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 Denmark’s plans for a carbon tax on livestock, Australia’s sustainable finance roadmap and Canada’s amendments to its Competition Act to curtail greenwashing, among other developments.
INTERNATIONAL EUROPE UNITED STATES AND CANADA ASIA PACIFIC
INTERNATIONAL
ISSB announces measures to harmonize global sustainability-related disclosure standards
The International Sustainability Standards Board (ISSB) announced on June 24 initiatives to harmonize global sustainability-related disclosure standards as it supports the implementation of its two sustainability standards, IFRS S1 and IFRS S2. The IFRS Foundation, which develops international accounting standards and launched the ISSB in 2021, will work to harmonize standards for transition plans by assuming responsibility for the disclosure-specific materials developed by the Transition Plan Taskforce (TPT). The IFRS has also signed a memorandum of understanding with the GHG Protocol to ensure the ISSB is included in updates and decisions related to the GHG Protocol standards and guidance. An ISSB representative will act as an observer on the GHG Protocol Independent Standards Board.
TNFD, EU adviser inform on alignment between nature-based disclosure standards
The Taskforce on Nature-related Financial Disclosures (TNFD) and the European Financial Reporting Advisory Group (EFRAG), which serves as technical advisor to the European Commission, published on June 20 a report on alignment between the TNFD and EU corporate disclosure standards. All 14 TNFD recommended disclosures are reflected in the European Sustainability Reporting Standards (ESRS), which apply to companies subject to the EU's Corporate Sustainability Reporting Directive (CSRD), the TNFD said. Both the TNFD and the ESRS recommend disclosure of nature-related impacts, risks and opportunities, including dependencies on nature where they generate material risks. There is “strong consistency” between the TNFD’s core global disclosure metrics and the related metrics in the ESRS, the TNFD said.
EUROPE
Denmark proposes carbon tax on livestock from 2030
Denmark announced plans on June 26 to introduce a tax on carbon emissions from livestock as of 2030. The country’s Ministry for Economic Affairs said farmers would have to pay a tax of 300 Danish kroner per metric ton of carbon emissions in 2030 that would increase to 750 Danish kroner by 2035. However, they would be subject to tax break of 60%, which would bring the effective tax rate down to 120 Danish kroner per metric ton in 2030 and 300 kroner per metric ton in 2035, the ministry said. The proposals also include the creation of a Green Area Fund of 40 billion kroner to be used for foresting 250,000 hectares of land, setting aside 140,000 hectares of carbon-rich lowlands and storing biochar, a material used for carbon sequestration. The Ministry said the tax would cut carbon emissions by 1.8 million metric tons as of 2030 and would help the country meet its goal of reducing emissions by 70% by the end of this decade compared to 1990 levels .
Switzerland proposes to bring corporate disclosure rules into line with global standards
Switzerland’s Federal Council published on June 26 draft proposals that would bring its corporate sustainability disclosure reporting into line with global standards, including EU regulations. The proposals expand the number of companies subject to disclosure requirements to 3,500 from 300 currently, the council said. Companies meeting two of these three thresholds during two consecutive financial years would have to report environmental and social risks to their business: at least 250 employees, 25 million Swiss francs in assets or 50 million francs in revenues , the council said. Sustainability reports would have to be verified by a third party. Currently, companies with more than 500 employees, assets of 20 million francs and revenues of 40 million francs are subject to Swiss sustainability reporting rules. The updated rules would bring Swiss regulations into line with the EU’s CSRD, which entered into force on Jan. 5, 2023. Swiss companies subject to the updated rules could choose to apply the EU directive or other equivalent international standards to be named by the council. A consultation on the proposals will run until Oct. 17, 2024.
European supervisory authorities issue recommendations on sustainable finance regulation
The European Supervisory Authorities (ESAs), which include the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), issued on June 18 recommendations to the European Commission on simplifying the Sustainable Finance Disclosure Regulation, which has been undergoing a consultation. In a joint report, the ESAs recommended the creation of at least two product categories, sustainable and transition, with clear objectives or thresholds. The sustainable category would be applicable to products that invest in activities or assets that are already environmentally or socially friendly, while the transition category would refer to products that are working on improving their sustainability credentials. The ESAs also recommend the introduction of a sustainability indicator that would grade financial products such as investment funds, life insurance and pension products, ESMA said in a statement. Other recommendations include improvements in defining sustainable investments and simplifying how disclosures are presented to investors.
European supervisory authorities call for enhanced supervision on greenwashing
The ESAs called for better market practices and improved supervision to address greenwashing in the financial sector in three final reports published on June 4. ESMA encouraged national supervisory authorities to invest in human resources and supervisory IT tools and further embed greenwashing risks in their supervisory risk work programs. EIOPA set out four principles for national supervisors to consider when probing insurers or pension funds sustainability claims, requiring that they be accurate, substantiated, accessible and up to date. The EBA said the number of alleged cases of greenwashing by EU banks had risen by 26.1% in 2023. The supervisor said existing regulatory frameworks had provided the foundations for addressing greenwashing in the banking sector, and priority should be given to supporting the implementation of new regulations. It also encouraged further efforts to address challenges related to data, usability, consistency and international interoperability.
