Policy Digest: March 2025

13th March 2025

INTERNATIONAL

SBTi postpones revision of Corporate Net Zero Standard

The SBTi has postponed the release of the Corporate Net Zero Standard and will first hold a public consultation on its revised version. Expert Working Groups are developing the standard, focusing on key areas such as Beyond Value Chain Mitigation (BVCM), Scope 2 and 3 emissions, Carbon Dioxide Removal (CDR), and data quality. The consultation process will begin no earlier than March, lasting at least 60 days, followed by a second consultation. SBTi aims to ensure that companies can align commitments with the initial version without duplicating efforts.

EU Commission unveils Omnibus Package

The European Commission has proposed sweeping legislative changes under the Omnibus package, aimed at simplifying sustainability reporting, easing compliance burdens, and refining due diligence requirements. The Omnibus was unveiled on 26th February 2025, introducing sweeping legislative changes to key pillars of the sustainable finance package including the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy. The proposal seeks to reduce administrative costs by over €6 billion, while maintaining strong environmental standards. Key changes include the following:

CSRD Adjustments:

- Reporting limited to large companies (1,000+ employees).

- 80% reduction in covered entities, aligning more closely with CSDDD thresholds.

- Two-year reporting delay for large companies and listed SMEs.

- “Value Chain Cap” limits data requests from smaller companies.

- ESRS revision to cut data points and remove sector-specific standards.

- No upgrade from limited to reasonable assurance.

EU Taxonomy Regulation:

- Voluntary reporting for mid-sized firms (<€450M turnover).

- 70% reduction in data points for reporting.

- Exemptions for non-material activities (<10% of turnover/assets).

- Green Asset Ratio (GAR) adjustments for banks.

CSDDD (Corporate Sustainability Due Diligence Directive):

- Postponed transposition deadline to 2027, with phased implementation from 2028.

- Less frequent due diligence assessments (5-year intervals instead of annually).

- Narrower liability scope: indirect partners assessed only if adverse impact is plausible.

- No EU-wide civil liability—national laws will apply.

CBAM (Carbon Border Adjustment Mechanism):

- Exemptions for small importers (<50 tonnes/year) and individuals.

- 90% of businesses exempted from reporting, while still covering 99% of emissions.

The European Parliament and Council will review the proposal. The Commission is urging priority treatment, particularly for CSRD reporting delays and CSDDD extensions. A public consultation on simplifying the “Do No Significant Harm” criteria is also underway.

For businesses, while the Omnibus package may reduce immediate reporting burdens, maintaining long-term sustainability commitments remains crucial. More importantly, investor demand for sustainability information remains significant, making sustainability reporting essential for maintaining competitiveness. Additionally, a recent report from the European Banking Authority (EBA) underscores the importance of regulatory data stemming from key policy initiatives—such as the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS)—in enhancing ESG risk management in the financial sector. The report highlights how these initiatives contribute to the development of standardised methodologies for assessing ESG exposures.

US halts enforcement of anti-corruption law

The Foreign Corrupt Practices Act (FCPA) has prohibited US firms from bribing foreign officials for nearly 50 years. President Trump argues that the law hampers American business competitiveness, calling it “over-expansive” and an obstacle to economic growth. An official White House statement provides that the FCPA enforcement creates “an uneven playing field” by prohibiting practices common among international competitors. US domestic and international policy are undergoing a seismic shift with several initiatives ranging from DEI and anti-corruption under question. The FCPA, if repealed, would eliminate a key safeguard that helps maintain accountability and prevent corruption in business operations across US borders.

Japan positioned as regional leader for establishing the ISSB standards

Japan’s Sustainability Standards Board (SSBJ) has introduced sustainability disclosure standards aligned with the ISSB, making them part of the listing requirements for companies on the Tokyo Stock Exchange’s Prime Market. This move builds on the Financial Services Agency’s (FSA) 2023 mandate, which requires companies to include sustainability disclosures in their annual filings. Additionally, it complements existing regulatory frameworks like the Corporate Governance Code, which mandates that Prime Market-listed companies provide TCFD-aligned disclosures on a comply or explain basis. The SSBJ’s framework includes three standards:

Universal Sustainability Disclosure Standard (general reporting requirements)

General Disclosures Standard (aligned with IFRS S1)

Climate-related Disclosures Standard (aligned with IFRS S2)

While maintaining ISSB alignment, SSBJ incorporated some jurisdiction-specific alternatives. The SSBJ has not released details on the scope and timing for regulatory compliance.

Australian Prudential Regulatory Authority releases Governance Review Discussion Paper

The paper presents eight proposals to reinforce APRA’s core prudential standards and guidance on governance. In certain areas, APRA has taken a more prescriptive approach, proposing additional checks and balances in fitness and propriety to ensure entities integrate governance processes instead of treating obligations as a ‘cursory tick-a-box exercise’. Where governance issues are persistent, APRA aims to exercise its supervisory and enforcement authority, including but not limited to a higher supervisory risk rating, adjusting capital requirements, issuing a notice to remove a director. Other proposals are designed to reduce the regulatory burden for entities in scope and their boards.

Indonesia Sustainable Finance Taxonomy (TKBI) Version 2 refines framework

The OJK has released Version 2 of the Taxonomy, bolstering the classification system by introducing TKBI Version 2, technical screening criteria (TSC) for the Construction & Real Estate (C&RE), Transportation & Storage (T&S), and select Agriculture, Forestry, and Other Land Uses (AFOLU) activities, including forestry and palm oil plantations. Other key refinements include a new Life Cycle Assessment (LCA) worksheet for DNSH assessment, expanded use cases for consumer credit/financing and a Climate Risk and Vulnerability Assessment (CRVA) worksheet as a tool to measure climate adaptation efforts. The OJK will release a guidance document shortly Additionally, a TKBI User Guidance document to support users in applying TKBI across activity, portfolio, and entity levels. TKBI will serve as a primary reference for green and sustainable indicators in Sustainability Reports and regulatory frameworks. As a living document, TKBI will undergo periodic updates to align with evolving sustainability policies and global best practices, including relevant international taxonomies such as the regional ASEAN Taxonomy.

State Bank of Pakistan launches consultation on Pakistan Green Taxonomy Draft

Pakistan’s Green Taxonomy defines eligible green projects and activities to help financial institutions and investors direct capital toward sectors that support climate mitigation and adaptation. It aims to enhance transparency in green investments, reduce climate-related financial risks, and align capital flows with the country’s environmental and climate goals. The consultation period closed on February 18th, 2025.

HKMA Adoption Practice Guide on Greentech in the Banking Sector

The Guide highlights the importance of Authorized Institutions (AIs) embedding sustainable practices, including Greentech, from regulatory, reputational, and business perspectives. It provides an overview of how Greentech solutions can support green and sustainable banking, offering best practices for the net zero transition, such as defining a transition agenda, assessing adoption levels, and integrating sustainable finance into corporate strategies. Additionally, it features real-world cases from Hong Kong, showcasing challenges, solutions, and key lessons from successful Greentech implementations.

External Reporting Board clarifies scope of assurance engagements for climate reporting

The XRB clarifies that by December 31st, 2025, only GHG emissions disclosures in Climate Reporting Entities’ (CREs) climate statements require mandatory assurance. The FMA has approved in principle a class exemption for CREs using Adoption Provision 8 under NZ CS 2, exempting them from scope 3 GHG emissions assurance under section 461ZH of the FMC Act. This applies to climate statements for periods ending between December 31st, 2024, and November 30th, 2025, aligning with the XRB’s relief granted on November 27th, 2024.

Adoption Provision 8 addresses challenges in obtaining reliable scope 3 emissions data for assurance. The FMA exemption provides legal certainty by aligning this relief with FMC Act requirements. Entities relying on it must submit a disclosure notice when lodging climate statements. The exemption follows industry consultation on the regulatory interface between Climate Standards and the FMC Act, with the FMA now preparing the exemption notice for gazetting.

Rwanda defines standards and frameworks for ESG reporting

Rwanda has introduced various ESG and sustainability disclosure frameworks to enhance transparency and corporate governance. The Rwanda Stock Exchange (RSE) ESG Reporting Guidelines issued by the RSE and CMA, require listed companies to disclose ESG information, covering a broader scope than IFRS Sustainability Disclosure Standards but ensuring interoperability. In February 2025, the Steering Committee chaired by the Institute of Certified Public Accountants of Rwanda (ICPAR), also launched a public consultation on the draft ‘IFRS Sustainability Disclosure Standards Adoption Roadmap’. A draft roadmap aims to ensure a structured and credible adoption of IFRS standards in Rwanda. Key goals include capacity building, enhancing transparency, and ensuring timely adoption of the standards. The Committee has proposed a phased implementation timeline between 2025-2031 as follows:

2025-2028: Entities listed on the Rwanda Stock Exchange (RSE); Tier I financial institutions
2026-2029: Public utility companies; Tier II and III financial institutions
2027-2030: Other entities applying IFRS Accounting Standards; Tier IV financial institutions
2028-2031: Entities applying the IFRS for SMEs Accounting Standard.

The comment period for the consultation closes on 19th March 2025.

GRI releases exposure drafts for the Sector Standards Project for Financial Services, covering three key areas: Banking, Capital Markets, Insurance

ACCA releases Sustainability Reporting – Risk and Materiality (ACCA). Read more

Japanese Exchange Group (JPX) Joint Development of New Index Focusing on Human Capital. Read more

Policy Digest: February 2025

20th February 2025

As press headlines declare a moratorium on ESG, this month’s Policy Digest zooms in on recent developments across the globe signalling otherwise.

The International Foundation for Reporting Standards (IFRS) Foundation has laid out a “climate first” approach to sustainability reporting, to support gradual coverage of broader sustainability topics across global jurisdictions adopting the International Sustainability Standards Board (ISSB) standards. In global banking regulation, the Financial Stability Board (FSB) is exploring the application of standardised metrics to gauge climate-related risks in the financial system.

The EU is undergoing a period of uncertainty as legislators debate the ‘bureaucracy’ of the sustainable finance regulatory regime comprising of the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy. The EU’s Omnibus Package could mark a watering down of the Corporate Sustainability Reporting Directive (CSRD) or yield results such as enhanced interoperability and practical guidance on the use of complex concepts embedded in key reporting frameworks.

Amid these debates, the European Financial Reporting Advisory Group (EFRAG) has launched a consultation on the applicability of the European Sustainability Reporting Standards (ESRS) for non-EU groups, inviting feedback from stakeholders until Q1 2025. Complementing the Commission’s efforts, the EU Platform on Sustainable Finance has proposed ‘simplification’ of the EU Taxonomy to enhance its usability and the European Financial Reporting Advisory Group (EFRAG) has provided a mapping of cross-cutting requirements between ESRS and EMAS–to help reduce the reporting burden. Finally, the European Banking Authority (EBA) has released guidelines on the integration and assessment of ESG risks which will start to apply from 2026.

Across the Atlantic, 24 US states have pledged commitment to the Paris Agreement, despite President Trump’s swift and decisive withdrawal from the realm of climate diplomacy. New York has joined California in introducing corporate climate reporting rules for large businesses operating and doing business in the state.

In the Middle East region, Jordan is embedding sustainability reporting as part of listing requirements. ISSB adoption is also underway across the Asia-Pacific region with Australia recently adopting and mandatorily applying the standards, Pakistan gearing up for ISSB-aligned reporting from 2025, and Indonesia adapting the ISSB standards with transition reliefs. In China, the Shanghai Stock Exchange released new guidelines to bolster ESG reporting for listed companies.

Despite perceived setbacks, sustainability reporting remains the need of the hour. Follow this space for up-to-date information on global ESG regulation, including real-time tracking of the EU’s Omnibus Proposal and ISSB adoption.

INTERNATIONAL

IFRS publishes education material on S2 disclosures

The IFRS Foundation has published education material to help preparers of ISSB-aligned sustainability statements understand which IFRS S1 requirements are applicable, when a company discloses only climate-related risks and opportunities as per IFRS S2. This reflects the “climate-first” approach to disclose information exclusively pertaining to climate-related risks and opportunities, which is allowed by the ISSB standards. The IFRS S1 transition relief allows companies to temporarily limit sustainability disclosures to S2 climate topics while preparing for broader S1 sustainability reporting to support compliance with the ISSB standards in the first reporting year. IFRS S1 and S2 provide globally comparable sustainability disclosures, becoming mandatory when adopted by regulators, therefore applicability and enforcement may vary. However, companies can also voluntarily apply these disclosure standards, particularly for climate-related reporting, with guidance available for compliance. Read more

EUROPE

Navigating the EU Omnibus Proposal

The EU Commission is debating the applicability, scope and enforcement of key planks in the EU’s sustainable finance package including the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy as well as corporate reporting laws– the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). In a recently released Compass, the EU has asserted that the region’s competitiveness is not at odds with sustainability objectives that it has historically championed through the Green Deal. Speculation prevails on whether these regulations will remain intact or, in fact, be watered down With many companies already complying with the CSRD and other disclosure obligations, sweeping changes could be disruptive and multiply the compliance burden. Instead, companies are calling for enhanced guidance and other resources in the toolkit that could facilitate streamlined reporting as the Omnibus originally intended. Read more

Proposed changes brought to the table include but are not limited to the following*:

EU Taxonomy: Clarifying scope and applicability of Taxonomy reporting requirements (including the Green Asset Ratio) for large companies and SMEs.
CSRD/ CSDDD: Converting double materiality under CSRD to single, financial materiality, reducing CSRD scope– only applicable to large, publicly listed companies with over 1000 employees, thereby aligning with CSDDD, postponing CSRD obligations for SMEs by 2 years, defining “mid caps” to clarify thresholds and applicable frameworks (ESRS vs. ESRS for VSMEs).

*this does not represent final reforms or concrete progress towards modifications to the sustainable finance regulatory framework.

EU Taxonomy Simplification Report expected to bolster framework’s usability

The EU Platform on Sustainable Finance has published a final report to improve the usability of the Taxonomy framework for financial and non-financial users alike. The report aims to address primary challenges associated with Taxonomy reporting including data access and interoperability with other regulations. Following two years of market study, pilot projects, and outreach to stakeholders, including investors, credit institutions and SMEs, the Platform has made the following recommendations for simplification:

An estimated one third reduction in reporting burden by making Opex KPI disclosure voluntary with the exception for R&D and introducing materiality thresholds for reporting Capex, Opex and Turnover (specifically for financial companies) to align with financial reporting processes as much as possible. Finally, limiting the number of data points to be disclosed, ensuring these are financially material.

