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 29th 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 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.
