Regulation is shaping the sustainability agenda and changing the way companies do business in different jurisdictions but keeping pace with constant regulatory updates has become a mammoth task for businesses and investors. In this recurring series, S&P Global Sustainable1 presents key environmental, social and governance regulatory developments and disclosure standards from around the world.
 
In this month's update, we look at the International Sustainability Standards Board’s first two disclosure standards, the EU’s new sustainable finance package and guidance on transition financing from Singapore’s financial regulator.

International    Europe    Asia-Pacific   United States and Canada   Latin America and the Caribbean

International

ISSB issues first global sustainability disclosure standards

The International Sustainability Standards Board announced on June 26 that it had issued its first two global sustainability disclosure standards designed to create a common language for companies to disclose their climate-related risks. The first standard provides a set of disclosure requirements that companies can use to communicate to investors about their sustainability-related risks and opportunities. The second standard sets out specific climate-related disclosures and is meant to be applied with the first standard. The new standards could form the basis for a unified climate and sustainability disclosure framework for companies and investors globally.

Europe

European Commission announces criteria for non-climate EU taxonomy objectives

The European Commission proposed on June 13 a new sustainable finance package that included a new set of criteria for the four non-climate environmental objectives of the EU’s taxonomy, a classification system of sustainable activities. The objectives include water and marine protection; circular economy; pollution prevention; and biodiversity. The Commission also adopted amendments expanding the number of activities eligible for contribution to the climate mitigation and adaptation objectives of the taxonomy. The amendments clarify the disclosure obligations for the additional activities and allow additional time for non-financial and financial corporations to report to what extent the activities are in line with the taxonomy. The updates to the EU taxonomy are expected to apply as of January 2024. The sustainable finance package also included a proposal to regulate ESG rating providers in Europe under the supervision of the European Securities and Markets Authority.

European Commission publishes draft corporate sustainability reporting standards

The European Commission launched a consultation on the first set of corporate sustainability reporting standards that would be effective under the Corporate Sustainability Reporting Directive approved in late 2022. The CSRD reforms the Non-Financial Reporting Directive (NFRD), expanding corporate sustainability reporting requirements and increasing the number of companies disclosing environmental and social issues. The standards include general sustainability requirements and disclosures as well as specific topics such as climate change, biodiversity, pollution, water and marine resources, among others. The standards would apply from Jan. 1, 2024, for companies already subject to the NFRD. According to the draft, the Commission would approve sector-specific standards, proportionate standards for listed small and medium-sized enterprises, and standards for non-EU companies by June 2024.

European Commission proposes draft rules for carbon border levy

The European Commission on June 13 proposed draft rules for the implementation of its carbon border adjustment mechanism (CBAM), which imposes a carbon price on imports in the form of a levy. The CBAM came into force in May 2023. The draft rules detail the reporting requirements for importers of goods subject to the CBAM, as well as the provisional methodology for calculating the emissions released when goods subject to the mechanism are produced. They would apply during the CBAM’s transition phase, which is from Oct. 1, 2023 until the end of 2025, the Commission said. During the first year of implementation, companies can use any of three different methods for calculating their goods’ embedded emissions, but as of Jan. 1, 2025, they will have to use the EU method.

European Commission proposes new rules to make mobile phones more sustainable

The European Commission announced on June 16 new proposals to make mobile phones and tablets more energy efficient, durable and easier to repair as part of its policy to make the EU economy more circular. Under its proposed Energy Labelling Regulation, the European Commission said companies selling smartphones and tablets on the EU market would have to provide information on energy efficiency and battery longevity. They would also have to have a repairability score. The European Parliament and the Council of the EU, made up of government ministers from the 27 EU member states, have two months to scrutinize the new rules before they can be formally adopted. The Commission said it was making the proposal on the same day that the Parliament and Council had approved new regulation that sets minimum requirements for mobile phones and tablets sold on the EU market. Batteries need to withstand at least 800 cycles of charge and discharge while retaining at least 80% of their initial capacity, the Commission said. Producers must make critical spare parts available to repairers within five to 10 working days, and for seven years after the product is no longer sold on the EU market.

