ESG Policy Digest: May

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

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

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

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

EU Parliament to ban green claims based on carbon offsetting

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

EC adopts Retail Investment Package to protect long-term investments

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

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

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

Provisional agreement on easy access to corporate sustainability information

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

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

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

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

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

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

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

Japanese Ministry of Environment publishes guidelines on environmental due diligence

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

Other News & Resources

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


Have we missed anything?
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