeline for the adoption of sector-specific standards. Some questions remain however on proportionality of burden for small and medium-sized enterprises (SMEs) and revising the SME thresholds, given the backdrop of high inflation. Among other policy initiatives, the EU has also proposed a regulation that would prohibit goods made with forced labour.

In the Netherlands, the Dutch financial markets regulator has released guidelines to help financial institutions and pension providers accurately represent their products’ sustainability aspects. Shifting the focus to Switzerland, the Swiss Asset Management Association has introduced a voluntary stewardship code to promote stewardship activities and policies for sustainable value generation. Switzerland may also introduce a new sustainable fund labeling regime to prevent greenwashing.

In the United Kingdom, the creation of a Transition Plan Taskforce framework aligns with the IFRS S2 climate resilience reporting requirements while offering a broader spectrum of disclosure options. The UK is also seeking feedback from stakeholders on how to incorporate social factors into the occupational pension schemes industry.

Despite the enduring political debate on the value of ESG in the US, regulators are forging ahead with moderate policy action in this domain. The US Fed and other agencies have jointly finalized principles for climate risk management, while New York State considers mandatory employee data reporting to promote diversity and inclusion. Moving South, we observe Brazil’s pioneering move to adopt the ISSB standards in its regulatory framework. The country has laid out a roadmap to manage adoption and aims to attract local and global investment by enhancing transparency around sustainability matters.

Over to Asia Pacific, the Monetary Authority of Singapore unveiled transition planning guidelines to bolster climate resilience in the region and Australia proposed IFRS-aligned climate reporting standards, aiming to embed the international standards within a localised context. The high volume of policy initiatives is an unlikely ‘coincidence’ this close to COP28. Next month, we will find out what decisions will be taken by the global participants on mobilising climate finance at scale.

Europe

European Council adopts regulation to create an EU Green Bond Standard

On 24^th October, the European Council took a significant step by adopting a new regulation to establish the EU Green Bond Standards. The regulation sets forth ‘uniform requirements’ for issuers of environmentally sustainable bonds that need to demonstrate funding of legitimate green projects that are aligned with the EU Taxonomy. It also includes rules to regulate external reviewers of European green bonds. EUGB provides a flexibility pocket of 15% for those activities and sectors that are not yet covered by the EU Taxonomy to ensure that this does not halt the initial use and progress of the standards. Overall, the regulation is designed to aid investor identification globally and enhance transparency in the green bond market. The final regulation will enter into force on November 12, 2024. Read more

EU forges ahead with ESRS implementation despite political backlash

On 18^th October, the European Parliament rejected a motion put forth by MEPs to water down the European Sustainability Reporting Standards (ESRS). The ESRS is a key component of the Corporate Sustainability Reporting Directive (CSRD), which mandates around 50,000 companies to disclose their ESG performance. Meanwhile, the Council and Parliament have proposed adjusting size thresholds for companies to alleviate the reporting burden for SMEs. The decision to postpone the adoption of sector-specific standards by two years, from 2024 to 2026, was also announced as part of the 2024 Commission Work Programme. The delay primarily affects the enforcement of sector-specific disclosures and extends to non-EU entities operating within the EU, with both facing a two-year delay in their respective reporting deadlines. The rationale behind this delay is to allow companies to concentrate on integrating the initial ESRS while giving the European Financial Reporting Advisory Group (EFRAG) time to develop comprehensive sector-specific standards. Read more

EU set to ban products made with forced labour

The European Parliament is currently reviewing a proposed regulation that would ban products in the EU market that are made with forced labour. The regulation would establish a framework for investigating human rights violations across the supply chain. Once it is proven that a company has produced goods made with forced labor, the export and import of those products will be suspended at the EU’s borders and the company will also be forced to withdraw goods that have already entered the EU market. Furthermore, the Internal Market and International Trade committees are proposing that reintroduction of previously banned goods to the market would necessitate corrective actions. MEPs have called for the establishment of a list identifying high-risk regions and sectors, and in such cases the burden to prove compliance with international human rights standards would fall on companies. Read more

Dutch Authority for Financial Markets (AFM) releases guidelines on sustainability claims

The AFM aims to contribute to more transparency regarding sustainability claims, allowing customers of financial institutions and members of pension providers to have a clearer understanding of the sustainability aspects of their products and whether these match their expectations. In the guidelines, AFM highlights that consumers increasingly rely on ‘generic information’ from providers such as marketing information and can therefore find discrepancies between the expectations and real-world choices. By using principles, explanation statements and examples, these guidelines provide insight on how to correctly represent sustainability claims in generic product information. The key principle emphasises maintaining the factual accuracy of sustainability claims. Market participants are also advised to ensure claims about products are substantiated, comprehensible and accessible to readers. Read more

Swiss Asset Management Association voluntary stewardship code for asset managers

In response to international developments and recommendations from the Federal Council, Switzerland is introducing a Stewardship Code directed at asset owners, asset managers, and service providers to encourage the integration of stewardship activities into their business models and investment processes. The Code contains a set of 9 principles for effective stewardship ranging from governance, commitment to active and informed voting, proactive engagement with investee entities, effective management of conflicts of interest as well as stewardship activities that promote sustainable outcomes. Read more

