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 Canada’s draft regulations on emission reductions from the oil and gas sector, potential capital hikes for EU insurer’s fossil fuel assets and taxonomy consultations in the UK and Brazil.

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

INTERNATIONAL

Global leaders adopt key rules and guidelines for international carbon trading

Parties at COP29, the UN climate conference held in Baku, Azerbaijan, finalized key rules and guidelines for international carbon trading under Article 6 of the Paris Agreement on climate change. Under Article 6, countries may transfer carbon credits earned from carbon emission reductions to support other countries in meeting their climate targets. Parties agreed to key guidance around Article 6.4, which establishes a framework for a UN-led global carbon market. It also allows companies in one country to reduce emissions domestically and have those reductions credited so that it can sell them to a different company in another country. Parties agreed to enhanced guidance and clarity around the authorization and transfer of credits under Article 6.2. That article sets out a system of national accounting for greenhouse gas (GHG) emissions, with common principles that countries can adopt to allow cross-border exchanges of credits.

ASIA-PACIFIC

Australia’s securities regulator releases draft guide on sustainability reporting

The Australian Securities and Investments Commission (ASIC) on Nov. 7 published a draft regulatory guide on sustainability reporting for businesses and financial institutions subject to the country’s new mandatory climate-related financial disclosures from Jan. 1, 2025. The guide sets out which companies need to prepare sustainability reports and how they can comply with sustainability reporting requirements; how the requirements interact with existing legal and regulatory requirements; and how ASIC intends to enforce the them, including the regulator’s approach to granting relief. The guide also addresses how companies should address sustainability-related disclosures outside of their sustainability report. The regulator is also seeking stakeholder feedback on whether any ASIC legislative instruments that grant relief in relation to financial reporting or audit requirements should be extended to sustainability reporting.

Thai securities regulator consults on adoption of global sustainability standards

Thailand’s Securities and Exchange Commission opened on Nov. 19 a consultation on guidelines for companies to strengthen their sustainability-related reporting and to bring Thailand’s sustainability reporting requirements in line with those of the International Sustainability Standards Board (ISSB). The requirements would be phased in depending on the size of companies. Those in the SET50 index, which includes the country’s 50 companies with the largest market capitalizations, would start reporting from 2026. Companies listed on the SET100 index would start reporting in 2027, while other listed companies would begin reporting in 2029. Real estate trusts and infrastructure funds would start reporting in 2030.

Japan publishes revisions to proposed sustainability standards

The Sustainability Standards Board of Japan (SSBJ) on Nov. 29 published revisions to its proposed sustainability standards based on the ISSB’s two sustainability standards. The SSBJ published drafts of its sustainability standards in March 2024 and said it was proposing revisions to its proposals following feedback from stakeholders. Under the new proposals, companies would be required to adjust the calculation periods for reporting metrics to be the same as those for reporting periods of sustainability-related financial disclosures to ensure the alignment of both sustainability and financial reporting, the SSBJ said. The board said it was sticking to its target of publishing its sustainability standards by March 2025.

EUROPE

EU insurance regulator proposes higher capital requirements for fossil fuel assets

The European Insurance and Occupational Pensions Authority (EIOPA) on Nov. 7 recommended additional capital requirements for insurance companies’ fossil fuel assets to cushion them from transition risks. Following a risk-based analysis and feedback from stakeholders, the regulator said it had found stocks and bonds related to fossil fuels are more exposed to transition risks than assets from other economic activities. As a result, EIOPA said it was recommending additional capital requirements to ensure European insurers had set aside enough capital to protect them from potential losses from investments in assets with high transition risks. For stocks, EIOPA said it is proposing increasing capital requirements by up to 17% in additive terms, which would be a “moderate increase” from current requirements. For bonds, EIOPA is recommending an additional capital charge of up to 40% in multiplicative terms. EIOPA said it had submitted its recommendations to the European Commission, which will review and consider whether to implement the proposals.

UK launches consultation on green taxonomy

The UK government on Nov. 14 launched a consultation on the potential creation of a green taxonomy, a kind of dictionary of sustainable activities. The government said it is seeking views on whether a taxonomy would be complementary to existing sustainable finance policies and whether a taxonomy would support investors in making sustainable investment decisions and mobilize capital for the energy transiti on. The government also said interoperability with taxonomies in other jurisdictions would be a “particularly important factor” for the development of a UK taxonomy. It is also seeking feedback on how stakeholders currently use existing taxonomies in their decision-making. The government is also seeking comments on what environmental objectives the taxonomy should focus on and what sectors should be included. The consultation is open until Feb. 6, 2025.