A simplified Green Asset Ratio (GAR) calculation to encourage green and transition lending. simplifying retail exposure reporting, focusing on substantial contribution, allowing for estimates and proxies for reporting and calculation, providing safe harbours in conjunction to protect banks against greenwashing claims and ensuring the materiality principle applies to combined KPIs, excluding business segments not consolidated under the Accounting Directive.

A practical DNSH criteria approach including a lighter compliance assessment, scheduled usability-focused reviews, and a temporary “comply or explain” method for Turnover KPI assessments.

Facilitating SME access to sustainable finance by providing a lighter touch approach for banks and investors’ exposures to unlisted SMEs and simplified approach to the Taxonomy for listed SMEs. Read more

EFRAG publishes report detailing synergies between ESRS and EMAS

In a report, the European Financial Reporting Advisory Group (EFRAG) has identified the key overlaps between the CSRD’s reporting framework– the European Sustainability Reporting Standards (ESRS) and the Eco-Management Audit Scheme (EMAS). While EMAS broadly covers environmental reporting, EFRAG has highlighted that an EMAS registered entity subject to the ESRS could in turn make use of the environmental statement covering the entire undertaking by making use of the incorporation by reference in ESRS 1. Additional requirements relating to employee or stakeholder involvement could also be cross-cutting for ESRS social disclosures. The EMAS framework’s requirements for establishing and reporting on an environmental management system align closely with the ESRS reporting areas, as both emphasise governance, strategy, and management, metrics and targets, enabling EMAS environmental policies, objectives and performance indicators to be effectively integrated into ESRRS reporting Both frameworks also require stakeholder engagement and emphasise impact materiality. EFRAG’s report on ESRS-EMAS synergies includes a mapping table with a comprehensive overview of various reporting interlinkages. Read more

ESRS for non-EU groups consultation open until Q1 2025

Under the CSRD, non-EU companies with over EUR 150 million a year generated in the EU and a branch with over EUR 40 million or large, listed subsidiary will have to report on sustainability issues and impact starting in 2028 at the group level. Accordingly, EFRAG has launched a discovery phase for the adoption of these standards as a delegated act by 2026 with results from the Exposure Draft to be consolidated and reported to the Commission by end 2025. Read more

EBA issues Final Guidelines on the management of ESG risks

On January 8, 2025, the EBA published final Guidelines setting minimum standards and reference methodologies for identifying and measuring ESG risks across short, medium, and long-term horizons. Institutions must conduct regular materiality assessments using exposure, portfolio, sector-based, portfolio alignment, and scenario-based methodologies. The Guidelines emphasise the impact of ESG risk drivers—physical and transition risks—on institutions’ risk profiles and solvency, equating ESG risks to traditional financial risks. Consequently, institutions must integrate ESG risks into risk appetite, internal controls, and ICAAP. As ESG risks contribute to financial risks like credit, market, operational, reputational, and liquidity risks, the EBA mandates their inclusion in regulatory risk management frameworks and mitigation over at least 10 years. The Guidelines establish a robust ESG risk management approach, enhancing internal processes through an internal reporting framework with backward- and forward-looking ESG metrics, as well as strategies, policies, and risk management processes for transition planning. The Capital Requirements Directive (CRD) mandates ESG risk disclosures, including transition plans, which must align with the EBA Guidelines. These will apply to banks from January 2026 and non-complex institutions from January 2027. Read more

NORTH AMERICA

New York Senate introduces Climate Disclosure Law

President Donald Trump promptly delivered on his promise of exiting the Paris Agreement as part of a flurry of Executive Orders signed during his first week in office. While the President has declared open season on several ESG-related policies and initiatives, including DEI, states such as New York are doubling down on ESG. On January 27, 2025, the New York State Senate introduced Senate Bill 3456, also known as the Climate Corporate Data Accountability Act, which would require any business operating and doing business in New York with revenues exceeding $1 billion to annually disclose Scope 1, 2 and 3 emissions using the GHG protocol. Scope 1 and 2 data would be required by 2027, with value chain emissions reporting due in 2028. New York is one of the few states following California’s lead, setting a precedent for patchwork state-level policymaking, as federal regulations such as the SEC Climate Rule stall or are rolled back. Read more

ISSB state-of-adoption

Since the ISSB standards were first issued in 2023, many jurisdictions are adopting or integrating these standards into their legal or regulatory frameworks. A key focus for regulators is achieving comparability across entities and jurisdictions, which is crucial for attracting foreign capital and managing cross-border activities. Adopting ISSB Standards helps reduce regulatory fragmentation and provides a passporting mechanism to align various reporting regimes, aiding companies and investors. ESG Book’s ISSB Adoption Tracker is a living document that monitors the regulatory implementation, adoption and use of the International Sustainability Standards Board (ISSB) standards – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 for Climate-related Disclosures – across global jurisdictions. These are the most recent updates:

MIDDLE EAST & AFRICA

Jordan: The Amman Stock Exchange (ASE) has published a regulatory framework requiring large, listed companies to provide ISSB-aligned climate-related disclosures from 2026. Companies listed on the ASE20 Index will be required to report climate information in line with IFRS S2 and the climate elements of IFRS S1 in their annual reports published on or after 1 January 2027. Failure to comply may result in an alert, followed by a warning. Once escalated, the penalty for non-compliance includes a fine of 250–5000 Jordanian dinars. The scope and applicability of Jordan’s ISSB-aligned disclosure regime may expand in the future. The ASE has released practical guidance for first time prepares of climate reports to enable companies facing challenges in navigating sustainability reporting. Read more

ASIA-PACIFIC

Australia: Australia has adopted ISSB-aligned climate reporting requirements positioning the country as a global leader in mandatory sustainability reporting. The disclosure regime will be implemented in phases, with first reporters (Group 1 entities) reporting on financial years commencing on or after January 1, 2025. Separately, Australia has also approved new climate and sustainability assurance requirements. Australia’s financial reporting system is undergoing significant changes to enhance flexibility and responsiveness to the emerging sustainability reporting landscape, with the government proposing to reform supervisory and oversight regulatory bodies. The Australian Treasury has proposed consolidating the Financial Reporting Council (FRC), Australian Accounting Standards Board (AASB), and the Auditing and Assurance Standards Board (AUASB) into one statutory body. The new body aims to streamline the standard-setting process and further alignment initiatives to promote institutional accountability while attracting international capital. Read more

Pakistan: The Securities and Exchange Commission of Pakistan (SECP has notified the adoption of the IFRS Sustainability Disclosure Standards through phased implementation, under the advisement of the Institute of Chartered Accountants of Pakistan (ICAP). The first phase of annual reporting will commence from July 1, 2025, followed by a second and third phase from July 2026 and July 2027 respectively. Further, the standards will also be applicable on unlisted-licensed-public interest companies in the third phase, i.e. starting from the year 2027. Assurance standards on sustainability reporting may apply from the second year of reporting, as specified. Read more

Indonesia: The IICA’s Sustainability Standards Board (DSK) has ratified exposure drafts for ISSB-aligned standards PSPK 1 and PSPK 2, open for public consultation from January 20 to March 31. PSPK 1, based on S1, covers general sustainability disclosures, while PSPK 2, based on S2, focuses on climate-related reporting. Proposed changes to ISSB transitional reliefs include: (1) requiring Indonesian companies to publish sustainability disclosures with financial statements once PSPK 1 is effective, (2) extending the climate-only reporting option to three years (vs. ISSB’s one year), and (3) allowing exclusion of comparative non-climate data in the fourth year. Read more

Shanghai Stock Exchange Issues New ESG Disclosure Guidelines for Listed Companies

The Shanghai Stock Exchange has released updated guidance to help listed companies comply with Chinese ESG disclosure standards, which align with international frameworks. The guidance promotes consistency, transparency, and improved corporate reporting, with full implementation targeted by 2030. The two sets of Guidelines include the ‘Self-Regulatory Guidelines for Listed Companies No.4’ which applies broadly to all listed companies on the Shanghai Stock Exchange and the ‘Self-Discipline Supervision Guide No. 13– Science and Technology Innovation Board (STAR Market)- which specifically applies to companies listed on the Science and Technology Innovation Board.

Other news & resources

UNEP FI publishes Human Rights Toolkit for financial institutions. Read more
TNFD releases additional sector-specific guidance on marine transportation and water utilities.
ESMA publishes ESEF Taxonomy. Read more
ISSA 5000: Sustainability Assurance Engagements Implementation Guide now available. Read more

Policy Digest: January 2025

28th January 2025

Europe

ESRS Update

In November 2024, the EU Commissioner Ursula Von Der Leyen announced plans to streamline the EU’s sustainability disclosure rules. The EU’s sustainable finance agenda is built on a foundation of corporate reporting regulations including the CSRD, EU Taxonomy and the CSDDD. While many concepts are common across these regulations, reporting obligations are “often overlapping”. In a bid to reduce administrative burden, legislators will now consider consolidating these distinct rules into an omnibus regulation set to be published in 2025.

ESRS releases Implementation Guidelines (IG) 3 List of ESRS Datapoints

The latest updates to the IG 3 List introduce new disclosure requirements, including detailed narratives on processes for identifying and assessing climate-related hazards, transition risks, and opportunities, as well as information on internal carbon pricing schemes covering Scope 1, 2, and 3 emissions. Additionally, the framework mandates reporting on sustainability matters without adopted policies, actions, or targets, alongside whistleblower protections and GHG-specific targets for removal and storage activities, while removing a prior requirement in the ESRS E1 standard.

ESRS for VSMEs

EFRAG has released a standardised framework for SMEs to report against the ESRS framework. The VSME is a deliverable of the European Commission’s SME Relief Package (September 2023) which tasked EFRAG with developing a simplified ESRS framework to ensure proportionality of reporting burden.

ESRS publishes updated Q&A Explanations

EFRAG has published clarifications on technical implementation questions and new FAQs to support the preparation of ESRS reports. The updated Compilation of Explanations document contains formally approved answers to the questions submitted to EFRAG between January and November 2024. The Explanation ID 177 included in the Compilation presents the mapping of sustainability matters in AR 16 of ESRS 1 with the Disclosure Requirements in topical standards.

EU Commission initiates SFDR overhaul

The European Commission has proposed amendments to the SFDR framework, introducing clarified thresholds and criteria for sustainable investment product classification. The EU Platform on Sustainable Finance recommends categorising products with the following sustainability strategies:

Sustainable: EU Taxonomy-aligned Investments or Sustainable Investments with no significant harmful activities or assets based on a more concise definition consistent with the EU Taxonomy.

Transition: Investments or portfolios supporting the transition to net-zero and a sustainable economy, avoiding carbon lock-ins, per the EU Commission’s Transition Finance guidelines.

ESG collection: Investments excluding significantly harmful investments / activities, investing in assets with better environmental and/or social criteria or applying various sustainability features.

All other products should be identified as unclassified products.

The proposal defines mandatory minimum criteria with binding elements and potential indicators, giving Financial Market Participants (FMPs) flexibility to tailor details and measurement approaches to their products. Social-focused financial products can align with any category, though specific social objectives and indicators remain underdeveloped. Further efforts are needed to define social objectives, leveraging PAIs and ESRS. The Platform on Sustainable Finance recommends analysing threshold impacts for all SFDR products and collecting data, particularly for insurance, pensions, and private market funds, before setting category thresholds.

ESMA amends CRA Regulation to require disclosure of ESG factors in credit ratings

ESMA published a Final Report implementing revisions to the Credit Ratings Agencies (CRA) Regulation and the regulatory technical standards for the assessment of CRAs. The proposed amendments include enhanced guidance on the integration of sustainability risks into credit rating methodologies. Specifically, credit ratings agencies are mandated to disclose in press releases or reports when ESG factors are a key element that informs a credit rating or a rating outlook, with an explanation as to why they were considered material according to the applicable methodology.

EU Investing for Transition Benchmarks (ITB) to help align investment strategies with Taxonomy framework

The EU Platform on Sustainable Finance recommended the introduction of the ITB voluntary benchmark labels, building on the success of the PAB/CTB labels and to support credible pathways to portfolio decarbonisation aligned with the Paris Agreement. The proposed benchmarks utilise EU Taxonomy data, specifically Taxonomy-aligned Capex, to support capital flows towards entities investing in their transition efforts. The report emphasises that a substantial degree of comparability in taxonomy-based CapEx-aligned benchmark methodologies can be achieved, while granting benchmark administrators significant flexibility in developing their methodologies. The ITBs key users include institutional investors like pension funds, foundations, and (re)insurance companies aiming to protect assets against climate-related transition risks. The ITBex differs from the ITB by having stricter activity exclusions for ambitious climate strategies. In contrast, ITB allows greater diversification, catering to investors with reciprocal business relationships to fossil fuel issuers.

EU Deforestation Regulation (EUDR) delayed by one year

The European Union has postponed the implementation of its Deforestation Regulation by a year, moving the application date from December 2024 to December 2025. The regulation aims to prohibit the sale within the EU of products linked to deforestation, such as soy, beef, coffee, and palm oil. The delay grants companies additional time to ensure their supply chains are free from deforestation-related activities. Large operators and traders are now required to comply with the regulation by December 30, 2025, while micro and small enterprises have until June 30, 2026. This decision follows concerns from various stakeholders, including EU member states and trade partners like Brazil and Indonesia, about the feasibility of meeting the original deadline. While some industry groups view the postponement as necessary for adequate preparation, environmental organisations have criticised the delay, warning it could lead to continued deforestation in the interim. The European Commission has committed to exploring ways to reduce administrative burdens for companies and plans to implement an online system to facilitate compliance by December 2025.

