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 EU’s Green Bond Standard, Brazil’s decision to adopt global sustainability standards and climate risk guidelines from US bank regulators.

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

EUROPE

EU adopts green bond standard

The European Parliament adopted on Oct. 5 a new voluntary standard for the use of a "European green bond" label, aimed at preventing greenwashing. The standard requires companies using the label when marketing a green bond to disclose substantial information about the bond’s use of proceeds. Companies will also have to show how the bond fits into their transition plans. The standard aligns with the EU taxonomy, a kind of dictionary defining sustainable activities, and issuers must demonstrate that at least 85% of the funds raised by a European green bond is financing projects in line with the taxonomy. The remaining 15% can be allocated to other economic activities provided the issuer clearly explains the goal of the investment. The regulation also establishes a registration system and supervisory framework for external reviewers of European green bonds. The Council of the EU, made up of government ministers of the 27 EU member states, adopted the standard on Oct. 24. It will enter into force 20 days after publication in the EU’s Official Journal and apply to issuers 12 months from then.

EU adopts revised Renewable Energy Directive

The EU adopted its revised Renewable Energy Directive, raising the bloc’s 2030 renewable energy target to at least 42.5%, up from the existing 32% target, the European Commission said on Oct. 9. The revised directive includes sub-targets for certain sectors where the integration of renewables has been slower, the Council of the EU said. For the transport sector, member states can choose between a binding target of a 14.5% reduction of greenhouse gas intensity from the use of renewables by 2030 or a binding share of 29% of renewables within final energy consumption in transport. For industry, the directive requires an annual increase of 1.6% in the use renewable energy as well as a 42% share for renewable hydrogen in 2030. For heating and cooling, it sets a 49% indicative target for the share of renewable energy in buildings in 2030 as well as a binding annual increase of 1.1% from 2026 to 2030. The directive also seeks to accelerate permitting procedures for renewable energy projects. The revised directive is part of the EU’s broad Fit for 55 climate package announced in July 2021, which aims to reduce EU emissions by at least 55% by 2030. Member states have 18 months to incorporate the revised directive into national legislation.

European Commission launches plan to accelerate wind power development

The European Commission on Oct. 24 launched a plan to support the wind power industry to help the bloc meet its renewable energy targets. The Commission said it would aid member states in speeding up the implementation of newly adopted permitting provisions through a new initiative called “Accele-RES,” which includes the digitalization of national permitting processes. The Commission also said it would facilitate access to EU financing through its innovation fund, and it plans to double the fund’s  budget for financing clean technology manufacturing projects to €1.4 billion. It also aims to work with member states to improve the design of wind power project auctions by including "objective and non-discriminatory" pre-qualification criteria, for instance around business conduct, cybersecurity and project delivery. The EU added 16 GW of new wind capacity in 2022, a 47% increase on 2021 but well below the 37 GW required annually to achieve the bloc's 2030 renewables goal. The EU is targeting at least 42.5% of renewable energy by 2030.

European Commission proposes two-year delay to sector-specific sustainability reporting standards

The European Commission on Oct. 17 proposed a two-year delay for the adoption of its sector-specific sustainability reporting standards currently required as of June 30, 2024, to reduce the reporting burden on financial market participants. The European Sustainability Reporting Standards (ESRS) apply to companies that are subject to the EU's Corporate Sustainability Reporting Directive (CSRD). The Commission also said the delay would give companies more time to implement its first set of corporate sustainability reporting standards adopted on July 31. It also proposed a two-year delay to adoption of CSRD rules for non-EU companies to June 30, 2026, from June 30, 2024. The Commission also published on Oct. 17 an amendment to its accounting rules, which it said would reduce the number of companies subject to the CSRD. It said it had raised balance sheet and net turnover criteria for small, medium and large companies by 25% to account for inflation between Jan. 1, 2013, and March 31, 2023.

EU bank regulator proposes incorporating climate and social risks in capital requirements

The European Banking Authority (EBA) on Oct. 12 proposed changes to its regulatory framework that would require banks to incorporate environmental and social risks into their core capital requirements. In a report, the EBA said it would address environmental risks through targeted amendments to the existing prudential regime. Over the next three years, the regulator is proposing to include environmental risks as part of stress testing programs under both the internal ratings-based and internal model approaches. It is also proposing the inclusion of environmental and social factors as part of external credit assessments by rating agencies. It also is proposing the inclusion of environmental and social factors as part of due diligence requirements and requiring institutions to identify whether environmental and social factors constitute triggers of operational risk losses, among other proposals. Over the medium to long term, it said it could revise its regulatory framework to include scenario analysis and the role of transition plans.

