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 24th 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 18th 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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