EU Platform on Sustainable Finance: call for feedback EU Taxonomy Climate Change Delegated Act

On January 8, 2024 the Platform on Sustainable Finance released extensively revised proposals for public feedback, focusing on updates to the EU Taxonomy Climate Delegated Act and the inclusion of new proposed taxonomy activities. Key revisions include updated energy-related thresholds, sector-specific criteria for Bioenergy, Manufacturing, Environmental Protection, Construction, and Real Estate, and a review of the “Do No Significant Harm” (DNSH) criteria for Water, Pollution, and Biodiversity. Additional updates involve usability improvements and harmonisation of activity titles and descriptions across the Mitigation and Adaptation Annexes, alongside recommendations for further delegated act revisions. New activities proposed for inclusion span: Mining and Refining of Lithium, Nickel, and Copper, Digital Solutions, Close-to-Market R&D, and criteria for 28 adapted activities within the Adaptation Annex. The proposals also highlight a headline ambition statement for adaptation, the identification of highly vulnerable sectors for future inclusion, and preliminary work on nature-based solutions. Stakeholders are invited to review and provide input during the public consultation period, open until 5th February 2025.

EU’s Gender Board Balance rule enter into force

On January 3, 2025, the EU’s Gender Balance on Corporate Boards Directive came into force. The rule would require large listed EU companies to set board diversity targets, as follows:

40% of under-represented gender among the non-executive directors;

33% of under-represented gender among the directors.

The deadline for the transposition of the Directive by Member States was December 28, 2024, and companies must meet the targets by June 30, 2026. This measure mandates improved gender balance across the EU, leveling the playing field among Member States, including those with binding gender quotas where board diversity rates have stagnated. The Commission plans to initiate action against those Member States who have failed to transpose the Directive through national legislation, including reporting requirements for listed companies on board composition and processes for implementing target commitments. The Directive also requires Member States to publish a list of companies that reached the gender balance targets as well as designate one or more bodies for the promotion, analysis, monitoring and support of gender balance on boards.

Switzerland to require companies to disclose transition plans from 2025

The Federal Council has announced proposals to amend the Swiss Code of Obligations, mandating climate reporting for large companies starting in 2025. The amendments include additional disclosure requirements for financed emissions, emissions reduction targets, and transition plans. The government plans to phase out TCFD gradually, introducing mandatory sustainability disclosures aligned with ESRS E1 and IFRS S2. Among the key changes, legislation will revise the firmographic thresholds of the Code of Obligations to align with the NFRD, applying to companies with more than 500 employees and at least CHF 20 million in total assets. The ordinance is under review and is expected to take effect by the end of 2025.

FINMA publishes Circular on Nature-related Risks

The Swiss Financial Market Supervisory Authority (FINMA) published a new circular which outlines supervisory expectations for managing climate and nature-related financial risks. Climate-related financial reporting requirements will apply to banks and insurers starting January 1, 2026, with consideration given to reporting readiness. Other banks will have an additional year to comply. Nature-related reporting requirements will take effect from January 1, 2028.

UK Technical Advisory Committee gives ISSB the greenlight

The UK Sustainability Disclosure Technical Advisory Committee (TAC) has endorsed the IFRS S1 and S2 standards for inclusion in the UK’s sustainability reporting framework, recognising their long-term public benefit for Public Interest Entities (PIEs). The TAC recommends minor amendments on financed emissions, urging the ISSB to provide guidance on using estimates where current period data is unavailable. It supports reporting financed emissions using the latest reliable prior-period data, clearly labeled, as consistent with IFRS standards. The TAC has removed the first-year transition relief, extended the ‘climate-first’ reporting relief to two years, and deferred the decision on voluntary applicability to the Policy Implementation Committee.

ASEAN Taxonomy Board unveils Version 3.0 of regional framework

Version 3 of the ASEAN Taxonomy clarifies key concepts and definitions covered and expands sectoral coverage. The latest version of the Taxonomy includes technical screening criteria (TSC) for–Transportation and Storage, Construction, Real Estate sectors, thereby completing the TSC for the Foundational Framework (FF) across all environmental objectives. The ASEAN Taxonomy Board designed a multi-tiered framework for the assessment of activities contributing to environmental objectives. Tier 1—the principles-based Foundational Framework (FF)—and Tier 2—the Plus Standard (PS)—employ different approaches, providing ASEAN Member States (AMS) with the flexibility to adopt the framework based on their readiness and unique local contexts and needs. The Technical Screening Criteria (TSC) for the PS incorporates the traffic light system for the classification of sustainable economic activities, where the ‘Green’ tier is benchmarked to a Paris-Aligned 1.5°C climate scenario and the ‘Amber’ tier is inclusive. Overall, the ASEAN Taxonomy effectively balances equivalence and interoperability with the EU Taxonomy while maintaining realistic and credible decarbonisation pathways for hard-to-abate sectors. As national taxonomy development progresses in countries such as Malaysia, Singapore, Thailand, and Indonesia, the ASEAN Taxonomy reinforces the just transition imperative, resonating both globally and across borders. The Taxonomy is groundbreaking as well for including guidance on coal phase out, encouraging the early action to reduce the region’s reliance on a key energy source.

China’s Ministry of Finance releases the Sustainability Disclosure Standards for Business Enterprises –Basic Standard

The final Basic Standards, released in December 2024, clarify the target audience and user of the sustainability disclosure regime– creditors and investors. China’s sustainability disclosure regime offers a unified framework harmonising domestic and international sustainability reporting requirements. Designed to provide transparent, comparable, and decision-useful information, the standards support efficient capital allocation and lending. Taking into account reporting maturity and compliance burden for smaller companies, the final standards offer flexibility in determining material sustainability-related risks and opportunities. The standards integrate climate disclosure rules for listed companies across China’s major stock exchanges will be mandatory for listed companies starting in 2026. Other companies may voluntarily adopt the standards until the Chinese Ministry of Finance establishes a glide path for full implementation by 2030, including for non-listed companies and SMEs.

SEBI provides extension for mandatory reporting under BRSR Core

To facilitate ease of doing business, India’s regulator SEBI has issued a memorandum recommending voluntary first-year reporting under BRSR for value chain partners, recognising the time required to gather granular sustainability data for the previous year. The top 250 listed companies by market capitalisation in India are mandated to report key sustainability-related metrics featured in BRSR Core with assurance. Additionally, SEBI has amended existing provisions to include the voluntary disclosure of green credits under BRSR.

Pakistan adopts the ISSB Standards

The Securities and Exchange Commission of Pakistan (SECP) has notified the adoption of IFRS Sustainability Disclosure Standards in a phased manner. The standards will be implemented only for listed companies in a gradual approach, on the basis of criteria comprising total assets, turnover and number of employees. The first phase starts from the annual reporting periods beginning on or after July 1, 2025.

NY State Assembly establishes ‘Climate Superfund’

This legislation requires fossil fuel companies to invest in climate-resilient infrastructure projects. With severe weather events becoming increasingly frequent in the state of New York, lawmakers have taken action to set up a dedicated climate change adaptation cost recovery program. The bill was signed into law by Governor Kathy Hochul on December 26, 2024.

Climate Corporate Data Accountability Act (S897A)

On December 16, 2024, the California Air Resources Board (CARB) requested feedback on Senate Bills 253 and 261, which require large businesses to report greenhouse gas emissions and climate-related financial risks. SB 253 mandates annual emissions disclosures (Scopes 1 and 2 by 2026, Scope 3 by 2027) for businesses with over $1 billion in revenue in California, while SB 261 requires biennial climate financial risk reports from entities with over $500 million in revenue.

CARB is seeking input on the applicability of the rules, data reporting methods, and standardisation of emissions reporting. The feedback period is open until February 14, 2025. CARB also published an enforcement notice on December 5, 2024, extending its regulation adoption deadline to July 1, 2025, but clarifying that reporting deadlines remain unchanged. The first report in 2026 will allow the use of existing data, with no enforcement actions for good faith efforts.

Canada adopts ISSB-aligned standards

On December 18, 2024, the Canadian Sustainability Standards Board (CSSB) released the final sustainability disclosure standards: CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information and CSDS 2, Climate-related Disclosures. CSDS S1 and S2 standards are currently voluntary. The standards will be effective from January 1, 2025. Though largely aligned with the ISSB standards, the CSDS standards include transition reliefs to promote ESG reporting while addressing practical challenges. Relief measures include:

A one-year delay for initial reporting on sustainability matters beyond climate;

An additional year for reporting Scope 3 greenhouse gas emissions;

Two extra years for aligned reporting deadlines, with compliance required six months after the respective year-end;

Three years of relief for quantitative scenario analysis reporting.

Qatar is introducing a Corporate Sustainability Reporting framework aligned with ISSB standards

In a Consultation Paper (CP 2024/03), publishes in December 2024, the Qatar Financial Centre Regulatory Authority (QFCRA) is introducing a Corporate Sustainability Reporting framework aligned with ISSB standards. The new framework would require listed companies, banks, and insurers to report sustainability information in line with IFRS Sustainability Disclosure Standards starting from financial years beginning January 1, 2026, with the first reports due in 2027. Companies must disclose sustainability and climate-related financial information within their general-purpose financial reports, ensuring clarity, accuracy, connectivity, comparability, and conciseness, even if deemed immaterial under ISSB standards; any information withheld due to national laws must be explained. Transitional relief allows firms to use alternative methods for emissions reporting, excluding Scope 3 emissions, in their first two reports. Firms are encouraged to establish governance structures, implement internal controls, and conduct transparent materiality assessments to ensure high-quality sustainability reporting that meets local and global standards. The consultation period is open until 25 March 2025.

Other News & Resources

ICGN recommends harmonisation of shareholder rights to EU institutions. Read more

IOSCO launches network to support adoption of IFRS standards in emerging markets. Read more

French prudential authority ACPR releases annual report with insights on climate risks. Read more

ESG Policy Digest: December 2024

6th December 2024

In this month’s edition of the ESG Policy Digest, we delve into the latest regional policy updates, covering key aspects of the ESG reporting journey – from regulatory frameworks for data disclosure to advancements in sustainability reporting standards and assurance practices.

GLOBAL

CDP and EFRAG announce enhanced interoperability

CDP and EFRAG have announced enhanced interoperability between the CDP questionnaire and the EU’s Sustainability Reporting Standards (ESRS), particularly the ESRS E1 climate standard. The collaboration aims to streamline sustainability disclosures, with significant overlap identified between the two frameworks. This alignment is intended to make it easier for companies reporting under ESRS to also complete CDP disclosures, and vice versa. Further guidance and mapping will be published in early 2025, supporting companies in their upcoming disclosure cycles.

IOSCO Report on Transition Plans Disclosures

IOSCO has published a report on transition plan disclosures, emphasising the importance of consistent, comparable, and reliable information for investors. Key areas for future action include promoting guidance on transition plan disclosures, assurance, and enhancing regulatory clarity. The report outlines five essential components for effective disclosures: targets, decarbonisation strategies, governance, financial resources, and financial implications. IOSCO encourages alignment with global standards and collaboration with the ISSB to mitigate greenwashing and enhance market integrity.

Europe

EU prioritises streamlining of corporate sustainability reporting from 2025

On November 8th 2024, the EU Commissioner Ursula von der Leyen announced plans to streamline the EU’s sustainability disclosure rules. The EU’s sustainable finance agenda is built on a foundation of corporate reporting regulations including the CSRD, EU Taxonomy and the CSDDD. While many concepts are common across these regulations, reporting obligations are “often overlapping”. In a bid to reduce administrative burden, legislators will now consider consolidating these distinct rules into an omnibus regulation set to be published in 2025.

Against this backdrop, ESMA released the European Common Enforcement Priorities (ECEP) Statement for 2024. Among other enforcement priorities in 2025, ESMA has clarified that companies preparing sustainability statements under the ESRS must provide transparent disclosures on the materiality assessment processes including stakeholder engagement and connections to due diligence. Additionally, the ECEP statement highlights the importance of establishing “connectivity” between sustainability and financial statements. ESMA has further specified details under the ESRS Disclosure Requirements (DR) on the content and presentation of information, underscoring the inclusion of value chain information with a proviso of transition reliefs. Finally, ESMA reiterates the importance of mandatory use of Article 8 Taxonomy templates, accurate reporting on eligibility and alignment with environmental objectives, and consistency between Taxonomy disclosures and transition plans. In the ECEP, ESMA has encouraged financial sector issuers to disclose estimates of Taxonomy alignment when sufficient data is unavailable. Additionally, on 29^th November, the European Commission reinforced its call for simplifying the agenda by publishing FAQs that clarify the technical screening criteria for activities covered under the Taxonomy’s Climate and Environmental Delegated Acts. The FAQs aim to enhance the usability of the classification framework by revisiting key concepts including the do no significant harm (DNSH) principle to ensure that eligible economic activities do not conflict with the environmental objectives outlined in the delegated acts.

As one of the EU’s top supervisory authorities, ESMA is responsible for centralizing disclosed information, including both financial and non-financial data. On 29th October 2024, ESMA, along with EIOPA and EBA, released the final report on the draft Implementing Technical Standards for the European Single Access Point (ESAP), which facilitates user access to sustainability information.

EFRAG publishes revised ESRS for SMEs

The guidance document provides “non-authoritative support” to companies required to disclose transition plans under the ESRS framework. This disclosure requirement is cross-cutting, embedded in related EU regulations such as the CSDDD and EU Taxonomy, as well as international frameworks and standards. The guidance provides that companies must disclose credible science-based targets aligned with the 1.5°C goal of the Paris Agreement and outline concrete measures to reduce their carbon footprint across business operations. Additionally, covered entities must disclose investment plans that support portfolio decarbonization and funding for these plans, including EU Taxonomy-aligned CapEx. Overall, the guidance underscores the importance of integrating climate transition plans into the broader corporate strategy, with explicit support from governance bodies, ensuring alignment between sustainability objectives and corporate planning. Once targets are set, companies must ensure that they are tracking their progress in implementing transition plans and take corrective action if they fall behind. The guidance also addresses the interconnectedness of climate and nature, requiring disclosure of how transition plans might impact workers, communities, and ecosystems, and how they may depend on adaptation actions.

EIOPA calls for higher capital requirements for fossil fuel assets

EIOPA has published a new report recommending higher capital requirements for fossil fuel-based assets, following a mandate to assess the potential for a dedicated prudential treatment of assets or activities that significantly impact environmental or social objectives, or harm them. The report argues that the additional capital requirements for fossil fuel assets on European insurers’ balance sheets accurately reflect the high risks associated with these assets, based on a risk-based analysis of data and stakeholder feedback from EIOPA’s Discussion Paper and public consultation. The report addresses three key areas: market risks linked to climate transition, the impact of climate risk prevention measures on non-life underwriting risks, and the treatment of social risks. Specifically, EIOPA suggests increasing capital requirements by up to 17% for fossil fuel-related stocks and introducing a capital charge of up to 40% for fossil fuel bonds. The report has been submitted, and the Commission will consider its implementation.