UNITED STATES AND CANADA
Canada amends competition law to address greenwashing concerns
The Canadian government passed into law amendments to Canada’s Competition Act on June 20 to stop companies making misleading environmental claims about their products. Under the changes, companies would be required to back up any claims about the environmental benefits of their products through “adequate and proper” testing, the government said in a guide on the amendments. They will also have to make sure that any claims about the environmental benefits of their business are “based on adequate and proper substantiation in accordance with an internationally recognized methodology,” according to the guide. Penalties for breaching the law can reach up to C$10 million for a first violation, and up to C$15 million for any subsequent violation, or three times the value of the benefit derived from the deceptive conduct, or 3% of the corporation’s annual worldwide gross revenue if that amount cannot be determined, the government said.
California insurance regulator proposes measures to increase high-risk wildfire underwriting
California’s insurance regulator proposed draft regulation on June 12 that would allow insurers doing business in California to use forward-looking catastrophe models for underwriting purposes if they increase the amount of business they write in high wildfire-risk areas of the state. The proposal would require large insurance companies operating in so-called distressed areas to underwrite no less than 85% of their statewide market share. If they meet that threshold, they would be required to maintain those insurance policies for three years. Smaller companies, new entrants, and companies that largely write their business outside of wildfire risk areas and cannot meet the 85% requirement will need to expand their underwriting by at least 5%, the regulator said. In some parts of the state, the California FAIR Plan, the state's insurer of last resort, has become the only option for property insurance.
ASIA-PACIFIC
New Zealand publishes guidance on climate-related disclosure regime
New Zealand’s Financial Markets Authority, which regulates the country’s financial markets, and the External Reporting Board (XRB), which establishes financial reporting standards, published guidance on June 19 for investors, lenders and other creditors to help them understand New Zealand’s climate-related disclosures regime. The guide outlines the governance and risk disclosures as well as strategy disclosures companies need to make. It also includes information on metrics and targets disclosures, including reporting on Scope 3 emissions, the indirect emissions that occur up and down a company's value chain. As of Oct. 27, 2024, entities required to report climate-related disclosures will have to obtain a minimum of limited assurance on their greenhouse gas disclosures. They may also get assurance on a voluntary basis for other climate disclosures. The XRB adopted climate-related disclosure standards for certain companies as of Jan. 1, 2023.
Australia publishes sustainable finance roadmap
The Australian government released on June 19 a sustainable finance roadmap setting out its vision for implementing key sustainable finance reforms and related measures. The Australian government aims to mobilize the private capital needed to achieve net-zero emissions, modernize its financial markets and increase the economic opportunities associated with energy, climate and sustainability goals, according to the roadmap. One of its three pillars includes the finalization of disclosure standards, development of a sustainable finance taxonomy, and development of a sustainable investment product labeling regime. Australian companies will be required to start reporting climate disclosures as of Jan. 1, 2025. The taxonomy will be available voluntarily for firms, investors and regulators as of mid-2025, according to the roadmap. The other pillars cover what actions the Australian government will take on issuing sovereign green bonds and stepping up international engagement on sustainable finance issues to help develop consistent global standards.
Hong Kong publishes hydrogen development strategy
The Hong Kong government published on June 17 its strategy for developing the hydrogen industry as part of its efforts to tackle climate change and achieve carbon neutrality. According to the strategy, Hong Kong plans to introduce legislative amendments in the first half of 2025 to regulate the manufacture, storage, transport, supply and use of hydrogen as a fuel and to set out its approach for creating a hydrogen standard that aligns with international practices by 2027. The government also said it would promote regional co-operation, investment outside Hong Kong and the development or importation of hydrogen through joint ventures. The government’s working group on hydrogen, which has created interim standards for hydrogen applications in Hong Kong and has agreed in principle to 14 projects, will see its role expanded. It will coordinate the development and improvement of technical standards and guidelines for hydrogen applications and provide support for local infrastructure developments, the government said.
China announces plan to create carbon footprint accounting standards by 2027
China’s Ministry of Ecology and Environment announced plans on June 5 to create standards for carbon footprint accounting for around 100 products, including electricity, coal as well as lithium batteries and establish a carbon footprint management system by 2027. The number of products subject to the standards will increase to 200 by 2030, the ministry said. Through the plan, China is aiming to align its carbon footprint accounting rules, emission factor database, and carbon certification rules with international practices by the end of the decade. The country also plans to support the development of international rules for carbon footprints under the same timeline. The plan also called for developing a comprehensive database to support accurate carbon footprint accounting, based on existing data in the country’s greenhouse gas emission factor database. The plan also aims to develop a digital management system to track all carbon footprint data and guide companies to report the carbon footprint for their products, starting from an initial, voluntary phase.
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.
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This list is not exhaustive, and information is current as of the publication date. If there are additional significant regulatory developments we should cover going forward, please reach out to Jennifer Laidlaw at jennifer.laidlaw@spglobal.com. We welcome feedback.