Asia-Pacific

Singapore financial regulator launches consultation on ESG ratings and data providers

The Monetary Authority of Singapore (MAS) proposed on June 28 an industry code of conduct for providers of ESG ratings and data in Singapore through a public consultation that runs to Aug. 22. The proposal establishes minimum industry standards of transparency in methodologies and data sources, governance, and management of conflicts of interest. The regulator said the proposed code of conduct was co-created with ESG rating and data product providers and follows the International Organization of Securities Commissions’ recommendations. MAS also launched on the same day a separate consultation on the phaseout of coal-fired power plants by 2040. The call for comment is the fourth and final one on the criteria for the Singapore-Asia taxonomy set to be finalized after this consultation.

Singapore financial regulator to set guidance for financial institutions on transition financing

The Monetary Authority of Singapore (MAS) said on June 8 that it plans to set supervisory expectations to guide financial institutions on their energy transition planning with a goal of decarbonization efforts by clients. Financial institutions should not “indiscriminately” de-risk from specific sectors but provide transition finance where decarbonization plans are credible, MAS said. MAS also said it acknowledges that short-term increases in financed emissions could occur due to actions that would have positive outcomes for the climate over the longer term. The regulator plans to launch a consultation later in 2023. It also said it planned to establish the Singapore Sustainable Finance Association, made up of financial institutions, financial industry associations and corporations to scale up voluntary carbon markets, transition finance and blended finance.

Australian government instructs financial regulator to consider climate-related risks

The Australian government said on June 7 it would require the country’s financial regulator to consider climate-related risks as part of its remit. The requirements would include ensuring transparency with regard to financial risks and the adoption of climate-related reporting standards. In a separate statement, the regulator, the Australian Prudential Regulation Authority, said it would continue to promote prudent practices and transparency in relation to climate-related risks in the Australian financial system, in line with the government’s sustainable finance reforms. Australia’s Treasury also said on June 27 that it had launched its second consultation on establishing a climate risk disclosure framework to guide businesses and investors in managing their climate exposure.

United States and Canada

US releases national clean hydrogen strategy and roadmap

The Biden administration released on June 5 the first national US strategy aimed at rolling out clean hydrogen at scale. Developed by the Department of Energy, the roadmap seeks to target the use of hydrogen in hard-to-decarbonize sectors, reduce production costs and build out regional infrastructure networks for clean hydrogen. It projects domestic clean hydrogen production at 10 million metric tons (MMT) annually by 2030, rising to 20 MMT annually by 2040 and 50 MMT annually by 2050. Using clean hydrogen can reduce US emissions 10% by 2050 compared to 2005 levels, according to the strategy.

US Federal Insurance Office makes climate-related policy recommendations for insurers

The US Department of the Treasury’s Federal Insurance Office (FIO) on June 27 published a series of recommendations to help insurers to address climate-related financial risks. The recommendations cover risk management and internal controls, corporate governance, reporting, scenario analysis, supervision and regulation as well as disclosures. State insurance regulators should provide insurers with guidance on including climate-related risks in their annual financial planning, the FIO said. They should also require insurers that do not consider climate-related financial risks to be material to their business to explain why, the FIO said. The National Association of Insurance Commissioners (NAIC) should incorporate climate-related risks in future macroprudential risk assessments, which should include details on climate-related risks in insurer underwriting and investments, it said. The NAIC and state insurance regulators should also support climate-related disclosures by the industry, the report said.

Canada launches and invests in new initiative to support sustainable aviation technology

The Canadian government announced on June 19 a new initiative to develop technology to make the aviation industry more sustainable. The government will invest C$350 million in the plan through its strategic innovation fund to develop an industry-led aerospace network that will fund research and development projects with companies throughout Canada, it said. Projects will focus on developing technology for hybrid and alternative propulsion; aircraft architecture and systems integration; transition to alternative fuels; and aircraft support infrastructure and operations, the government said.

Latin America

Chile launches $1 billion fund to develop green hydrogen

The Chilean government launched on June 19 a $1 billion fund to develop green hydrogen projects in the country. The projects will support the growth of a domestic hydrogen market and transform Chile into an exporter of the renewable energy, it said. The fund will start operating in the second half of 2024 and will be financed by loans from the Inter-American Development Bank, World Bank, German Development Bank, the European Investment Bank, the EU and Corfo, the Chilean Economic Development Agency. The government said the fund plans to leverage investments of up to $12.5 billion in the industry, ranging from international projects to produce green hydrogen in Chile, support the energy transition of industries such as minerals or the agroindustry, and the production of material for the green hydrogen industry such as electrolyzers, which are key to hydrogen production.

This piece was published by S&P Global Sustainable1 and not by S&P Global Ratings, which is a separately managed division of S&P Global.