Spain transposes CSRD into national law

The Spanish Council of Ministers approved the transposition of two European directives, including the Corporate Sustainability Reporting Directive (CSRD), which standardizes the reporting and verification of sustainability information for companies. The new laws require large companies and listed SMEs to report on sustainability, with independent verification and include measures to simplify accounting obligations for some companies by adjusting size thresholds in response to inflation.

ESAs publish third report on PAI disclosures

ESAs have jointly published the second report on PAI disclosures under SFDR. The report examines the quality of disclosures published by 30 June 2023, regarding the reference period from 1 January 2022 to 31 December 2022. The report outlines improvements and clarifications for PAI reporting, aiming to enhance consistency and transparency for financial market participants. It includes detailed guidelines on how firms should disclose environmental, social, and governance (ESG) impacts, ensuring alignment with the EU’s sustainability goals. The recommendations also aim to streamline reporting and reduce the burden on firms while increasing investor access to relevant ESG data.

Key Areas: Clarifications on indicators and methodologies for ESG impacts.
Streamlined Reporting: Guidance to ease reporting for market participants.
Alignment with EU Goals: Enhances alignment with EU sustainability objectives.
Timeline: Final recommendations will be implemented in 2025, influencing upcoming reporting cycles.

United Kingdom

FCA publishes best practices under the SDR investment labelling regime

The FCA has released guidance for firms applying for Sustainability Disclosure Requirements (SDR) labels, focusing on promoting transparency and preventing greenwashing in sustainable investment products. This builds on the previously published examples of good and poor practices for pre-contractual disclosures. The guidance outlines expectations for firms to clearly articulate the sustainability objectives of their products, the methodologies used to achieve these objectives, and measurable targets for tracking performance.

Key highlights include:

Clarity and Transparency: Firms must avoid vague or overly complex language and ensure investors can easily understand how sustainability characteristics are embedded in the investment process.
Alignment with SDR Labels: Products applying for labels such as “Sustainable Focus” or “Sustainable Improvers” must demonstrate clear evidence of their sustainable investment approach, supported by robust methodologies and tangible outcomes.
Robust Metrics and Evidence: Firms are encouraged to provide specific metrics, data, and case studies to substantiate claims, ensuring alignment with SDR’s core principles.
The FCA has emphasised the importance of embedding these practices into firm processes to improve trust and comparability in sustainable investments.

UK FRC revises stewardship code

The Financial Reporting Council (FRC) recently launched a consultation on proposed updates to the UK Stewardship Code, aimed at strengthening the framework’s focus on sustainable outcomes and responsible investment practices. Key areas of focus include improved reporting transparency, clearer ESG impact evidence, and aligning stewardship with emerging global standards. The consultation seeks input from stakeholders to refine expectations on stewardship practices and is open until February 2025. The consultation is intended to refine how asset managers, owners, and service providers report and implement stewardship activities.

UK Financial Reporting Council unveils 2025 Taxonomy suite

The UK Financial Reporting Council (FRC) has released its 2025 Taxonomy Suite, aimed at enhancing digital reporting for entities using UK GAAP, EU-adopted IFRS, and the UK Single Electronic Format (UKSEF) for ESEF filings. This update introduces improved tagging for key disclosures, supporting more accurate, transparent, and comparable digital financial statements. Enhanced taxonomies also align with recent UK regulatory requirements, ensuring consistency in reporting across diverse sectors. This suite is essential for companies adapting to evolving financial reporting standards in the UK.

UK TPT releases final report on transition guidance

The UK Transition Plan Taskforce’s (TPT) final report reviews progress on climate-related transition planning and sets out a detailed roadmap for further implementation. Key upcoming steps include refining disclosure standards, sector-specific guidance, and a “comply or explain” regulatory approach. In early 2025, the TPT will release updated guidance for financial institutions and corporations, focusing on clear, measurable actions for emissions reduction aligned with UK’s net-zero by 2050 goal. The taskforce emphasises the need for scalable and transparent transition strategies across sectors to support the UK’s climate targets.

North America

California climate rule survives first legal challenge

California’s progressive climate disclosure laws recently survived major legal pushback with a California judge rejecting the U.S. Chamber of Commerce’s request to block its implementation on constitutional grounds. This marks a precedent for corporate climate reporting legislation which is still being contested at the federal level in the US. On September 27^th, 2024, California Governor Gavin Newsom signed Senate Bill 219 (SB 219) into law, merging and amending SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act). The two climate bills, commonly referred to as the California Climate Accountability Package, introduced the most extensive emissions disclosure requirements in the U.S. SB 253 requires all public and private entities doing business in California with over $1 billion in revenue to annually disclose their GHG emissions, including value chain emissions by 2026. SB 261 mandates companies with over $500 million in revenue to disclose climate risks, in line with the recommendations of the Taskforce for Climate-related Financial Disclosure (TCFD), by 2026.

Canada ends consultation on ISSB-aligned sustainability disclosure standards, plans adoption by Q4 2024

The Canadian Sustainability Standards Board (CSSB) completed its 90-day consultation on the adoption of ISSB standards on June 10, 2024. Following this consultation, the CSSB is working to finalize the standards by the end of Q4 2024. In parallel, the Government of Canada announced plans to mandate climate-related disclosures for large federally incorporated companies through amendments to the Canadian Business Corporations Act (CBCA). This initiative will complement efforts by the Canadian Securities Administrators (CSA), which is revising its proposed National Instrument on climate-related disclosures for publicly traded companies.

CAPSA publishes final Risk Management Guideline for pension funds

The Guidelines clarify that pension plan administrators may violate their fiduciary duties if they fail to identify and appropriately address ESG risks in a way that aligns with their plan’s specific circumstances and investment principles. To carry out their duties in line with the Guidelines, CAPSA has suggested a proactive approach—using a risk management framework to identify, evaluate, manage, and monitor material risks.

Pakistan to phase in ISSB adoption

The Securities and Exchange Commission of Pakistan (SECP) has launched a survey to gather public input on the phased adoption of IFRS Sustainability Disclosure Standards (IFRS-S1 and IFRS-S2) in Pakistan. The standards, covering sustainability and climate-related disclosures, are recommended by the Institute of Chartered Accountants of Pakistan. Adoption will begin in 2025, with subsequent phases in 2026 and 2027. The SECP aims to align Pakistan’s markets with global practices, enhance transparency, and support sustainable business practices.

RBI launches climate data repository

The Reserve Bank of India (RBI) is creating the Climate Risk Information System (RB-CRIS) to enhance climate risk assessments for financial institutions. This system will bridge gaps in available data, which is often fragmented and inconsistent. RB-CRIS will consist of two parts: a publicly accessible directory of climate data sources, and a restricted portal providing processed, standardised data for regulated entities. The data portal will be gradually rolled out in phases. The initiative, announced in October 2024, is part of RBI’s broader strategy to strengthen financial system resilience against climate-related risks.

SEBI Consults on Ease of Doing Business for ESG Rating Providers

The Securities and Exchange Board of India (SEBI) released a consultation paper proposing measures to ease operations for ESG Rating Providers (ERPs). The focus is on streamlining regulations, enhancing transparency, and lowering barriers for new entrants. The goal is to improve the credibility of ESG ratings, aligning them with global standards, and facilitating easier business practices for ERPs in India. Stakeholders are encouraged to submit their feedback on these proposals. The call for feedback closed on 15^th November 2024.

Thailand releases Taxonomy Phase 2

The Thailand Taxonomy Board has launched Phase 2 of the Thailand Taxonomy for public consultation, focusing on sustainable business practices. The consultation period runs from October 28, 2024, to January 10, 2025. The Thailand Taxonomy Phase II aims to extend its scope to four key sectors: manufacturing, agriculture, waste management, and construction. It will provide a framework for businesses to align with climate change mitigation goals. This phase, which builds on Phase I’s focus on energy and transportation, will include criteria for reducing greenhouse gas emissions. This phase aims to refine the criteria for green activities, supporting the alignment of Thailand’s financial sector with environmental sustainability goals. Feedback from stakeholders is encouraged to ensure the framework meets broad economic and environmental objectives. More information is available on their official website.

Chinese stock exchanges table sustainability disclosure standards

Chinese stock exchanges have proposed new sustainability disclosure rules, introducing a double materiality framework. The draft outlines 21 reporting areas, including governance, environmental impact, and social aspects, and asks companies to select sector-specific metrics. These rules aim to enhance transparency in sustainability reporting and align with international standards. Companies will need to disclose both their environmental impact and how sustainability issues affect their financial performance. This initiative is part of China’s broader efforts to integrate ESG factors into its capital markets.

Concerns Raised Over New Zealand’s Scope 3 Reporting and Transition Plan Changes

New Zealand’s proposed amendments to its climate reporting framework, including Scope 3 emissions disclosures, have raised concerns among stakeholders. While the proposed changes have garnered broad support, particularly for transition plans, there is a push for greater alignment with the International Sustainability Standards Board (ISSB). The amendments aim to refine the country’s climate reporting rules, ensuring they meet global standards while addressing investor needs and fostering greater transparency.

Africa & Middle East

Tanzania approves adoption of ISSB standards within a localised context

The National Board of Accountants and Auditors of Tanzania (NBAA) has approved the adoption of the International Sustainability Standards Board (ISSB) Sustainability Reporting Standards, which will be implemented in Tanzania from January 1, 2025. The ISSB-aligned disclosure regime will be mandatory for Public Interest Entities (PIEs). While the adoption is not yet mandatory for Public Sector Entities, the NBAA has encouraged them to apply the current sustainability standards in preparation. This move aligns Tanzania with global sustainability reporting practices and aims to enhance transparency and accountability in sustainability disclosures.

IFRS publishes state of adoption report. Read more
EU Commission launches targeted consultation on the functioning of the EU securitisation framework. It is open for comments until 4 December. Read more
IAASB rolls out new sustainability assurance 5000 requirements. Read more

ESG Book manages the world’s largest repository of sustainability reporting provisions with over 3,000 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. Click here to access the ESG Regulatory Provisions Contributor Form.

The Political Climate

4th November 2024

As the US gears up for a historic election this November, we reflect on the differing realities under each President and the how the makeup of Congress could potentially shape climate and ESG legislation in a polarized political landscape. While climate and ESG issues aren’t explicitly “on the ballot”, we examine some of the key policies and initiatives that are at stake in the upcoming election and present predictions on how these will fare in the long-term based on the election outcome.

To read the full article, click here

ESG Policy Digest: October 2024

30th October 2024

Help Shape the Future of CSRD and ISSB Reporting

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In this monthly edition of the Policy Digest, we explore regional policy developments spanning the entire lifecycle of non-financial reporting – from ESG data to the verification and assurance of sustainability reports.

In North America, Canada announced plans for the development of a sustainable investment taxonomy and to make mandatory climate disclosures for large and federally incorporated private companies. The two sustainable finance initiatives are designed to bolster the broader effort to mobilise private sector capital in support of the country’s transition to a net zero economy. Meanwhile in the US, California consolidated its climate disclosure laws into Senate Bill 219 (SB 219), effectively cementing the 2026 deadline for climate reporting for large companies operating in the state. The progress in sustainability reporting marks a significant breakthrough, especially in California, the world’s fifth largest economy by gross domestic product (GDP) and home to many of the largest Fortune 500 companies.

Across the Atlantic, the European Commission has opened infringement procedures by issuing formal notices to 17 Member States, urging them to ensure the timely transposition of the Corporate Sustainability Reporting Directive (CSRD) in preparation for the first reporting deadline in 2025. Throughout Europe, regulators focused on validation of sustainability reporting – the EU’s top auditing oversight body released guidelines on limited assurance of the European Sustainability Reporting Standards (ESRS) reports, while the French authority- Haute Autorité de L’Audit (H2A) – issued standards for the verification of sustainability information produced under the CSRD and Taxonomy Regulation. The EU’s real challenge lies in the implementation of binding sustainability regulation affecting global stakeholders. To address this, the Commission recently proposed a one-year delay in the implementation of the European Deforestation Regulation (EUDR) and issued guidance with aims to achieve the environmental outcomes, while considering varying capacities and levels of preparedness.

In the Asia Pacific region, Hong Kong took centre stage this month as regulators emphasised high alignment with the International Sustainability Standards Board (ISSB) standards. In addition, a new voluntary code of conduct for ESG ratings and data products providers was launched to enhance transparency around sustainability ratings, scores and data.

At a practical level, these global regulatory initiatives are designed to substantially improve the reliability of sustainability reports and credibly strengthen certification and verification audits through a procedural system of checks and balances.

NORTH AMERICA

California climate disclosure laws consolidated under SB 219

On September 27, 2024, California Governor Gavin Newsom signed Senate Bill 219 (SB 219) into law, merging and amending SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act). The two climate bills, commonly referred to as the California Climate Accountability Package, introduced the most extensive emissions disclosure requirements in the U.S. SB 253 requires all public and private entities doing business in California with over $1 billion in revenue to annually disclose their GHG emissions, including value chain emissions by 2026. SB 261 mandates companies with over $500 million in revenue to disclose climate risks, in line with the recommendations of the Taskforce for Climate-related Financial Disclosure (TCFD), by 2026.

The recently enacted SB 219 amends SB 253 by extending the California Air Resources Board’s (CARB) deadline to promulgate implementing regulations by six months, from January 1, 2025, to July 1, 2025. Reporting entities will still be required to prepare and disclose Scope 1 and 2 emissions in 2026, based on 2025 data even official guidance from CARB is not available in the interim. However, SB 219 allows CARB to specify a schedule for the disclosure of Scope 3 emissions, which was previously mandated to be disclosed 180 days after the Scope 1 and 2 emissions reports. The amendments also authorise subsidiaries to submit consolidated reports at the parent company level and decouple filing fees from the annual reporting fee under both SB 253 and SB 261.

