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 new EU corporate sustainability reporting rules, mandatory reporting requirements for large Swiss companies based on the recommendations of the Task Force on Climate-Related Financial Disclosures starting from 2024, and plans by Nigeria to adopt standards proposed by the International Sustainability Standards Board.
Europe Asia-Pacific United States and Canada Africa
Europe
Council of EU gives final approval on new corporate sustainability reporting rules
The Council of the EU, made up of government ministers from the 27 EU member states on Nov. 28 gave its final approval to new corporate sustainability reporting rules, transforming the current Non-Financial Reporting Directive into the Corporate Sustainability Reporting Directive, or CSRD. The CSRD expands the reporting requirements and increases the number of companies disclosing environmental and social issues. Companies already subject to the NFRD will have to report under the new rules from 2025 based on the 2024 financial year, the Council said. Large companies not currently subject to the NFRD will report from 2026; listed small-and-medium enterprises from 2027; and non-EU-based companies with revenues of more than €150 million generated within the bloc will have to comply from 2029. The new rules will enter into force on the 20th day after publication in the EU’s official journal. Nearly 50,000 companies will be subject to the new rules, compared to 11,700 currently, the Parliament said.
EFRAG publishes draft CSRD reporting standards
The European Financial Reporting Advisory Group, or EFRAG, which serves as technical advisor to the European Commission, published on Nov. 23 draft European Sustainability Reporting Standards, according to which companies will have to report on sustainability criteria under the CSRD. The draft standards include topics such as workforce issues, impacts on communities, climate change, pollution, biodiversity and the circular economy. The new rules also anchor the concept of “double materiality,” where firms need to think of reporting not just in financial terms but also in terms of how their business affects the environment, its workers, and its end-customers. The European Commission will now consult EU bodies and member states on the draft standards, EFRAG said. The final standards will be adopted by the European Commission in June 2023 and will then be subject to scrutiny by the European Parliament and Council.
Council of EU, Parliament reach agreement on emission reduction targets
The Council of the EU and the European Parliament reached on Nov. 8 a provisional political agreement on increasing the emission reduction targets laid out in the EU’s broad Fit for 55 climate package announced in July 2021. The Council and Parliament agreed to raise the EU’s 2030 mandatory greenhouse gas emission reduction goals to 40% from 30% compared to 1990-levels, the Parliament said. The targets will apply to sectors not covered by the EU Emissions Trading System, including road and domestic maritime transport, buildings, agriculture, waste and small industries, the Council said. For the first time, all EU countries will have to reduce greenhouse gas emissions by between 10% and 50%. The targets for each of the EU’s 27 member states are based on gross domestic product per capita and cost effectiveness, the Parliament said. The Council and the Parliament need to approve the agreement formally before it can become law.
European Central Bank sets deadline for banks to identify climate risks
Eurozone banks have until the end of 2024 to meet the European Central Bank’s supervisory expectations on climate and environmental risks, the ECB said on Nov. 2. Banks will first have to identify climate and environmental risks and assess their impact on lenders by March 2023 at the latest, the ECB said. They will then have to include climate and environmental risks in their governance, strategy and risk management by the end of 2023, it said. The deadlines will be monitored, and the ECB said it will take regulatory action if necessary. The central bank also said it had imposed “binding qualitative requirements” on more than 30 lenders in its annual supervisory review. A small number of banks have seen their capital requirements raised over their lack of ability to manage climate and environmental risks, the ECB said.
EU securities markets regulator proposes guidelines on ESG fund names
The European Securities and Markets Authority on Nov. 18 launched a consultation on proposed guidelines for the use of ESG or sustainability-related terms in investment funds’ names, as part of its strategy to promote transparency and tackle greenwashing. If a fund uses any ESG-related words in its name, a minimum proportion of at least 80% of its investments should be used to meet environmental or social characteristics or sustainable investment objectives in accordance with the binding elements of the investment strategy, as disclosed in Annexes II and III of the SFDR Delegated Regulation, ESMA said in the consultation paper. If a fund has “sustainable” or a related term as part of its name, it should allocate at least half of that 80% threshold toward sustainable investments. The consultation closes on Feb. 20, 2023.
EU supervisory bodies launch consultation on greenwashing
The European Supervisory Authorities — the European Securities and Markets Authority, the European Banking Authority, or EBA, and the European Insurance and Occupational Pensions Authority — published on Nov. 15 a call for evidence on greenwashing to help them understand greenwashing risks. They are seeking information from stakeholders ranging from financial institutions, retail investors, consumer associations and academics on the key features, drivers and risks associated with greenwashing. They also aim to collect examples of potential greenwashing practices. The consultation will help inform policymaking and supervision, the EBA said in a statement.
