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 explore Mexico’s entrance to the rapidly growing world of sustainable taxonomies, the United Arab Emirates’ draft climate risk management proposals for financial institutions and the launch of a consultation by Papua New Guinea’s stock exchange for a new corporate governance code.

Europe    United States and Canada    Latin America and the Caribbean   Asia-Pacific   Middle East and Africa

Europe

EU legislators reach agreement on raising 2030 renewable energy targets

The European Parliament and the Council of the EU, made up of government ministers of the 27 EU member states, reached a deal on March 30 to raise the bloc’s renewable energy target for 2030 as it seeks to reduce greenhouse gas emissions and cut its reliance on fossil fuel imports. Under the provisional agreement, the EU aims to raise the binding renewable target for 2030 to a minimum of 42.5%, up from the current 32% target. That would almost double the current share of renewable energy in the bloc, the European Commission said. The deal is part of a far-reaching climate plan announced by the European Commission in July 2021 designed to reduce emissions by at least 55% before 2030.

European Parliament adopts new rules on gender pay gap

The European Parliament voted on March 30 to pass new legislation to close the gender pay gap and to make employee renumeration more transparent. Companies with at least 100 employees would have to report on their pay, and those with a gender pay gap of more than 5% could be subject to fines. Job advertisements and titles would have to be gender neutral and recruitment processes would have to be non-discriminatory. Employees and their representatives would have the right to receive clear and complete information on individual and average pay levels, broken down by gender, Parliament said. The law would prohibit any contractual terms restricting employees from disclosing their pay, or from seeking information about pay, Parliament added. The legislation is subject to approval by the Council before it can become law. If approved, EU member states would have until 2026 to transpose it into national law.

European Commission proposes rules to tackle greenwashing

The European Commission on March 22 proposed new rules to stop companies making misleading environmental claims about their products. Companies would have to back up any sustainability claims they make about their products or services with scientific evidence. Each member state would be responsible for ensuring the claims can be checked by independent and accredited verifiers. The proposal would also regulate environmental labels, the Commission said. There are currently at least 230 different labels, it said, and new public labelling schemes would only be allowed if developed at the EU level. New private schemes would require pre-approval. Labels would need to be independently verified and regularly reviewed. The proposals are subject to the approval of the European Parliament and the Council.

European Commission proposes raw materials rules to protect supply chains

The European Commission proposed on March 16 new rules setting thresholds for critical raw material demand within the EU, as it seeks to reduce reliance on any single foreign country for key materials. The proposed Critical Raw Materials Act, domestic mining and extracting capacity of strategic raw materials would need to satisfy at least 10% of domestic demand by 2030. Processing and refining capacity for these materials would reach 40% of demand, and a further 15% of demand would be met by recycling. No more than 65% of annual consumption of each material on the list would come from a single foreign country by 2030, the Commission said. Critical raw materials such as lithium, nickel and cobalt are essential for the energy transition as they are needed for batteries and electrification. The proposed rules are part of the EU’s Green Deal Industrial Plan, announced by European Commission President Ursula von der Leyen in January 2023.

EU agrees to energy efficiency targets for 2030

The European Parliament and the Council reached a provisional agreement on March 10 to establish an energy efficiency target of 11.7% by 2030. EU countries would be required to obtain annual new savings of 1.49% of final energy consumption on average, from 2024 to 2030, up from the current level of 0.8%. They would gradually have to reach 1.9% by the end of 2030, the European Commission said. The public sector would have to reduce its annual energy consumption by 1.9%. Private sector companies would have to implement an energy management system or be subject to an energy audit if their annual consumption exceeds 10 terajoules. Large municipalities with populations of more than 45,000 in EU countries would also have to undertake local heating and cooling plans, the Commission said.

UK government announces green finance strategy

The UK on March 30 published a new green finance strategy under which it committed to launching carbon capture usage and storage projects; to launch a £160 million fund to drive investment into the offshore wind industry; and back the first tranche of new green hydrogen production projects under the government’s £240 million Net Zero Hydrogen Fund. The government also pledged to undertake a series of regulatory measures to boost sustainable investment. It will hold a consultation on the UK’s own green taxonomy, a dictionary of sustainable activities, between late September and December and provide further details on its Sustainable Disclosure Regulation between June and September to reflect changing international standards. It also plans to hold a call for evidence on Scope 3 emissions reporting by companies. Scope 3 emissions include emissions from suppliers. It also aims to launch a formal assessment mechanism when the International Sustainability Standards Board publishes its first two disclosure standards in June.

United States and Canada

US President vetoes congressional resolution to overturn ESG-related investment rule

US President Joe Biden on March 20 vetoed a resolution passed by the US Senate and House of Representatives to overturn a rule that gives fiduciaries of retirement plans the ability to consider environmental, social and governance risks as they make investment and proxy voting decisions. The US Department of Labor had finalized the rule in November 2022. That decision rolled back a 2020 rule that prohibited retirement plan managers from considering anything but financial factors when making investments. In a statement, Biden said there was “extensive evidence” demonstrating that ESG factors can have a material impact on markets, industries and businesses.

Canada issues new guidelines on climate risk management for financial institutions

Canada’s Office of the Superintendent of Financial Institutions, or OSFI, which regulates the country’s banks and insurers, on March 7 set out guidelines for financial institutions on how they should manage climate risks. Financial institutions will be required to disclose board and management oversight of climate risks and how they incorporate climate risks into their strategy. They will also have to disclose their Scope 1 and Scope 2 greenhouse gas emissions, as well as Scope 3 emissions, which include the greenhouse gases emitted by businesses or projects they finance, invest in or underwrite and represent their most significant climate impact. The guidelines will become effective from the end of 2024 for domestic systemically important banks and international insurance groups headquartered in Canada and from the end of 2025 for federally regulated financial institutions. 

Asia-Pacific

Papua New Guinea’s stock exchange proposes new corporate governance code

Papua New Guinea’s stock exchange launched on March 6 a consultation on a new governance code for listed companies on the exchange. The proposed code contains 17 standards, and each standard includes several recommendations. Most of the recommendations touch on internal governance and are consistent with international standards, the exchange said. They also include social policies seeking to address specific challenges in Papua New Guinea such as gender equality and equal pay, as well as return-to-work practices and gender-based violence. The consultation was developed with the help of the International Finance Corporation and the United Nation’s Sustainable Stock Exchanges Initiative, which the exchange joined in April 2022. While the standards are not prescriptive, directors would be expected to disclose in annual reports how a company is adhering to the standards and recommendations. In the case of no or partial adoption, a company must explain why. The consultation is open for two months.