Swiss Federal Department of Finance announces sustainable fund labeling rules to prevent greenwashing

The Federal Department of Finance (FDF) announced that it will implement the Federal Council’s position on tackling greenwashing in the financial services sector by proposing a principles-based state regulation. In a position paper issued in December 2022, the Federal Council proposed that financial services providers with products labelled ‘sustainable’, ‘ESG’ or ‘green’ should provide clarity on sustainability objectives to clients and investors to avoid misleading them. Secondly, the Council recommended that providers describe their investment strategies and define KPIs to validate sustainability impact and set measurable targets. The final recommendation called for regularity in reporting sustainability and climate alignment progress and recommended that these reports should be subject to third-party verification. Based on the initial position, the FDF will submit a consultation draft to the Federal Council by the end of August 2024, with the possibility of industry self-regulation being considered as an alternative if it effectively aligns with the Federal Council’s objectives. Read more

United Kingdom

UK Transition Plan Taskforce publishes sector-neutral Disclosure Framework for transition plan disclosures

The TPT has developed a sector neutral Disclosure Framework for best-practice transition plan disclosures, alongside implementation guidance and sector guidance. The TPT Disclosure Framework is designed to be available for voluntary and mandatory use internationally, purposefully supporting regulatory implementation in a manner consistent with reporting under the ISSB Standards and accommodating a net-zero or other climate ambition. It complements, and builds on, IFRS S2 climate resilience reporting requirements. For entities with a strategy for the management of climate-change related risks and low carbon business models, the TPT Disclosure Framework offers a broader spectrum of disclosure options. Read more

Guidance from the Taskforce on Social Factors considers social dimension in pension scheme investments

The UK Department for Work and Pensions’ Taskforce on Social Factors has initiated a consultation on guidance for incorporating social factors into pension investment decisions, emphasizing the need for trustees to assess both ‘material’ and ‘salient’ social risks and opportunities. With over 30 recommendations, the guidance encourages asset managers to integrate social factors into their stewardship policy and investment strategies. It includes a materiality assessment framework and provides examples of best practice such as a ‘clear voting policy’ and directly engaging with top performing companies across the ‘S’ dimension. The taskforce hopes to formalise these guidelines by early 2024 for UK pension scheme trustees. Read more

UK launches consultation on Scope 3 Emissions reporting landscape

The UK government is soliciting input on the costs, benefits, and practical implications of reporting Scope 3 greenhouse gas emissions, considering whether to incorporate the ISSB standards in the Sustainability Disclosure Standards (SDS) regulation. This call for evidence also covers the existing Streamlined Energy and Carbon Reporting framework and its voluntary Scope 3 disclosures, with the Financial Conduct Authority set to consult on rule changes for referring to UK-endorsed standards by early 2024, and the potential introduction of new rules for listed companies for accounting periods starting in 2025. Read more

Green Agreements Guidance provides clarity on sustainability-related business agreements

In response to the growing importance of environmental sustainability, the CMA has taken a significant step by issuing revised guidelines for businesses. These guidelines, which pertain to Chapter I provisions of the Competition Act 1998, shed light on how companies within the same supply chain can collaborate on sustainability initiatives. Following extensive consultations with industry stakeholders, these guidelines provide clarity and practical insights, aiming to encourage responsible competition in the pursuit of environmental goals. Read more

United States

Board of Governors of the Fed finalises principles for climate risk management for financial institutions

The Federal Reserve, The Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency have issued guidance in the form of “Principles for Climate-Related Financial Risk Management for Large Financial Institutions,” aimed at helping these institutions effectively manage financial risks associated with climate change across different areas and risk categories. This guidance outlines key principles related to governance, policies, strategic planning, risk management, data reporting, and scenario analysis, offering a comprehensive framework for addressing climate-related financial risks. Read more

New York State Assembly bill to mandate employee data regarding gender, race, and ethnicity

The bill, if enacted, would require certain companies and corporations in the state of New York to report data regarding the gender, race, and ethnicity of their employees. This data would need to be filed with the Secretary of State and subsequently published on the Secretary of State’s official website, enhancing transparency and accountability in terms of diversity and inclusion in the workforce. Read more

South America

Brazil announces regulatory framework to adopt ISSB-aligned standards

The Brazilian Securities Commission (CVM) introduced Rule No. 193 on October 20, 2023, implementing the International Sustainability Standards Board’s (ISSB) IFRS S1 and IFRS S2 frameworks for sustainability reporting. This rule mandates publicly traded companies to provide comprehensive information on governance, risk management, strategy, and goals and metrics related to sustainability, with a specific focus on climate-related information. Brazil is the first country to commit to adopting these standards, aligning with international efforts to harmonize sustainability data disclosure. Mandatory adoption begins for fiscal years starting on or after January 1, 2026, while voluntary adoption can commence as early as January 1, 2024. Read more

Asia Pacific

Monetary Authority of Singapore launches consultation papers on transition planning

The Monetary Authority of Singapore (MAS) has released a set of Consultation Papers outlining Transition Planning (TP) Guidelines for banks, insurers, and asset managers to enhance climate resilience and facilitate climate mitigation and adaptation efforts, focusing on internal strategic planning, risk management, governance, data, implementation, and disclosure. MAS expects financial institutions to engage and steward customers and investee companies, take a multi-year approach to assess climate-related risks, address environmental risks and provide comprehensive climate-related risk disclosures.