SB 219 is landmark piece of legislation with widespread implications due to the size of California’s economy, which is currently the fifth largest in the world and is expected to overtake Germany as the fourth largest by the end of the year. SB 253 is estimated to apply to over 5,000 companies, 80% of which are privately held. Regulatory bodies and private stakeholders have raised several concerns about the implementation of SB 253 and SB 261, particularly for private entities. These concerns include the risk of double-counting emissions between suppliers and public entities, the potentially prohibitive compliance costs for private companies, and the requirement for private firms to disclose sensitive information, which could undermine their competitive advantage. Despite the importance of these regulations, the twin bills consolidated under SB 219 continue to face litigation due to the broad scope of entities covered. The final requirements and implementation timeline remain uncertain, as they may be affected by a pending lawsuit filed on January 30, 2024, in the U.S. District Court for the Central District of California. The lawsuit challenges the legality of SB 253 and SB 261 under the First Amendment, arguing that these laws overstep state regulatory authority beyond the scope of the federal Clean Air Act.

Read More.

Canada launches sustainable investment taxonomy and expands mandatory climate disclosures for federally incorporated companies

The Government of Canada has announced plans to develop a made-in-Canada sustainable finance taxonomy aimed at mobilising private investment to support the country’s net-zero goals. The Taxonomy will serve as a critical tool for investors, banks, and asset managers alike to identify both green and transition investments. Under the new Taxonomy, qualifying green activities will encompass low or zero-emission technologies such as green hydrogen, solar, and wind energy, while transition activities will focus on decarbonising emission-intensive sectors critical for the net-zero transition, such as lower-emission steel production.

The framework for classifying green and transition activities will be based on scientifically credible, Paris-aligned pathways. Initially, the Taxonomy will concentrate on six hard-to-abate sectors: electricity, transportation, buildings, agriculture, manufacturing and extractives, including natural gas, with a focus on significantly decarbonising existing operations. Canada’s Taxonomy is scheduled for development within 12 months and will be interoperable with global taxonomies to promote cross-border green financial flows. This initiative is part of the government’s broader efforts, as confirmed in the 2023 Fall Economic Statement and Budget 2024, to launch both a sustainable investment taxonomy and mandatory climate disclosures.

As part of the Taxonomy development, Canada has also announced the expansion of mandatory climate disclosures under the Canada Business Corporates Act for large, federally incorporated private companies. The scope and applicability of the regulation has not yet been formalised. However, the Canadian government has confirmed that small- and medium sized businesses will be exempt and can opt-in to disclose climate-related financial information. Canada has already imposed mandatory climate reporting for financial institutions and separately, is set to finalise ISSB-aligned sustainability disclosure standards.

Read More.

EUROPE

European Commission initiates infringement procedures on CSRD Implementation

The European Commission has issued formal notices to 17 Member States for missing the 6 July, 2024 deadline to transpose the Corporate Sustainability Reporting Directive (CSRD) into national law. Formal letters were sent to Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia and Finland, directing them to respond and finalise the transposition within two months. The Commission has noted that the delay in transposition undermines harmonised reporting and investor decision-making. Under the EU’s infringement procedure, the Commission can initiate legal action against any Member State that does not adhere to EU laws, beginning with a formal notice. This will be followed by a reasoned opinion necessitating compliance, and potentially a referral to the court for penalties.

Read More.

EU Commission creates guidelines for limited assurance of sustainability reports

The EU Commission, on 30 September 2024, released guidelines for limited assurance on sustainability reporting. The Committee for European Oversight and Auditing Bodies (CEOAB) provides a framework for conducting assurance engagements in line with the Corporate Sustainability Reporting Directive. The Guidelines explicitly state that it “should be read in conjunction with any national rules applicable to assurance on sustainability reporting” and does not supersede national level requirements issued by the relevant national competent authorities (NCAs).

The CSRD requires large companies subject to the Non-Financial Reporting Directive (NFRD) to prepare sustainability statements according to the ESRS from 2025. These statements must undergo limited assurance by statutory auditors or other independent assurance service providers (IASPs) in accordance with a national standard until a more comprehensive EU wide standard is adopted by 1 October, 2026. The non-binding guidelines emphasise the importance of auditors’ professional judgment and critical assessment of both qualitative and quantitative sustainability data. Auditors are required to verify that sustainability information meets ESRS standards, follows a process of double materiality, and is free from material misstatements. While the limited assurance framework is in place, a shift to reasonable assurance is expected by October 2028, pending a feasibility study.

The European Commission will likely adopt the International Standard on Sustainability Assurance 5000 (ISSA 5000), which was recently approved by the IAASB on 20 September 2024. The ISSA 5000 standards are expected to be finalised in December 2024 with final guidance and application materials set to release in early 2025.

Read more

France releases national standard for ESRS auditing

France’s top authority for auditing – Haute Autorité L’Audit – has published guidelines for the certification of sustainability information under the Corporate Sustainability Reporting Directive (CSRD) and Article 8 of the Taxonomy Regulation. The document outlines the processes for conducting limited assurance audits and assessing compliance with the European Sustainability Reporting Standards (ESRS) through the lens of double materiality. The guidelines emphasise the verifier’s responsibilities to ensure that the entity’s process for preparing and publishing sustainability information complies with the ESRS. Additionally, a verifier must evaluate the accuracy and relevance of the sustainability information published, ensuring that sustainability statements are not misleading. The guidelines have been developed to ensure consistency across the EU, in line with the CEAOB and international audit standards and will be revised once the European limited assurance standard is published (expected by October 2026). It covers detailed steps for verifiers, including collaboration with auditors, use of external experts, understanding the entity’s governance structure, and assessment of internal control systems related to sustainability reporting.

Read more

EU proposes one-year delay to the implementation of the EU Deforestation Regulation (EUDR)

The proposed delay would make the EUDR effective from December 2025 for large companies and June 2026 for micro and small enterprises. The Commission proposed postponing the implementation of the law after global partners expressed concerns about their readiness to comply. The EUDR is a key legislative reform to address nature-related risks in the supply chain. The law bans the sale of deforestation-linked products in the EU, imposing due diligence obligations on companies and suppliers dealing with commodities such as palm oil, cattle, soy, coffee, cocoa, timber, and rubber, along with by products. Since the EUDR’s adoption in 2023, suppliers have called for guidance and measures to promote fair participation and strengthen their capabilities to meet the standards, ensuring a more balanced impact on small-scale producers.

On 26 September 2024, the Commission released guidance to clarify key concepts and definitions, including traceability obligations and product scope, to ensure consistent interpretation of the law by companies and enforcement authorities. Additionally, the Commission and the European External Action Service have introduced a strategic framework for international cooperation on the EU Deforestation Regulation. This framework outlines five priority actions, such as support for smallholders, eight key principles, including a human rights-centered approach, and various implementation tools like dialogue and financing. A new IT system for due diligence statements will be operational by December, and the Commission is enhancing international cooperation through transparent country benchmarking to classify deforestation risk. The Commission has urged the European Parliament and the Council to approve the extension by the end of the year.

Read more

ASIA-PACIFIC

HKICPA publishes exposure drafts for Hong Kong sustainability reporting standards

The Hong Kong Institute of Certified Public Accountants (HKICPA) has proposed new sustainability disclosure standards supporting “full convergence” with the ISSB standards. The proposed standards – HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures (HK EDs) – will apply to publicly accountable entities such as listed companies, banks, fund managers, insurance firms, and Mandatory Provident Fund trustees. Hong Kong’s Vision Statement, released earlier this year, outlined interoperability as a key policy priority to promote consistency and comparability of sustainability reporting for Hong Kong businesses. The HKICPA is seeking public feedback on the proposed standards, with the consultation period open until 27 October, 2024. The standards are expected to come into effect in August 2025.

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Hong Kong introduces industry-led voluntary code of conduct for ESG rating and data product providers

A working group of investors and data providers, sponsored by the Hong Kong Securities and Futures Commission (SFC), have published a voluntary Code of Conduct (CoC) for ESG ratings and data products providers in Hong Kong. This code aims to establish a globally consistent framework for ESG ratings and data providers operating in the country, promoting transparency, governance, and quality in their services. The Code is aligned with the International Organization of Securities Commissions’ (IOSCO) recommendations and focuses on key principles, including governance, quality, conflict of interest management, transparency, and stakeholder engagement. Providers opting into the Code are required to complete a self-evaluation, embed the Code into their operations, and publish a self-attestation within six months for ratings providers and one year for data providers. The International Capital Market Association (ICMA) will oversee the Code’s maintenance and publish the name of the signatories to the code. However, ICMA is not responsible for investigating or confirming adoption. This voluntary code is considered a lighter-touch approach to enhancing transparency among ESG ratings and data providers.

Hong Kong joins regional peers, including Singapore, Japan and South Korea, in introducing a principles-based CoC for the self-regulation and attestation of ratings and data providers’ practices and processes. Thus far, India and the European Union are the only jurisdictions imposing mandatory regimes for the regulation of ESG ratings and data providers.

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Other News and Resources

The World Bank Group and the IFRS Foundation will partner to promote the adoption of ISSB standards in emerging markets and developing economies (EMDEs). Read More.
The International Auditing and Assurance Standards Board (IAASB) approved the International Standard on Sustainability Assurance 5000 (ISSA 5000). Read more
GFANZ publishes Draft Guidance on ‘Transition-Informed’ Indexes. Read more

*ESG Book manages the world’s largest repository of sustainability reporting provisions with over 2,800 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.

Click here to access the ESG Regulatory Provisions Contributor Form.

ESG Policy Digest: September 2024

26th September 2024

September’s edition of the Policy Digest features key regulatory developments surrounding the global baselines set by the EU Corporate Sustainable Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) Standards.

In the EU, the European Financial Reporting Advisory Group (EFRAG) has finalised the format and presentation of sustainability statements with the XBRL taxonomy for the first set of European Sustainability Reporting Standards (ESRS). The digital taxonomy allows reporting entities to tag their sustainability statements in a machine-readable XBRL format, improving accessibility of decision-useful information for investors. Meanwhile, the German FNG label has proposed a three-way split of the label to keep up with market demands and regulatory developments. The label will be divided into three distinct categories – a values label, a transition label, and a sustainability label.

In the UK, the Financial Conduct Authority (FCA) has proposed a delay in the implementation of its investment labelling regime – the Sustainable Disclosure Requirements (SDR). The SDR naming and marketing rules have extended the deadline for firms to meet the regulatory criteria, reflecting a pragmatic approach to supporting compliance.

Turning to Asia-Pacific, Australia is progressing toward the establishment of a comprehensive sustainable economic framework with significant regulatory advancements. The country has implemented mandatory ISSB-aligned climate-related disclosures and an interim report on the development of its sustainable finance taxonomy, both key pillars of its national sustainability agenda. Progressing the adoption of IFRS standards further in the region, Singapore has announced timelines for the incorporation of the standards in its sustainability reporting regime.

Meanwhile, in the US, the outlook for ESG legislation remains uncertain, driven by ongoing political polarisation. In Missouri, a District Court ruled the state’s anti-ESG disclosure law unconstitutional, while in California, legislators are advocating for the timely implementation of corporate climate disclosure laws, rejecting an extension period proposed by the Newsom administration. At the federal level, the US Securities and Exchange Commission (SEC) recently approved new standards to regulate audit quality, modernise practices and strengthen accountability through the use of emerging technologies. Despite progress in rulemaking, however, the Commission’s commitment to enforcing ESG regulation is now in question, with the recent dissolution of the SEC’s Climate and ESG Enforcement Task Force signalling a potential shift in direction amid mounting legal challenges and industry opposition.

Finally, in South America, the Chilean financial regulator, Comisión para el Mercado Financiero (CMF), has issued a consultation proposing the adoption of the ISSB standards. Chile is among a list of Latin American countries, including Brazil and Costa Rica, that have committed to adopt the ISSB standards, further aligning the region with international sustainability frameworks.

These developments reflect a concerted push from global regulators to promote the harmonisation of reporting standards and frameworks. With the foundations for sustainability reporting increasingly in place, the challenge is now around how financial institutions and companies navigate this ever more complex world of ESG regulatory compliance.

EUROPE

EFRAG publishes XBRL taxonomy for set 1 of ESRS

On August 30^th, 2024, the European Financial Reporting Advisory Group (EFRAG) published a digital taxonomy for the first set of the European Sustainability Reporting Standards (ESRS), which will enable users to digitally tag their sustainability statements in a machine-readable XBRL format. EFRAG has simultaneously released an XBRL Taxonomy for Article 8 disclosures. The ESRS Taxonomy facilitates standardisation and comparability of ESRS statements by providing ‘tags’ for every datapoint and dimensional disaggregation defined in the disclosure requirements. Specifically, the advanced tagging of narrative disclosures will enhance the usability of ESRS statements for key users including investors. Companies may voluntarily mark-up sustainability disclosures in accordance with the XBRL Taxonomy until it is adopted by way of an amendment to the Delegated Regulation on the European Single Electronic Format (ESEF). Read More.

German FNG Label to be split into three separate label categories

The FNG label has introduced a significant update, proposing a split into three distinct label categories—Values, Transition, and Sustainability—as part of a methodological approach aligned with recent legislative changes on the continent. The new labels reflect FNG’s commitment to maintaining a high-quality standard for sustainable investments. To obtain the FNG label, funds must meet the minimum mandatory criteria proposed for the voluntary labels. The proposed Values label requires at least 50% of assets to be allocated to values-oriented investment strategies in line with existing FNG Seal Exclusions. The Transition label requires 80% of assets to be focused on climate, sociological or ecological transitions and apply the climate transition benchmark exclusions. And the Sustainability label is aligned with Paris-aligned benchmark exclusions and ESMA’s fund labelling guidelines. The labels will continue to have the star ratings system to allow funds to be put into individual categories. These changes bring greater transparency and consistency with evolving regulatory frameworks and market demands. A public consultation will take place in December 2024, with the new labels set to launch next year. Read More.

UNITED KINGDOM

FCA provides limited extension for compliance with SDR naming and marketing rules

The FCA announced it plans to delay implementing its Sustainability Disclosure Requirements regulation (SDR) which came into effect on 31^st July 2024. The SDR and four investment labels (Sustainability Focus, Sustainability Improvers, Sustainability Impact and Sustainability Mixed Goals) are part of a package of measures for asset managers, including a naming and marketing rule, and an Anti-Greenwashing Rule (AGR) which applies to all FCA-authorised firms in the UK. The FCA has confirmed that it will extend the deadline to comply with the naming and marketing rule to 2^nd April 2025 for firms that have submitted a completed application for amended disclosures by 1^st October, 2024, and currently use terms such as ‘sustainable,’ ‘sustainability,’ or ‘impact’ in their fund names. The “temporary flexibility” allows firms additional time to meet the criteria specified in the naming and marketing rule. The AGR which took effect in May 2024 will, however, still apply to all funds in scope. Read More.