Switzerland adopts climate-related disclosure rules for large companies
Switzerland’s Federal Council on Nov. 23 adopted climate-related disclosure rules that will come into force on Jan. 1, 2024 and require large companies to report their climate-related financial risks in line with the recommendations of the Task Force on Climate-Related Financial Disclosures, which are designed to guide companies in how to report on climate risks. Publicly listed companies, banks and insurers with 500 or more employees and at least CHF 20 million in total assets or more than CHF 40 million in revenues will be subject to the new rules. Companies will also have to disclose reduction targets for direct and indirect greenhouse gas emissions, and how they plan to implement them.
United States and Canada
U.S. Labor Department approves rule on ESG-related retirement investments
The U.S. Labor Department on Nov. 22 finalized a rule that gives fiduciaries of retirement plans the ability to consider ESG risks as they make investment and proxy voting decisions. Fiduciaries are able to consider the economic impact of climate change and other environmental, social and governance issues when making investment decisions, the new rules said. The decision rolls back a 2020 rule that prohibited retirement plan managers from considering anything but financial factors when making investments. The changes were scheduled to go into effect 60 days after the Labor Department’s decision.
U.S. Environmental Protection Agency revises methane emission reduction plan
The U.S. Environmental Protection Agency on Nov. 11 proposed revisions to a plan on methane emission reductions that would see the U.S. cut its methane emissions further than previously planned. The EPA estimated that the proposal would cut methane emissions from covered sources by 87% below 2005 levels in 2030, compared to a 74% reduction in its initial proposal. It expects to issue a final rule in 2023. Comments on the supplemental proposal are due by Feb. 13, 2023.
Africa
Nigeria to adopt ISSB disclosure standards
The Financial Reporting Council of Nigeria, a government agency that oversees financial reporting standards, said Nov. 8 it is planning to adopt new sustainability standards proposed by the International Sustainability Standards Board. The Council said it is working with the Nigerian ministry of finance, regulators and accounting organizations to develop a roadmap for implementing the standards in Nigeria. Disclosure would boost foreign investment on the Nigerian market, it said. The ISSB’s proposed climate standard would require companies to disclose information on their climate-related exposure and their strategy for addressing climate risks. Under the board’s general requirement disclosure proposal, companies would have to provide information on sustainability-related risks to investors, lenders and other creditors to help them assess a company’s total value.
Asia-Pacific
China publishes targets on nonferrous metals emission reductions
China expects to peak the nonferrous metals industry's carbon emissions by 2030 according to an action plan published Nov. 15 by the country’s Ministry of Industry and Information Technology, the National Development and Reform Commission and the Ministry of Ecology and Environment. A draft plan published in 2021 had set the target year at 2025. Under the new action plan, China plans to curb smelting capacity, increase metals recycling, and boost renewable energy use to meet its goal. The action plan said renewables' share in the energy mix of aluminum production should exceed 25% by 2025 and surpass 30% by 2030. It also aims to increase recycled metals production to 24% of total domestic nonferrous metal supplies by 2025, with annual secondary aluminum output expected to top 11.5 million tonnes during that period.
Australian regulator issues draft guidance on ESG-related investment risks
The Australian Prudential Regulation Authority, the country’s financial regulator, on Nov. 17 issued draft guidelines on how superannuation funds should integrate ESG criteria into their overall risk management. According to the draft, fund managers would have to demonstrate an understanding of how ESG factors may have a material impact on the financial return of an investment portfolio. They would also have to show how ESG risks are incorporated in investment analysis, decision-making and oversight. If a fund manager determines that ESG risks are financially material, it would need to demonstrate how this is reflected in the investment strategy and document how the risks will be managed, the draft said. The regulator is seeking industry feedback, and the consultation period will close on March 17, 2023.
India approves first sovereign green bond framework
India’s Finance Minister approved on Nov. 9 the country’s first sovereign green bond framework, designed to attract domestic and foreign investment in sustainable projects and help India meet its emission reduction pledges, known as nationally determined contributions, or NDCs, under the 2015 Paris Agreement. Proceeds will be used in public sector projects that reduce the economy’s carbon intensity, the Finance Ministry said. The framework sets out eligible projects, use and management of proceeds, as well as reporting metrics. According to the framework, India intends to reduce the emissions intensity of its GDP by 45% by 2030 from 2005 levels. The framework is based on the International Capital Market Association’s Green Bond Principles.
Hong Kong stock exchange publishes recommendations on ESG disclosures
The Stock Exchange of Hong Kong set out recommendations on Nov. 25 on ESG-related disclosures for companies based on the findings of its latest review of issuers’ ESG disclosure practices, following ESG reporting requirements that came into effect in July 2020. The exchange recommended that boards monitor and report on progress against ESG targets to ensure their effectiveness. It also encouraged issuers to start planning and implementing systems for enhanced climate reporting requirements in the future. It also recommended that issuers include information in their sustainability reports on supply chain risk management and green procurement practices. Reports covering financial years commencing on or after Jan. 1, 2022, should be published at the same time as financial reports, the exchange said.
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.