ESG Policy Digest: 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!




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




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 18th 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


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