Month: July 2023

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

Global
IOSCO endorses the ISSB Standards

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

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

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

Europe

European Parliament passes Nature Restoration Law

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

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

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

France approves mandatory Say on Climate Law

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

United Kingdom

FCA postpones rollout of sustainability disclosure rules

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

Asia pacific

Australia combats greenwashing with new sustainability claims rule

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

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

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

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

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

Other News & Resources

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

 

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Read the full article here.

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

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

Global
ISSB standards Launch

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

Europe

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

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

European Commission sets forth rules on maritime safety and water pollution

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

The European sustainability reporting standards delegated act 

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

Swiss voters approve plan to achieve climate neutrality by 2050

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

EU adopts position on Due Diligence Directive

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

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

Asia pacific

Australia mandates financial services regulator to adopt climate reporting standards

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

Other News & Resources

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

 

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