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 US Securities and Exchange Commission’s climate disclosure rule, Canada’s proposed sustainability disclosures aligned with the standards developed by the International Sustainability Standards Board (ISSB) and guidelines for users of Colombia’s green taxonomy.

UNITED STATES AND CANADA    EUROPE    LATIN AMERICA AND THE CARIBBEAN   ASIA-PACIFIC   MIDDLE EAST AND AFRICA

UNITED STATES AND CANADA

US SEC finalizes climate-related disclosure rule

The US SEC on March 6 finalized its long-anticipated rule requiring thousands of publicly traded companies to disclose certain climate-related information. The rule requires companies registered under the SEC’s mandate to disclose on climate-related risks and their actual or reasonably likely material impacts on business operations, strategy, financial condition and outlook; activities taken to mitigate or adapt to a material climate-related risk or use of transition plans, scenario analysis or internal carbon prices to manage a material climate-related risk; and details about governance practices on climate-related risks and relevant risk management processes. Certain larger companies that view greenhouse gas (GHG) emissions as material will need to disclose them under the rule. The SEC paused the rule on April 4 to avoid "regulatory uncertainty" as a federal appeals court reviews legal challenges to the rule.

US EPA publishes final rule on methane emission reductions

The US Environmental Protection Agency (EPA) on March 8 published a final rule to reduce climate-warming methane releases from new and existing oil and natural gas sources. The publication finalizes new regulations announced in December 2023 during COP28, the UN's annual climate change conference. The EPA estimated that the new rules would keep 1.5 billion metric tons of CO2e out of the atmosphere between 2024 and 2038 and help achieve US climate pledges. The rules would also avoid millions of short tons of smog-forming volatile organic compounds, the agency said. It also estimated that the cost of the new mandates for US oil and gas producers to detect and prevent equipment leaks, end flaring and curb "super-emitting" events will reduce oil output by about 41.4 million barrels by 2038, around 1% of the nation's total oil production. Natural gas production would drop by about 0.75%. The final rule will be effective on May 7. 

Canada proposes sustainability-disclosure standards based on ISSB

The Canadian Sustainability Standards Board (CSSB) on March 13 proposed sustainability-related disclosure standards based on global sustainability standards issued in June 2023. The board said the standards were aligned with IFRS S1 and IFRS S2 published by the ISSB but included modifications for the Canadian market. As proposed, the standards would become voluntarily effective for annual reporting periods beginning on or after Jan. 1, 2025, the CSSB said. It also said companies would have a transition period of two years for disclosures beyond climate-related risks, compared to one year accorded by the ISSB. Under the proposed Canadian standards, companies would have a two-year exemption before they report on emissions throughout their supply chain, known as Scope 3 emissions. The ISSB has given companies a one-year relief for Scope 3 disclosures. A consultation on the proposal is open until June 10, 2024. 

EUROPE

EU lawmakers strike deal on regulation to reduce packaging waste

The European Parliament and the Council of the EU, composed of government ministers of the 27 EU member states, on March 4 agreed provisionally to regulation aimed at making packaging more sustainable and reducing waste. The agreement sets packaging reduction targets of 5% by 2030, 10% by 2035 and 15% by 2040. There would also be a ban from Jan. 1, 2030, on certain single-use plastic packaging for unprocessed fresh fruit and vegetables, as well as for foods and beverages consumed in cafés and restaurants. The regulation would also prohibit the use of per- and polyfluorinated alkyl substances in food packaging, as these “forever chemicals” can have an adverse effect on human health. The Parliament and the Council agreed all packaging should be recyclable, with criteria to be defined through additional legislation. Once the regulation is formally adopted by both the Parliament and the Council, it will be published in the EU’s Official Journal and will apply 18 months after it enters into force. 

EU Parliament, Council agree to ban on products made with forced labor

The European Parliament and the Council of the EU reached a provisional agreement on March 5 on regulation prohibiting the sale of products made with forced labor on the EU market. The regulation covers all EU-manufactured products for domestic consumption and export, as well as imported goods. Under the regulation, the European Commission would investigate cases involving forced labor outside the EU, while EU countries would probe cases of forced labor discovered within the bloc. The Parliament and the Council must formally approve the agreement, and once adopted, the new rules will apply 36 months after their publication in the EU’s Official Journal.

EU securities market regulator holds consultation on rules for green bond external reviewers

The European Securities and Market Authority (ESMA) on March 26 announced a consultation on rules for external reviewers of green bonds. The EU’s green bond regulation entered into force on Dec. 21, 2023, and will apply from Dec. 21, 2024. Green bonds issued under the EU’s green bond standard must be reviewed by external reviewers who are supervised by ESMA. The regulator said the proposed rules aim to standardize registration requirements for external reviewers. The rules would require external reviewers’ senior management and members of the board to have the skills and qualifications as well as the analytical resources to conduct external reviews. They would also require external reviewers’ senior management and board members to oversee the external reviews and manage any conflict of interests and ensure analysts have the necessary experience for the reviews. The consultation closes on June 14. 