ASIA-PACIFIC

Australia’s mandatory climate disclosure regime to come into effect in January 2025

On 9^th September 2024, the Australian Federal Parliament passed a law establishing mandatory climate-related disclosures aligned with the ISSB standards. The AASB will now incorporate both non-mandatory sustainability-related disclosure (ASRS 1) and a mandatory climate-related disclosure (ASRS 2), reversing its earlier decision to only incorporate mandatory climate disclosures. Key changes to the legislation to adopt the ISSB-aligned standards include a requirement to disclose information relating to climate scenario analysis using both the low (1.5°) and high (2.5°) climate scenario analysis. Reporting will encompass the entire value chain, providing comprehensive transparency on climate impact and management. The AASB will set a phased approach for assurance requirements with ‘end state’ reasonable assurance for all climate disclosures becoming mandatory from 2030. Read More.

Australia releases interim report on the development of its sustainable finance taxonomy

On 10^th September 2024, Australia’s Department of Treasury released an interim report on the development of a sustainable finance taxonomy that aims to provide common definitions for sustainable economic activities and direct private investment towards the country’s net-zero transition plan. Initiated in July 2023, this taxonomy forms a key component of the government’s sustainable finance agenda. The interim report gives an overview of the taxonomy’s progress, including recommendations from the Taxonomy Technical Expert Group (TTEG) and technical screening criteria for priority sectors focused on climate change mitigation. It also offers an analysis of the alignment between taxonomy deliverables and policy objectives set out in the Terms of Reference and a summary of stakeholder consultations, outlining the stakeholders involved, the frequency of engagement, and key insights from the discussions. Read More.

SGX RegCo announces timeline for incorporation of IFRS sustainability disclosure standards

The Singapore Exchange Regulation (SGX RegCo) has announced that it will start incorporating the IFRS sustainability disclosure standards into its sustainability reporting framework from FY 2025. The regulator has published an implementation roadmap with baseline reporting practices starting in 2025, when all listed companies will be required to disclose their Scope 1 and 2 GHG emissions and integrate climate-related information into their sustainability reports. The roadmap mandates that the primary components of the sustainability report, including material ESG factors, be disclosed from 2026. The regulator has also recognised proportionality of burden, providing a phased implementation plan for smaller issuers grappling with the methodological complexities of Scope 3 reporting. Larger market-cap companies, on the other hand, must report Scope 3 emissions on a mandatory basis, aligning their climate reporting with the IFRS Standards from FY2026. Read More.

NORTH AMERICA

Missouri District Court strikes down anti-ESG disclosure rules in recent ruling

In 2023, the US state of Missouri enacted a law requiring securities firms and professionals to obtain written consent from clients before incorporating ESG factors into investment advice, with a disclaimer that such advice may not solely focus on financial returns. While the rule was part of Missouri’s broader stance against ESG investing, it is worth noting that the federal Employment Income and Retirement Security Act of 1974 (ERISA) allows fiduciaries to consider ESG factors in investment decisions. The United States District Court for the Western District of Missouri has now issued a permanent injunction and ruled the state law unconstitutional, citing federal preemption and First Amendment violations. This ruling could set a precedent in other states with similar anti-ESG regulations across the US. Read More.

California’s state legislature pushes for timely implementation of climate disclosure laws

Following the Newsom administration’s proposed amendments in June to the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261), which included a two-year implementation delay, state legislators have passed related amendments (SB 219) to support the timely enforcement of the climate disclosure laws. SB 219 provides a six-month extension from January 1, 2025, to July 1, 2025, for the California Air Resources Board (CARB) to finalise the Climate Corporate Data Accountability Act (SB 253). CARB will have the authority to determine the timeline for Scope 3 emissions disclosures, while keeping the 2027 reporting start date unchanged. Additionally, the Board may allow consolidated reporting under SB 253 at the parent level, exempting subsidiaries. Importantly, SB 219 preserves the reporting timelines established in the original bills. California Governor Gavin Newsom has until 30^th September 2024 to sign or veto the proposed amendments to climate disclosure laws featured in SB 219. Read More.

US SEC approves benchmarks to regulate quality of audits

The US Securities and Exchange Commission (SEC) has approved the new Public Company Accounting Oversight Board (PCAOB) audit standards adopted by the Board in May 2024. The approved standard (AS 1000) sets out general responsibilities of the auditor in conducting an audit, while adding other amendments to the PCAOB standards. The standards seek to modernise and consolidate audit practices, increasing alignment with new technologies and enhancing accountability on registered accounting firms to manage, control and monitor audit quality to ensure investor protection. Additionally, the Commission also approved amendments to Audit and Evidence (AS 1105) and the Auditor’s Response to the Risks of Material Misstatement (AS 2301) to regulate technology-assisted analysis in auditing procedures. The standards and related amendments will be effective from December 2024 and apply to smaller audit firms a year later from December 2025. The new standards address deficiencies in audits of public companies identified from a 2022 survey which inspected 157 firms and found that 40% of the audits lacked quality and evidence to support their claims. Read More.

LATIN AMERICA

Costa Rica publishes consultation on the adoption of ISSB standards

Chilean regulator, the Comisión para el Mercado Financiero (CMF), has issued a consultation proposing to adopt the IFRS S1 and IFRS S2 standards in the country. Earlier in 2021, the CMF had issued rule NCG N°461 requiring listed companies to report sustainability and governance related disclosures, with phased implementation from 2023 to 2025. The regulator has now decided to reconcile existing disclosure requirements with the ISSB standards, to promote internationally consistent sustainability reporting. The CMF’s does not expect any significant changes to the existing law following the proposed consultation. Mainly, the proposed regulation sets a revised timeline for the adoption of the standards in 2026 with first mandatory reporting expected in 2027. Latin America is leading the way in the adoption and use of the ISSB standards, with Costa Rica recently joining the ranks of others in the region including Brazil, Chile and Bolivia. Read More.

OTHER NEWS & RESOURCES

IFVI and GRI to collaborate to advance sustainable growth through measurement and application of corporate impacts. Read More.

ESG Policy Digest: August 2024

20th August 2024

The August 2024 edition of the ESG Policy Digest covers a wide range of policy tools and solutions emerging worldwide to power sustainability-driven capital markets. At the international level, the Global Reporting Initiative and the Taskforce on Nature-related Financial Disclosures (TNFD) are refining reporting standards with an interoperability mapping resource to support alignment across both frameworks. The International Accounting Standards Board (IASB) proposed adding eight illustrative examples to the International Financial Reporting Standards (IFRS) as guidance to support consistency in reporting of climate-related uncertainties in financial statements.

The SBTi announced plans to review the Corporate Net Zero Standard by year’s end, following a recent analysis highlighting the limited effectiveness of carbon offsets. Furthermore, voluntary carbon markets are undergoing further scrutiny as the Integrity Council for the Voluntary Carbon Market (ICVCM) recently restricted the use of its Core Carbon Principles (CCP) label, citing failure to meet the ‘additionality’ criteria required by the label under existing renewable energy methodologies.

In the EU, regulators are prioritising the development of resources to enhance and streamline sustainability reporting. The European Commission has published FAQs on the implementation of the Corporate Sustainability Reporting Directive (CSRD), including guidance on the scope and applicability of the European Sustainability Reporting Standards (ESRS) and clarification on how the CSRD interacts with the Sustainable Finance Disclosure Regulation (SFDR). Meanwhile, The European Securities and Markets Authority (ESMA) has published recommendations for the evolution and effective functioning of various legislation under the Sustainable Finance Regulatory Framework.

In the U.K., the HM Treasury confirmed that legislation to regulate ESG ratings providers is on the horizon.

The U.S., in contrast, has reached an impasse as the Securities and Exchange Commission’s (SEC) faces legal challenges to its climate disclosure rule, resulting in delayed implementation. Moving south to Latin America, Costa Rica launched its Sustainable Finance Taxonomy on 14 August to provide a framework for mobilising financial flows toward achieving the country’s climate change goals.

In the Asia Pacific region, the Reserve Bank of India’s (RBI) Deputy Governor announced plans to release guidance on climate scenario analysis and stress testing based on the Basel Committe on Banking Supervision principles for climate-related risks. And lastly, New Zealand’s financial regulator – the Financial Markets Authority (FMA) – issued a consultation on proposed guidance for climate reporting entities (CREs) regarding the inclusion of climate statements in disclosure documents under the new climate-related disclosures (CRD) regime.

These recent global regulatory updates reflect significant advancements at both international and domestic levels in sustainability reporting standards and frameworks, addressing emerging challenges around practical implementation. Although standards and regulations may vary on the basis of ambition, there remains continued emphasis on achieving a common reference point to promote interoperability across the sustainability reporting landscape.

INTERNATIONAL

GRI and TNFD unveil joint interoperability mapping outlining alignment in Disclosure Recommendations

The Global Reporting Initiative (GRI) and the Taskforce on Nature-related Financial Disclosures (TNFD) have jointly released an interoperability mapping resource which illustrates cross-cutting requirements and metrics across the TNFD Disclosure recommendations and the GRI Standards. Reporters can use a correspondence table to identify equivalent datapoints and achieve high alignment with the TNFD recommendations, as well as the GRI Standards. The mapping provides a detailed overview of the overlaps in concepts, definitions, and disclosure metrics. Additionally, the TNFD has integrated the GRI Standards’ impact materiality focus into its flexible LEAP approach, designed to assess nature-related risks and opportunities through both an impact and financial materiality lens. Conversely, GRI 101 references the TNFD’s LEAP approach for evaluating nature and biodiversity-related risks.

ISSB outlines plans for enhanced framework interoperability, maintenance and implementation

The International Sustainability Standards Board (ISSB) convened on 24–25 July, detailing key developments in Agenda papers 2, 6 and 9. Agenda Paper 2 outlines plans to enhance interoperability between ISSB standards and other major frameworks such as ESRS and GRI, along with initiating research on biodiversity, ecosystems and human capital related risks and opportunities. Agenda paper 6 introduces a phased approach for developing exposure drafts to amend the SASB Standards. Meanwhile, Agenda paper 9 highlights upcoming updates on the implementation of IFRS S1 and S2 following the Transition Implementation Group (TIG) meeting in September 2024.

IASB launches consultation on illustrative examples to enhance reporting of climate-related uncertainties in financial statements

In developing these examples, the IASB worked closely with the ISSB to strengthen connections between the information an entity provides in financial statements and the information it provides in sustainability-related financial disclosures. The Exposure Draft outlines eight illustrative examples to help companies effectively disclose financial positions and performance by guiding materiality assessment, assumptions and disaggregation of information in the context of climate-related risks and other uncertainties. The IASB has proposed the illustrative examples be incorporated as guidance in accompanying IFRS Accounting Standards. Stakeholders are invited to submit feedback until the consultation period closes on 28 November 2024.

SBTi releases new findings on carbon offsets amid review of the Corporate Net-Zero Standard

The SBTi has published four technical outputs which will inform the revision of the Corporate Net-Zero Standard including findings from a third-party review which found carbon credits to be ‘mostly’ ineffective. This marks a reversal from the SBTi’s earlier opinion in April on allowing companies greater use of carbon offsets in target-setting. Currently, companies are only allowed to use offsets after achieving their targets by directly reducing emissions. In addition to the findings, the SBTi released a Scope 3 discussion paper which explores the practical challenges associated with Scope 3 target setting and value chain decarbonization. The SBTi invites feedback from stakeholders on the discussion paper and announced that a consultation on a draft Corporate Net-Zero Standard will be launched by Q4 2024.

ICVCM restricts use of CCP label for renewable energy carbon credits

The Integrity Council for the Voluntary Carbon Market (ICVCM) has announced that carbon credits issued under existing renewable energy methodologies, which represent nearly a third of the voluntary carbon market, will not be eligible to receive the Core Carbon Principles (CCP) label. According to the ICVCM, the credits fail to meet the “additionality” criteria in the CCP label’s core principles, which mandates that emissions reduction and removals must occur without relying on financial incentives arising from carbon credits revenues. Established in 2021 to set global standards for carbon credits, the ICVCM created the CCP label to set benchmarks for credibility, integrity and transparency in carbon markets.

EU publishes FAQs to clarify sustainability reporting under the CSRD

On 7 August 2024, the European Commission released a set of frequently asked questions (FAQs) to help streamline sustainability reporting, minimising administrative and compliance burden for companies. As the CSRD adds sustainability reporting provisions to the Accounting Directive and Transparency Directive, the guidance document clarifies relevant legal provisions and disclosures, including Article 8 Taxonomy disclosures, for reporting entities. The FAQs provide a detailed explanation to determine ESRS applicability and a timeline for the application of reporting requirements. It also illustrates examples where certain undertakings may be exempt from an obligation to publish sustainability statements when a consolidated report is available. In the final section, the Commission has clarified the interaction between the CSRD and Sustainable Finance Disclosure Framework (SFDR). Financial market participants can assume that any indicator reported as non-material by an investee company subject to the CSRD does not contribute to the corresponding principal adverse impacts in SFDR disclosures, meaning that such investments do not need to be included in the numerator of the relevant SFDR impact indicator.

EFRAG Releases Study on Early Implementation of ESRS

The analysis of ESRS early adoption in the STOXX Europe 600 reveals that only 8% of firms have shared a detailed materiality assessment, with Climate Change and Workforce being universally material topics. While many companies are still grappling with the preparation of ESRS-compliant reports, the study indicates progress in areas such as data reporting in the value chain, enhancing clarity on the use of matrices and tables for reporting and standardizing topic granularity. The study is based on interviews with 28 large EU-based companies across eight sectors and is a “state of play report” not meant to set implementation guidance for the European Sustainability Reporting Standards (ESRS).

