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.
Europe
Final CSDDD agreement reached
The CSDDD – the EU’s supply chain due diligence law – was finally adopted on 24th 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.
United Kingdom
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.
United States
White House publishes Fact Sheet on Voluntary Carbon Market Principles
On May 28th, 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.
Asia-Pacific
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 24th 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 17th 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.
Other News & Resources
- 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
*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.