Australia announces proposed IFRS-climate reporting standards

The Australian Sustainability Reporting Standards (ASRS), including draft ASRS 1 and ASRS 2, are developed with the ISSB standards as a foundation. The Australian Accounting Standards Board have used the ISSB’s IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures as a baseline, however, there may be modifications or adaptations to the ISSB standards to meet the specific needs of Australian stakeholders and the legislative and regulatory requirements in Australia. The ASRS aim to provide a framework for sustainability reporting in Australia, with a focus on climate-related financial disclosures, however there is a critical balance to be maintained between ensuring interoperability with ISSB standards while accommodating local considerations and requirements. Read more

Other News & Resources

EFRAG provides resources for implementation of ESRS including Excel workbook with draft list of datapoints and guidance. Read more
EFRAG launches ESRS Q&A Platform. Read more
ICMA launches report on Market integrity and greenwashing risks in sustainable finances. Read more
Swiss Federal Council launches Climate Scores to assess climate resilience of portfolios based on selected indicators and minimum criteria for transition to net zero. Read more
Securities and Futures Commission announces support for voluntary code of conduct of ESG ratings and data providers in Hong Kong. Read more
Finance for Biodiversity Foundation publishes guidelines on unlocking the biodiversity-climate nexus. Read more
ICMA launches report on Market integrity and greenwashing risks in sustainable finances. Read more

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Europe

EU Council reaches decision on the CSDDD

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

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

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

EFRAG publishes amendments to materiality assessment guidance

North America

US SEC pauses implementation of climate disclosure rule

Canada opens consultation on sustainability disclosure standards adoption

Asia Pacific

Japan releases draft ISSB aligned sustainability reporting standards

China finalises double materiality guidance as part of listing rules

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

Africa & Middle East

Saudi Arabia launches green finance framework

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

Other News & Resources

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International

International Financial Reporting Standards (IFRS) foundation releases preview of ISSB adoption guide

Europe

Decisive vote on EU CSDDD still pending

EU Parliament adopts Nature Restoration Law

EU lawmakers advance regulation for sustainable packaging

EU to enforce ban on products made with forced labour

EU Council and Parliament reach provisional agreement certification scheme for high-quality carbon removals

EU to impose environmental crimes, fines and penalties

EU ESG Ratings Regulation on the horizon with exemptions for small providers

Sweden proposes delay to CSRD implementation

North America

US SEC adopts long-awaited corporate climate disclosure rule

Asia Pacific

Singapore switches from ‘comply or explain’ to mandatory climate reporting in 2025

Australian companies advocate for one year delay to mandatory climate reporting

Malaysia launches consultation on ISSB adoption

Chinese Stock Exchanges Announce Mandatory Rules

Reserve Bank of India (RBI) releases draft disclosure framework for climate-related financial risks

ASEAN Taxonomy Version 2 takes effect

Other news and resources

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International

IFRS GRI publish GHG Emissions Reporting Guidelines

GRI launches new Biodiversity 2024 Standard

GRI launches sector-specific mining standard

IESBA initiates consultation on ethics standards to enhance sustainability reporting

Europe

EU Council and Parliament reach agreement on ESG ratings regulation

EFRAG proposes Sustainability Reporting Standards for SMEs

EU delays adoption of sector specific ESRS

EBA releases draft guidelines on the management of ESG risks

EU finalizes rule to ban greenwashing

The Platform on Sustainable Finance publishes its report on the ‘compendium of market practices’

United Kingdom

UK FRC updates the 2018 Corporate Governance Code

North America

Canada to open consultation on sustainability disclosure standards adoption

Asia Pacific

Australian Treasury proposes mandatory climate-related disclosure rule

Hong Kong confirms plans to further sustainable finance initiatives this year

China amends Company Law to protect small and medium shareholders

Other News and Resources

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International

ICMA publishes voluntary code of conduct for ESG data and ratings providers

Europe

European Council and Parliament reach provisional agreement on partial inclusion of the financial sector under CSDDD

The Commission Banking Package adds final elements of Basel III

ESMA postpones guidelines on using sustainability-related terms in fund names

ESMA launches “common supervisory action” (CSA) for ESG disclosures under EU BMR

EIOPA consults on the prudential treatment of sustainability risks

European Supervisory Authorities publish revisions to SFDR

EC agrees negotiating position on ESG ratings regulation

EBA publishes final guidelines on DEI and gender pay gaps for financial services sector

ESMA launches consultation on the enforcement of sustainability information prepared under EU law

United Kingdom

CMA issues its first informal guidance to help green initiatives

Addressing carbon leakage risk to support decarbonisation

UK Emissions Trading Scheme: consultation and future markets policy

Asia Pacific

MAS releases multi-sector Sustainable Finance Taxonomy