ESMA proposes long-term enhancements to the EU Sustainable Finance Framework

The European Securities and Markets Authority (ESMA) has published an Opinion on the Sustainable Finance Regulatory Framework, recommending long-term improvements to enhance the framework’s effectiveness and prevent greenwashing. ESMA suggests that the EU Taxonomy should become the sole reference point for assessing sustainability across all major sustainable finance legislation. Recommendations for improvements include extending the EU Taxonomy to cover all activities that could substantially contribute to environmental sustainability. ESMA has suggested that the Sustainable Finance Framework could evolve further by providing clarity on concepts such as transition investments, mandating sustainability disclosures for all financial products, creating a product categorization system, regulating ESG data products, and conducting consumer and industry testing before implementing new policies. It is also recommended that legislative progress on the social taxonomy resume.

UK to regulate ESG ratings providers in 2025

This new regulation will focus on enhancing transparency and establishing governance systems for providers. Earlier this year, the UK’s Financial Conduct Authority (FCA) launched a voluntary code of conduct for ESG ratings providers and data products, and the former government had announced that it would explore regulation in this area to bolster the UK’s Green Finance Strategy. The HM Treasury has been tasked with a review of a proposed regime for ratings providers and will introduce formal legislation to regulate ESG ratings providers by 2025.

US SEC begins legal battle defending the corporate climate disclosure rule

In March 2024, the U.S. SEC adopted the climate disclosure rule, which mandates that listed registrants disclose Scope 1 and 2 emissions starting in 2025. Although the final rule was watered down by dropping the Scope 3 disclosure requirement, it still faced multiple legal challenges, with critics arguing that it imposes an excessive compliance burden on companies and signifies an overreach of the SEC’s regulatory authority. This pushback has led to nine consolidated lawsuits filed in the U.S. Eighth Circuit of Appeals. In response, the SEC temporarily stayed the rule in April and will delay implementation while reviewing all legal petitions. The Commission is now defending the climate risk disclosure rule in court, citing “substantial investor demand” for consistent and comparable climate-related information. The SEC has stated that it is well within its congressionally granted authority to mandate material information for informed investing and voting decisions. Additionally, the SEC has addressed in court concerns about estimated compliance costs by presenting findings on the rule’s economic effects, demonstrating that it supports cost-effective and decision-useful disclosures for investors.

Costa Rica launches Sustainable Finance Taxonomy

Costa Rica has launched a Sustainable Finance Taxonomy to classify economic activities and assets that make a significant contribution to the country’s climate change objectives. The Taxonomy focuses on climate change mitigation and adaptation activities across eight priority sectors including electricity, gas, steam and air conditioning supply, construction, transportation, manufacturing, solid waste and emissions capture, water supply and treatment, Information and communication technology (ICT) and land use (agriculture, livestock and forestry). The Taxonomy will be used and tested in the financial sector to mobilise flows towards green projects and assess portfolio exposure to climate-related risks.

RBI to issue additional guidance on climate-related risks

Deputy Governor of RBI, Rajeshwar Rao, has confirmed plans to release guidance on how to conduct scenario analysis, stress testing and management of climate change risks. The guidance will be based on the Basel Committe on Banking Supervision principles. The new guidance reinforces the RBI’s goals to establish a ‘robust regulatory and supervisory framework’ to ensure the preparedness and resilience of the financial sector in the context of climate change. In February 2024, the RBI published a draft Disclosure Framework for climate-related risks (‘guidelines’) to mandate disclosures by regulated entities (REs) on the TCFD pillars of governance, strategy, risk management and metrics and targets. And, recently, the country’s Finance Minister announced an upcoming ‘climate finance’ Taxonomy – a classification framework for investments that significantly contribute towards climate change mitigation and adaptation.

New Zealand FMA releases guidance for climate-reporting entities

The Financial Markets Authority (FMA) has issued a consultation on proposed guidance for climate reporting entities (CREs) regarding references to climate statements in disclosure documents under a new climate-related disclosures (CRD) regime. The guidance covers the content and presentation of climate-related information under Product Disclosure Statements (PDS), Other Material Information (OMI) on the offer register on disclose for their financial products, any Statements of Investment Policies and Objectives (SIPO), and annual reports. The FMA has opened feedback on the guidance until 30 August 2024.

Financial Stability Board (FSB) releases stocktake on nature-related risks Read More.
Stock Exchange of Thailand partners with FTSE Russell to update ESG ratings methodology. Read more
ASIFMA issues recommendations for ISSB adoption across Asia. Read more
NGFS Report on Nature-related Financial Risks: a Conceptual Framework to guide Action by Central Banks and Supervisors available now. Read more
Science Based Targets Networks shares manual for corporates. Read more

ESG Policy Digest: July 2024

18th July 2024

Global regulators and standard setters are actively working to unravel the complexities of the ESG ‘alphabet soup’ while addressing the practical challenges related to the quality and credibility of sustainability data.

The Global Reporting Initiative (GRI) is collaborating with EU regulators to clarify how GRI Standards can serve as a foundation for sustainability reporting in the EU. The International Financial Reporting Standards (IFRS) Foundation is committed to fulfilling the promise of the ‘global baseline’ and will consider the importance of transition plan disclosure for investors as part of its two-year work plan. Meanwhile, with regulators looking to determine the credibility of net zero strategies and plans, the International Organization for Standardization (ISO) has offered a solution with an independently verifiable net zero standard set to launch in 2025. And to enrich the reporting toolkit, the Taskforce for Nature-related Financial Disclosures (TNFD) has also provided tailored guidance for eight ‘real economy’ sectors.

In the EU, the spotlight remains on the implementation and transposition of the Corporate Sustainability Reporting Directive (CSRD). The European Securities and Markets Authority (ESMA) has issued guidelines on the enforcement and supervision of CSRD reporting by national competent authorities. In an accompanying Public Statement, ESMA called for transparency on CSRD ‘transition reliefs’ designed to give issuers some leeway due to data limitations. First-time reporting entities are on the lookout for information about all aspects of the CSRD, including double materiality. To address these knowledge gaps, the Authority for Financial Markets (AFM) in Netherlands has articulated a systematic approach to the double materiality process.

In Switzerland, the Federal Council is taking measures to ensure that voting on corporate sustainability reports is binding. The Federal Council has also proposed changes to the Swiss Code of Obligations to ensure consistent sustainability reporting in line with the CSRD and other prominent reporting frameworks. Following a prolonged phase of pushback, the EU has published the Corporate Sustainability Due Diligence Directive (CSDDD) in the Official Journal of the European Union. The CSDDD could however displace or water down an existing German supply chain due diligence law, legal experts warn. And on the topic of greenwashing, the European Supervisory Authorities (ESAs) have highlighted room for improvement and made recommendations to enhance various aspects of the Sustainable Finance Disclosure Regulation (SFDR).

The United States may be a unique case where states such as California exceed the requirements of the federal Securities and Exchange Commission (SEC) Climate Rule. In October 2023, lawmakers in California approved legislation to advance quantitative and qualitative reporting of climate-related risks but have recently proposed amendments to delay the implementation of these rules by two years.

Finally, in Asia-Pacific, Australia dropped plans to introduce differentiated sustainability reporting standards and align more closely with the International Sustainability Standards Board (ISSB) global baseline. Australia’s chief competition regulator has also drafted a guide to inform businesses about legal risks and compliance requirements for sustainability collaborations under competition law.

The updates in this month’s Policy Digest provide a snapshot of key policy priorities for regulators. As elections take place around the world, with uncertain implications for climate and ESG regulation, there is significant work underway to promote globally consistent and harmonised sustainability reporting.

INTERNATIONAL

GRI publishes FAQs on ESRS interoperability and double materiality assessment

The FAQs confirm a high level of compatibility between the GRI Standards and the ESRS. Where possible, the European Financial Reporting Advisory Group (EFRAG) has aligned ESRS disclosure requirements with concepts and definitions from the GRI. To facilitate this transition, interoperability and mapping tools have been published to assist GRI users in preparing for ESRS reporting starting in 2025. The GRI has also launched a new GRI-ESRS Linkage service in collaboration with EFRAG and jointly developed educational resources with a focus on training and capacity building. The CSRD’s double materiality approach requires companies to report on both business risks and broader impacts, allowing the use of equivalent standards like GRI and ISSB, which could help companies meet CSRD requirements and benefit those affected by its extraterritorial reach. Read more

ISSB to consider transition plan disclosure guidance

At London Action Climate Week, the International Financial Reporting Standards (IFRS) Foundation announced a two-year work plan to deliver harmonised corporate sustainability reporting. As the sustainability disclosure landscape evolves through regulation and voluntary initiatives, the IFRS Foundation will play a crucial role in creating standardised approaches and practices for the disclosure of high quality, comparable disclosure information. The standard-setter is exploring additional aspects of disclosure as transition plans become increasingly relevant and decision useful information for investors. Tailored guidance on transition plan disclosure would not impact the structure of the IFRS S2 Climate-related Disclosures but rather enhance the application and use of the standard. Read more

TNFD releases guidance on nature-related reporting for eight sectors

The TNFD released sector-specific guidance, including recommended disclosure metrics, to assist companies and financial institutions with nature-related reporting. Organizations in eight “real economy” sectors—aquaculture, biotechnology and pharmaceuticals, chemicals, electric utilities and power generators, food and agriculture, forestry and paper, metals and mining, and oil and gas—can utilize tailored guidance for nature-related disclosures. TNFD has provided additional guidance for financial institutions, assisting banks, insurers, reinsurers, asset managers, asset owners, and development finance institutions in issuing nature-related disclosures. Read more

ISO to launch Net Zero Standard in 2025

The new Net Zero Standard is expected to launch in November 2025 at the COP30 conference. ISO’s net zero standard will provide ‘clarity, credibility and trust’ to organizations’ targets and strategies to achieve net zero. The process will build upon the Net Zero Guidelines by creating an independently verifiable net zero standard suitable for organizations of all sizes, sectors and geographies. Read more

EUROPE

ESMA releases Guidelines on the Enforcement of Sustainability Information (GLESI) and Public Statement on ESRS application

The purpose of the Guidelines is to establish uniform and robust supervisory approaches on sustainability reporting. National authorities may use these recommendations to align with the Corporate Sustainability Reporting Directive (CSRD) and accompanying ESRS framework as well as the Article 8 of the Taxonomy Regulation. ESMA will continue to monitor the application of sustainability reporting practices and GLESI in 2025. In addition to these Guidelines, ESMA has issued a Public Statement on the first time application of ESRS with the aim to support large issuers progressing through a ‘learning curve’ during the initial reporting period. In the Public Statement, ESMA has also called for transparency on transitional reliefs in CSRD to accommodate issuers who may not meet the data requirements of ESRS. Read more

AFM releases 10 waypoints to clarify CSRD double materiality process

Dutch regulator Authority for Financial Markets (AFM) has published guidance on CSRD double materiality assessment to support companies that will start to report from 2025. The 10 waypoints provide a circular pathway to conduct double materiality analysis emphasising transparency throughout the process that begins with stakeholder engagement, proceeded by due diligence to identify materially relevant sustainability topics. The double materiality concept integrates both financial materiality – how sustainability-related issues affect a company’s financial performance and impact materiality – which emphasises a company’s impact on the environment and the society. Read more

Swiss Federal Council clarifies binding vote on the CSRD

On 29^th May, 2024, the Swedish Parliament voted to adopt a bill to transpose the CSRD into national law. As large Swedish companies prepare to align with the EU wide regulation, the Federal Council in Sweden has clarified, through a new proposal, that the vote to approve sustainability reports at annual general meetings will be binding and not consultative. The new rules would also regulate the quality of sustainability information disclosed by entities by requiring verification from an auditor or ‘conformity assessment body’. Accreditation adds a layer of credibility, mirroring the EU’s limited assurance mandate for CSRD reports. As well, the Federal Council of Switzerland has opened a consultation until October 17, 2024, proposing changes to non-financial reporting obligations under the Swiss Code of Obligations to align with international sustainability standards, including the CSRD, requiring more entities to report on environmental, human rights, and corruption risks, and allowing them to choose between ESRS or equivalent alternatives, with mandatory assurance for reports. Read more

CSDDD published in the Official Journal of the European Union

On 5th July 2024, the Corporate Sustainability Due Diligence Directive (CSDDD) was published in the Official Journal of the EU. This directive is a key piece of legislation setting mandatory obligations for companies to address their negative impacts on human rights and the environment, clearing a major hurdle towards the implementation of the new law. The CSDDD requires companies to prevent and end or mitigate potential or actual harm to human rights and the environment, such as child labour and biodiversity loss. It also requires remediation of actual adverse impact caused. The regulation will apply in stages, depending on a company’s turnover and employee count. In the first stage, companies with over 5000 employees and 1500 million euros turnover will have 3 years to comply with CSDDD. Member States are required to impose penalties for non-compliance, which may include fines of up to 5% of a company’s net turnover. Read more

German supply chain regulation may be replaced early with EU CSDDD

Germany plans to reduce the scope of its national supply chain due diligence legislation (LkSG), decreasing the number of firms impacted by the LkSG from 5200 to fewer than 1000. Replacing the LkSG with the CSDDD could violate EU law as legal experts note provisions of the CSDDD that prohibit lowering existing protections. The CSDDD will be fully effective from 2027 and Member States will have two years from the date of enforcement to transpose the directive into national law. Read more

ESAs propose enhancements to SFDR framework and new ‘transition product’ category

The Joint Statement from the European Supervisory Authorities – the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and ESMA – have recommended enhancements to the Sustainable Finance Disclosure Regulation (SFDR) to improve transparency and investor protection. Key proposals include a categorisation system for financial products, defining “Sustainable” and “Transition Product” categories, with minimum sustainability thresholds. The statement emphasises the need for clearer definitions of sustainable investments under Article 2(17) of the SFDR, urging the EU Commission to align it with the EU Taxonomy. Additionally, it suggests improvements in the disclosure framework for principal adverse impacts, government bonds, and simplification of pre-contractual disclosures. The ESAs also call for restrictions on the use of sustainability-related terms in product naming to combat greenwashing and ensure that product names accurately reflect their sustainability profile. Read more

UNITED STATES

California may delay implementation of climate disclosure rules

On June 28, 2024, the Newsom administration proposed amendments to California’s climate emissions disclosure and financial risk reporting laws, signalling its commitment to address concerns with the current legislation. Key proposed revisions include a two-year delay for the implementation of both SB 253 and SB 261, allowing the California Air Resources Board (CARB) more time to develop regulations; modifications to Scope 3 emissions reporting to allow CARB to set specific disclosure schedules; consolidation of emissions reporting at the parent company level; and granting CARB discretion in contracting with nonprofit reporting organizations. These amendments are still subject to negotiation, with State Senator Scott Wiener opposing the changes. Negotiations are expected to continue through July and possibly into August. Read more

ASIA-PACIFIC

Australia to use ISSB standards as the baseline for sustainability disclosure regime

Australia is shifting its sustainability standards to align more closely with the International Sustainability Standards Board (ISSB) standards, moving beyond a climate-only focus. This change follows significant feedback from the investor community and the financial sector, emphasising the need for comprehensive sustainability reporting. The AASB has indicated plans to adopt IFRS S1 voluntarily as reported by Responsible Investor, however climate disclosures will be mandatory. The reversal of Australia’s decision to deviate from the ISSB standards may be a lesson learned for global regulators tasked with the delicate balancing act between interoperability and meeting local needs. Read more

Australia initiates consultation on draft guide on Sustainability Collaborations

The ACCC’s draft guide on Sustainability Collaborations aims to inform businesses about potential legal risks arising from collaborations to achieve positive environmental outcomes. The Australian Competition & Consumer Commission (ACCC) is the top authority that ensures compliance with the Consumer & Competition Act 2010. Businesses may seek official authorisation from the ACCC to ensure that these agreements are in compliance with competition law. Read more

Other News & Resources

WBCSD publishes report on avoided emissions. Read more
NGFS releases complementary reports on nature-related risks. Read more

ESG Policy Digest: June 2024

18th June 2024

The June 2024 edition of the Policy Digest explores latest international updates including the International Financial Reporting Standards (IFRS) Foundation’s new Guide to support the jurisdictional adoption and use of the IFRS S1 and S2 standards, and the Global Reporting Initiative’s (GRI) proposed changes to labour and employment standards.