UK government launches consultation on Scope 3 emissions reporting

The UK Department for Energy Security and Net Zero (DESNZ) launched a consultation on Oct. 19 to determine the costs, benefits and practicalities of Scope 3 greenhouse gas emissions reporting for companies. Scope 3 emissions are the indirect emissions that occur up and down a company's value chain. The consultation would help inform the government’s decision on whether to endorse the International Sustainability Standards Board’s sustainability disclosure standards in the UK, the DESNZ said in a statement. Some of the country’s largest companies currently disclose Scope 1 and Scope 2 emissions in their annual reports in line with the UK Streamlined Energy and Carbon Reporting requirements, but Scope 3 emissions remain largely voluntary, the department said. Scope 1 emissions are emissions from direct operations, while Scope 2 emissions are indirect emissions primarily derived from purchased energy.

ASIA-PACIFIC

Australia proposes new climate-related disclosure standards based on ISSB

The Australian Accounting Standards Board on Oct. 23 proposed climate-related financial disclosure requirements based on the ISSB’s two sustainability disclosure standards, issued in June. The first proposed requirement is based on the ISSB’s IFRS S1 standard that asks companies to disclose sustainability-related risks and opportunities, but Australian disclosures will be limited to climate-related financial disclosures only, the proposals said. The second is based on the ISSB’s IFRS S2 standard, which asks for specific metrics such as greenhouse gas emissions as well as disclosure of climate-related physical and transition risks. The standards would be mandatory for companies with revenues of AUS$500 million of July 1, 2024, for companies with revenues of AUS$200 million as of July 1, 2026, and for those with revenues of AUS$50 million as of July 2027. A consultation is open for comment until March 1, 2024.

Singapore regulator opens consultation on transition planning guidelines for financial institutions

The Monetary Authority of Singapore (MAS) on Oct. 18 proposed a set of guidelines on transition planning for banks, insurers and asset managers to support their transition to a carbon-neutral economy.  The regulator said that under the proposed guidelines, financial institutions should favor engagement, rather than divestment, with their customers and investee companies to ensure an orderly transition. They should also take a long-term view when assessing climate-related risks to their business models and portfolios as well as an integrated approach to climate mitigation and adaptation measures, MAS said. They also would need to consider biodiversity risks, including potential harm to the environment from projects designed to tackle the effects of climate change, under the proposed guidelines. Financial institutions should also disclose how they are managing material climate-related risks over the short, medium and long term, and describe their governance and processes for addressing such risks, according to the MAS proposal. A consultation is open until Dec. 18.

Singapore sets out eligibility criteria for international carbon credits

Singapore’s Ministry of Sustainability and the Environment (MSE) and the National Environment Agency (NEA) announced on Oct. 4 criteria for international carbon credits that companies can use to offset emissions liable under the national carbon tax regime. The certified emissions reductions or removals must have occurred between Jan. 1, 2021, and Dec. 31, 2030, to comply with Article 6 of the 2015 Paris Agreement on climate change, which set rules for global trade in greenhouse gas reductions. The agencies wrote that under the criteria, there is to be no double counting of certified emissions reductions or removals; emissions reductions or removals must exceed those required by any law or regulatory requirement of the host country; the amount of emissions avoided or removed must have been quantified in a realistic manner; and emissions avoided or removed should be calculated transparently and must have been verified by an accredited and independent third-party before the credit was issued.

Philippines market regulator publishes revised guidelines for sustainability reporting

The Philippines Securities and Exchange Commission on Oct. 4 published revised guidelines for companies reporting on their sustainability-related risks and opportunities. The revised guidelines consider the latest developments in global sustainability reporting frameworks, notably the ISSB’s two sustainability-related disclosure standards, the regulator said in a statement. They also recognize other international frameworks such as the UN’s Sustainable Development Goals and the UN Conference on Trade and Development’s International Standards of Accounting and Reporting guidance on core indicators. Under the revised guidelines, companies will be required to publish a sustainability report in conjunction with their annual report. They will also have to send another report to the regulator with information on their sustainability and climate-related opportunities and risks; cross-industry standard metrics; and industry-specific metrics.

United States and Canada

US bank regulators publish guidelines on climate-related risk management for financial institutions

US federal bank regulators issued on Oct. 24 a set of principles to guide financial institutions with more than $100 billion in total consolidated assets in their management of climate-related financial risk exposures. The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said the principles are designed to support financial institutions' boards and management in incorporating climate-related financial risks into their risk management and provide guidance on the role of boards and management in managing climate-related risks. The principles apply to governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. They also explain how to address climate-related financial risks across credit, liquidity, other financial risk, operational, legal and compliance, and other nonfinancial risk, the regulators said.

LATIN AMERICA AND THE CARIBBEAN

Brazil to adopt new global sustainability disclosure standards

Brazil’s Ministry of Finance and its securities regulator, Comissão de Valores Mobiliários (CVM), on Oct. 20 announced that the country will adopt the ISSB’s two sustainability disclosure standards. Companies can apply the standards on a voluntary basis from 2024. The standards will be mandatory from Jan. 1, 2026. The authorities said the standards could help strengthen Brazilian capital markets by enhancing transparency as well as providing consistency and comparability of information around sustainability-related risks and opportunities. They also said the standards could also help Brazilian companies attract capital and global investment.

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.