LATIN AMERICA AND THE CARIBBEAN

Brazil opens consultation on sustainable finance taxonomy

Brazil’s Ministry of Finance on Nov. 16 opened  a consultation on the development of methodology and technical criteria for the country’s sustainable finance taxonomy. The consultation takes place in two phases. Stakeholders have until Jan. 31, 2025, to comment on the methodology used for defining sustainable economic activities as well as the criteria for defining mitigation. They will also be able to comment on indicators regarding gender and racial equity as Brazil’s taxonomy aims to include social inclusion policies to take into account the country’s socioeconomic diversity, the Ministry said. This part of the consultation also includes the taxonomy’s monitoring, reporting and verification system and a proposal on minimum safeguards, which ensure companies meet certain standards when participating in sustainable activities. The second phase will take place between Feb. 1, 2025, and March 31, 2025, and will address adaptation criteria and specific safeguards for economic sectors.

Brazilian lawmakers approve legislation to establish emissions trading system

Brazil’s Chamber of Deputies on Nov. 19 approved legislation that would establish a carbon trading market called the Brazilian Emissions Trading System, or SBCE in Brazilian. The SBCE establishes an emissions cap for large companies from certain high-emitting sectors. Under the system, businesses that emit less than their allocated quotas can trade surplus allowances with other companies or entities involved in projects that capture carbon, such as reforestation, the Brazilian Ministry of Finance said in a statement. The emissions cap will be reduced over time to encourage companies to invest in cleaner technologies and transform their production processes to meet their carbon emission reduction targets, the Ministry said. Brazil is targeting a 48% reduction in GHG emissions by 2025 and a 53% reduction by 2030, compared to 2005 levels. The legislation remains subject to approval from Brazil’s President Luiz Inácio Lula da Silva.

MIDDLE EAST AND AFRICA

Saudi Arabia establishes voluntary carbon market exchange

Saudi Arabia launched on Nov. 12 its first voluntary carbon market exchange platform to drive financing into climate-related projects, particularly in developing countries, and to support its goal of becoming net-zero by 2060. The exchange is managed by the Regional Voluntary Carbon Market Company (RVCMC). At its launch, the exchange auctioned 2.5 million carbon credits from 17 projects certified by Verra, Gold Standard and Puro.earth. In line with global standard-setters’ guidelines, 20% of this year’s auction baskets included removal credits. Credits sold at the launch originated from landfill gas projects in the global south and a deforestation program in Ethiopia, among other projects, RVCMC said.

Kenya publishes roadmap for mandatory adoption of global sustainability standards

The Institute of Certified Public Accountants of Kenya released on Nov. 14 a roadmap for mandatory adoption of the ISSB’s two sustainability standards, IFRS S1 and IFRS S2. IFRS S1 requires companies to disclose sustainability-related risks and opportunities, and IFRS S2 is the board’s climate-related disclosures standard. As of Jan. 1, 2027, Kenyan public interest entities, which include listed companies and financial institutions, will be required to report according to the two standards. Large companies that are not public interest entities will have to report as of Jan. 1, 2028. Small- and medium-sized companies will report as of Jan. 1, 2029. Public sector entities will start reporting at a later date to be decided by the Institute. Kenya adopted the standards as of Jan.1, 2024, and companies were expected to file their first disclosure reports on a voluntary basis as of Jan. 1, 2025.

UNITED STATES AND CANADA

Canada introduces draft regulations on emission reductions from oil and gas sector

The Canadian government on Nov. 4 published draft regulations that would require the oil and gas sector to reduce their GHG emissions by 35% below 2019 levels. The regulations would create a cap-and-trade system under which the government would allocate emissions allowances to oil and gas producers, who would then at year-end be required to remit one allowance for each metric ton of carbon emitted. The government would decrease the number of allowances over time. Companies would be able to purchase allowances from other firms. They would also be able to contribute to a decarbonization program for up to 10% of their emissions and use GHG offset credits to cover up to 20%, with a maximum of 20% for both options. The system would be phased in from 2026 to 2030, with large emitters reporting in 2027 for their 2026 emissions and production levels. Reporting for small operators would start in 2029 for their 2028 levels. Operators would need to submit verified annual reports, which would identify which operators would be subject to the emissions cap and have remittance obligations, the government said. The government plans to publish the final regulations in 2025.