In the European Union, legislation progressed on several fronts with the adoption of the Corporate Sustainability Due Diligence Directive (CSDDD) and Net-Zero Industry Act. ESG disclosure remains a top supervisory priority for EU regulators, who are pivotal in providing entities subject to reporting rules with essential tools for capacity-building and ensuring effective supervision. A recent development in this realm was the European Securities and Markets Authority (ESMA) Final Report on Greenwashing, which presented recommendations aimed at enhancing the supervisory activities of National Competent Authorities (NCAs) and reducing greenwashing risks. In parallel efforts to enhance sustainability reporting, the European Financial Reporting Advisory Group (EFRAG) finalised Materiality Assessment Implementation Guidance (MA IG 1) for the European Sustainability Reporting Standards.

Meanwhile, the UK government confirmed that it will postpone the endorsement of its sustainability reporting framework to Q1 of 2025. Next year, the government will also decide whether to make climate reporting mandatory for listed entities in the UK by 2026.

Our North America update this month features the White House’s new initiative to promote voluntary carbon markets. This measure reflects the Biden administration’s commitment to catylse climate action.

Moving to the Asia-Pacific region, China laid the foundation for ISSB-styled corporate disclosure standards by 2030. India’s Securities and Exchange Board of India (SEBI) proposed updates to its Business Responsibility and Sustainability Reporting (BRSR) Framework by shifting from reasonable assurance to assessment, and in Hong Kong, the International Capital Markets Authority (ICMA) introduced a draft Code of Conduct for ESG ratings and data providers.

Stay informed with these crucial updates and many others that are shaping global sustainability practices today.

International

IFRS Foundation publishes Inaugural Jurisdictional Adoption Guide to support the adoption and use of ISSB standards

The IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures define the global baseline for sustainability reporting and are gaining traction across global jurisdictions. Ensuring the consistency and comparability of sustainability disclosures is a key priority for regulators, but this must be balanced with national considerations. The IFRS Foundation’s Guide has defined jurisdictional approaches for the adoption or incorporation of the ISSB standards ranging from full transposition to ‘functionally aligned’ outcomes. Along with this, the IFRS Foundation plans to publish ‘high-level jurisdictional profiles’ which will include information on the pathway to adopt or use the standards, existing regulations for sustainability-related disclosures and an up-to-date status on jurisdictional approaches.

GRI updates labour standards for greater workplace transparency and workers’ rights

The Global Reporting Initiative (GRI) recently updated its labour-related standards to enhance how companies report on their impact on workers and increase transparency regarding labour practices and human rights in the workplace. This initiative includes revising standards such as “GRI 402: Labor/Management Relations,” “GRI 401: Employment,” and “GRI 202: Market Presence.” The proposed disclosure standards cover employment factors, including non-standard employment types, data privacy and hiring and turnover metrics. Other revisions relate to employee conditions, policies and practices including remuneration issues, working hours, skill development, retention, gender pay gaps, and social protection. GRI also announced two additional consultations within the next year. These will focus on reporting aspects concerning career development, workers’ rights, and protections, leading to updates across a total of 11 GRI standards.

Final CSDDD agreement reached

The CSDDD – the EU’s supply chain due diligence law – was finally adopted on 24^th May, 2024. The Directive requires companies to prevent and address the risk of adverse impacts on human rights and the environment linked to business activity. The final text incorporates changes to the scope of the regulation and implementation timeline. Large companies (over 5,000 employees and €1,500 million turnover) will have to comply with CSDDD by 2027, followed by medium sized companies (over 3,000 employees and €900 million turnover) by 2028. Companies with 1,000 employees and €450 million turnover will have until 2029 to comply. The regulation is expected to directly impact approximately 5,400 EU companies. It will also affect franchising or licensing deals in the EU as well as non-EU companies.

EU Council adopts Net Zero Industry Act

The European Council has given final approval to the Net Zero Industry Act to scale investments in net-zero technologies. The regulation will simplify the permit granting process for eligible projects and facilitate market access to renewables by implementing sustainability and resilience criteria in public procurement. Additionally, the Act will support carbon capture utilisation and storage projects. The EU is targeting an increase in manufacturing capacity of net-zero technologies to roughly 40% of the EU’s deployment needs.

ESAs jointly publish Final Report to end Greenwashing

The report provides advice on greenwashing risks and calls for the effective supervision of sustainability disclosures. In particular, the text highlights the importance of market participants substantiating sustainability claims clearly and without misleading information. ESAs have emphasised the role of competent authorities in supervising compliance and the need for effective cooperation among authorities to ensure adherence to key legal provisions such as the Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD). The report also promotes standardisation and machine-readability of sustainability reports.

EFRAG finalises ESRS Materiality Assessment Implementation Guidance

The implementation guidance IG 1 offers a practical materiality assessment process for organisations and clarifies underlying concepts and their interplay (such as financial and impact materiality) through examples. IG 1 also includes FAQs to facilitate the effective disclosure of sustainability-related impacts, risks and opportunities under ESRS. The final version of IG1 has a new section underscoring the need for transparency in reporting significant issues within subsidiaries. It clarifies that serious problems in a subsidiary, like human rights violations, should be considered important for the whole company.

UK government updates timeline for final sustainability reporting framework

The Department of Business and Trade announced a delay in the creation of the UK Sustainability Reporting Standards (SRS), previously slated for release in July 2024. According to the UK government, the decision to create the standards will be finalised by Q1 of next year. The delayed timeline is to provide businesses, especially first-time reporting entities, additional time to gather input on reporting requirements. The UK’s top watchdog – the Financial Conduct Authority (FCA) – will determine the mandatory application of standards for listed companies. The UK will also consider mandatory climate reporting from 2026, however this will be decided in the second quarter of next year.

White House publishes Fact Sheet on Voluntary Carbon Market Principles

On May 28^th, 2024, the Biden-Harris administration issued a Joint Statement on Voluntary Carbon Markets Joint Policy Statement and Principles. The statement provides an overview of the current state of voluntary carbon markets (VCMs) and their potential. It also outlines voluntary principles that U.S. market participants are encouraged to adopt to support the development and operation of carbon credit markets. The Joint Statement highlights that many crediting methodologies have so far failed to produce the claimed results in decarbonisation. To address these issues, best practices include improved standards, tracking systems, and market infrastructure to enhance credit transparency, quality, and market participation, supported by renewed civil society, corporate, and government efforts.

China set to implement ISSB-styled corporate disclosure standards by 2030

China’s Ministry of Finance launched a consultation on Corporate Sustainability Disclosure Standards: Basic Principles, marking the first step towards establishing an ISSB-based disclosure regime. Feedback and opinions on the draft standards can be submitted up until 24^th June 2024. The draft standards aim to standardise the disclosure of corporate sustainability information by gradually phasing in mandatory reporting for Chinese companies. The Ministry of Finance hopes to develop ‘unified national standards’ including climate standards by 2027 and by 2030 require all listed and non-listed entities and small and medium sized enterprises (SMEs) to adopt the standards.

SEBI proposes changes to the BRSR Framework

In 2021, India’s top financial regulator introduced mandatory sustainability reporting for the top 1,000 listed companies by market capitalisation under the BRSR. SEBI has since released a Consultation Paper on the Recommendations of the Expert Committee for Facilitating Ease of Doing Business with respect to BRSR. The consultation paper summarises key changes including the definition of value chain, a new leadership indicator related to green credits and replacing the term assurance with assessment. By substituting the terms assurance with assessment, SEBI will allow companies to choose between assessment and reasonable assurance for FY2023-2024 disclosures. For reports FY2024 onwards, disclosures shall be subject to assessment. The rationale to require assessment instead of assurance is to alleviate the compliance burden for companies and facilitate ease of doing business.

International Capital Markets Authority (ICMA) publishes draft Hong Kong Code of Conduct for ESG ratings and data providers

A draft code of conduct for ESG ratings and data providers was released on 17^th May, 2024. The voluntary code of conduct (VCOC) is based on the recommendations of the International Organization of Securities Commissions’ (IOSCO) and focuses on comparability and international interoperability. The VCOC contains six principles and follows the IOSCO structure to ensure four key outcomes – good governance, systems and controls, management of conflicts of interest and transparency. Guidance for the practical application and interpretation of each principle ensures that providers have the appropriate policies and procedures in place to ensure high quality and reliability of product offerings. ESG ratings providers will have a 6-month implementation period, while data providers will have 12 months to comply. By signing up, providers will have to make information on their data and ratings methodologies publicly available.

Qatar Central Bank publishes sustainability strategy for the financial sector. Read more
GRI launches XBRL Taxonomy. Read more
National Stock Exchange (NSE) publishes FAQs on BRSR Core. Read more
Network for Greening the Financial System (NGFS): Sustainable and responsible investment in central banks’ portfolio management: Practices and recommendations. Read more

INTERNATIONAL

SBTi postpones revision of Corporate Net Zero Standard

EUROPE

EU Commission unveils Omnibus Package

NORTH AMERICA

US halts enforcement of anti-corruption law

ASIA-PACIFIC

Japan positioned as regional leader for establishing the ISSB standards

Australian Prudential Regulatory Authority releases Governance Review Discussion Paper

Indonesia Sustainable Finance Taxonomy (TKBI) Version 2 refines framework

State Bank of Pakistan launches consultation on Pakistan Green Taxonomy Draft

HKMA Adoption Practice Guide on Greentech in the Banking Sector

External Reporting Board clarifies scope of assurance engagements for climate reporting

MIDDLE EAST AND AFRICA

Rwanda defines standards and frameworks for ESG reporting

OTHER NEWS AND RESOURCES:

INTERNATIONAL

IFRS publishes education material on S2 disclosures

EUROPE

Navigating the EU Omnibus Proposal

EU Taxonomy Simplification Report expected to bolster framework’s usability

EFRAG publishes report detailing synergies between ESRS and EMAS

ESRS for non-EU groups consultation open until Q1 2025

EBA issues Final Guidelines on the management of ESG risks

NORTH AMERICA

New York Senate introduces Climate Disclosure Law

ISSB state-of-adoption

MIDDLE EAST & AFRICA

ASIA-PACIFIC

Shanghai Stock Exchange Issues New ESG Disclosure Guidelines for Listed Companies

Other news & resources

Europe

ESRS Update

ESRS releases Implementation Guidelines (IG) 3 List of ESRS Datapoints

ESRS for VSMEs

ESRS publishes updated Q&A Explanations

EU Commission initiates SFDR overhaul

ESMA amends CRA Regulation to require disclosure of ESG factors in credit ratings

EU Investing for Transition Benchmarks (ITB) to help align investment strategies with Taxonomy framework

EU Deforestation Regulation (EUDR) delayed by one year

EU Platform on Sustainable Finance: call for feedback EU Taxonomy Climate Change Delegated Act

EU’s Gender Board Balance rule enter into force

Switzerland to require companies to disclose transition plans from 2025

FINMA publishes Circular on Nature-related Risks

United Kingdom

UK Technical Advisory Committee gives ISSB the greenlight

Asia-Pacific

ASEAN Taxonomy Board unveils Version 3.0 of regional framework

China’s Ministry of Finance releases the Sustainability Disclosure Standards for Business Enterprises –Basic Standard

SEBI provides extension for mandatory reporting under BRSR Core

Pakistan adopts the ISSB Standards

North America

NY State Assembly establishes ‘Climate Superfund’

Climate Corporate Data Accountability Act (S897A)

Canada adopts ISSB-aligned standards

MENA

Qatar is introducing a Corporate Sustainability Reporting framework aligned with ISSB standards

Other News & Resources

GLOBAL

CDP and EFRAG announce enhanced interoperability

IOSCO Report on Transition Plans Disclosures

Europe

EU prioritises streamlining of corporate sustainability reporting from 2025

EFRAG publishes revised ESRS for SMEs

EIOPA calls for higher capital requirements for fossil fuel assets

Spain transposes CSRD into national law

ESAs publish third report on PAI disclosures

United Kingdom

FCA publishes best practices under the SDR investment labelling regime

Key highlights include:

UK FRC revises stewardship code

UK Financial Reporting Council unveils 2025 Taxonomy suite

UK TPT releases final report on transition guidance

North America

California climate rule survives first legal challenge

Canada ends consultation on ISSB-aligned sustainability disclosure standards, plans adoption by Q4 2024

CAPSA publishes final Risk Management Guideline for pension funds

Asia Pacific

Pakistan to phase in ISSB adoption

RBI launches climate data repository