UK launches consultation on carbon border adjustment mechanism

The UK launched on March 21 a consultation on a carbon border adjustment mechanism (CBAM), which would put a carbon charge on imports of iron, steel, aluminum, ceramics, fertilizers, glass, hydrogen and cement into the UK by Jan. 1, 2027. The government said it would limit the introduction of a charge to sectors subject to the UK Emissions Trading Scheme in the first instance. Within those sectors, the focus would be on those most at risk of carbon leakage, which occurs when a foreign exporter produces goods more cheaply in jurisdictions that do not require them to account for the cost of their emissions via a price on carbon. The charge would apply to both indirect and direct emissions as well as emissions throughout supply chains in goods subject to CBAM, according to the consultation document. The government also proposed that the CBAM rate would be reduced if emissions of imported goods were subject to a carbon price overseas greater than or equal to the UK rate. There would be a minimum registration threshold for importers of £10,000 in total value of goods subject to the CBAM over a rolling 12-month period. In 2023, the EU started phasing in its own CBAM, which will become fully applicable from 2026. The UK consultation closes on June 13. 

LATIN AMERICA AND THE CARIBBEAN

Colombia sets out guidelines for implementation of green taxonomy 

Colombia’s financial regulator, the Superintendencia Financiera de Colombia, on March 5 announced the publication of guidelines designed to help companies and investors apply the country’s green taxonomy, a classification system of sustainable economic activities. Guidelines on implementing the taxonomy aim to provide users practical information for analyzing and managing sustainable assets and activities, the supervisor said. There are additional guidelines on aligning green lending with the taxonomy, including recommendations for the banking sector on the strategic, governance, risk and operational approach to take in promoting the transition a low-carbon economy while considering the potential environmental and social impacts of financed activities. 

Panama launches sustainable finance taxonomy

Panama’s banking regulator, Superintendencia de Bancos de Panamá, on March 27 announced the launch of the country’s sustainable finance taxonomy. The tool has seven environmental objectives: climate adaptation; climate mitigation; protection and restoration of biodiversity; transition to a circular economy; sustainable use and protection of water; transition to a circular economy; and land management. It applies to 65 economic activities within 11 economic sectors, including agriculture, water treatment, manufacturing, construction and transport, among others. The regulator said Panama’s taxonomy is aligned with taxonomies in other regions and countries, including the EU, which could help attract international investment in Panama by giving investors comparable definitions and criteria. 

ASIA-PACIFIC

Japan issues draft sustainability disclosure standards aligned with ISSB 

The Sustainability Standards Board of Japan (SSBJ) announced on March 29 the publication of its draft sustainability-related disclosure standards aligned with IFRS S1 and IFRS S2, the first two ISSB standards. The SSBJ said its standards incorporated the ISSB’s standards and included options specific to the Japanese market that entities could choose to apply. The SSBJ is holding a consultation until July 31 on its three draft standards: general disclosure standards; climate-related standards; and a standard overseeing the application of the sustainability-related disclosures. According to the draft, the standard corresponding to IFRS S1 would be divided into two parts and be incorporated into the general disclosure standards and the standard on sustainability-related disclosures. The general disclosure standard would include IFRS S1’s four core content requirements — governance, strategy, risk management as well as metrics and targets — while the standard on the application of sustainability-related disclosures would include IFRS S1’s remaining requirements. 

Hong Kong publishes plan for adoption of global sustainability disclosure standards 

Hong Kong on March 25 published a statement on how it plans to develop a sustainability disclosure framework aligned with the ISSB’s standards. The government said the Hong Kong Institute of Certified Public Accountants would develop the reporting standards as well as guidance on implementation. The standards would be phased in and would prioritize regulated financial institutions and listed companies. Hong Kong Stock Exchange has said it would adopt the ISSB standards as of 2025 for listed companies. The government said it and financial regulators would encourage companies to use sustainability assurance to ensure “credible implementation.” The government said it would launch a roadmap for the adoption of the standards in 2024. 

Malaysia launches consultation on governance code for small companies 

Malaysia’s Securities Commission on March 11 issued a draft governance code for micro, small and medium-sized enterprises (MSMEs) designed to improve their management of corporate governance. The draft code focuses on corporate governance requirements and sustainability specific to MSMEs. The draft code has five guiding principles including decision-making and strategic oversight; culture and commitments; risk governance and internal controls; sustainability; and disclosure, transparency and data protection. The public consultation was scheduled to end on April 30, 2024. 

MIDDLE EAST AND AFRICA

Saudi Arabia issues green finance strategy and roadmap

Saudi Arabia on March 28 published its Green Finance Framework, which outlines its strategy and roadmap designed to raise financing for climate-related projects in the country as it seeks to reach its goal of net-zero carbon emissions by 2060 and achieve its target of reducing carbon emissions by 278 million metric tons annually by 2030. The framework will allow Saudi Arabia to issue green bonds and Islamic bonds, known as sukuk, in accordance with global standards set by the International Capital Market Association’s Green Bond Principles. Net proceeds will be allocated to eligible budgetary programs in Saudi Arabia’s budget within two years of a bond’s issuance, the framework said. The Finance Ministry will oversee allocation of the proceeds and will publish an annual allocation report within the first year of issuance, the document said. The framework lays out eight types of projects eligible for financing through sustainable bond issues, including energy efficiency, renewable energy, climate change adaptation, biodiversity, sustainable water management, pollution prevention, clean transportation and sustainable land use.