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 a new EU law designed at reducing emissions in the aviation sector, Australia’s plans to issue green bonds and proposals by Chile’s president to nationalize the country’s lithium industry.
International Latin America and the Caribbean Europe United States and Canada Asia-Pacific
International
Companies can focus on climate only in ISSB standards’ 1st reporting year
The International Sustainability Standards Board (ISSB) on April 4 announced that companies can take a phased-in approach to reporting under its forthcoming sustainability standards, allowing them to focus only on climate-specific information in the first reporting year of 2024 and wait to add other sustainability-related disclosures in 2025. The ISSB standards are expected to be finalized by the end of the second quarter of 2023 and could form the basis for a unified climate and sustainability disclosure framework for companies and investors globally. The ISSB said it will relax other elements of the standards for the full first year a company uses the standards, including not having to report on Scope 3 greenhouse gas emissions — the indirect emissions that occur up and down a company's value chain — or having to provide comparative information.
Latin America and the Caribbean
Chile announces plans to nationalize lithium production
Chilean President Gabriel Boric announced on April 21 plans to nationalize the lithium industry through the creation of a state-owned lithium company. Under the proposal, which Boric’s administration would send to Chile’s legislature, the state would take a majority stake in all new lithium projects as well as all new contracts for existing projects. Chile’s state-owned copper miner Codelco and state-owned mining firm Empresa Nacional de Minería (ENAMI), which partners with small miners, would oversee lithium production and the development of public-private partnerships. New lithium exploration contracts would be awarded through public tenders, and private companies that win contracts would obtain preferential rights to partner with a state-owned company. Lithium, often referred to as “white gold,” is key to electric battery production and the energy transition. Chile is the world's second-largest lithium producer and had the fifth-largest lithium exploration budget in 2022.
Europe
EU legislators agree on new law to reduce aviation emissions
The European Parliament and the Council of the EU, made up of government ministers of the 27 EU member states, reached an agreement on April 25 on a proposal designed to help the aviation sector cut emissions. The proposed rules would require fuel suppliers to blend sustainable aviation fuels with kerosene in increasing amounts from 2025, the European Commission said. Under the new rules, aviation fuel suppliers would be required to ensure that all fuel made available to aircraft operators at EU airports contains a minimum share of 2% of sustainable aviation fuels from 2025 and, from 2030, a minimum share of synthetic fuels. By 2050, the amount must reach 70% of fuel supplies. Aircraft leaving EU airports would refuel with only enough fuel for the outgoing flight to avoid emissions related to extra weight or carbon leakage caused by carrying excess fuel to avoid refueling with sustainable fuels, the Commission said. Airports would have to ensure adequate infrastructure to enable planes to refuel with sustainable fuels, it said.
EU bank regulator launches consultation on diversity and gender pay gap data collection
The European Banking Authority (EBA), which regulates EU lenders, launched on April 24 a consultation on guidelines for collecting data on banks’ and investment firms’ diversity policies and practices as well as the difference between men’s and women’s salaries at management level. The guidelines include templates and instructions for the collection of diversity data, the EBA said. The guidelines are designed to enhance the transparency of the EBA’s work on diversity and gender, improve the quality of collected data and raise financial institutions’ awareness of these issues, the regulator said. A public hearing will take place on June 12, 2023. The deadline for comments is July 24, 2023.
European Central Bank calls for banks to improve quality of climate risk disclosures
European banks have made progress in reporting on climate-related risks, but they need to improve the quality of their disclosures to be ready to comply with upcoming regulation, the European Central Bank (ECB) said on April 21 on the publication of its third annual review of lenders’ climate-related disclosures. The percentage of significant banks disclosing material exposures to climate and environmental risks rose to 86% in the April 2023 assessment from 36% the year before, the ECB said. However, only 6% disclose adequate information, it said. Half of the banks provide information on financed emissions, but it is incomplete or not properly substantiated, the ECB said. As a result, banks appear “largely unprepared” for the European Banking Authority’s new reporting standards on ESG risks, which will start to take effect from June 2023, the ECB said.
EU supervisory bodies propose amendments to EU sustainable disclosure rules
The three European supervisory bodies on April 12 launched a consultation on amendments to the Sustainable Finance Disclosure Regulation, or SFDR, which has been phased in since March 10, 2021. The supervisors, which include the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority, are proposing additional voluntary and mandatory social indicators for disclosures on principle adverse impacts, or the negative impacts of investment decisions. The proposed mandatory social indicators include topics such as exposure to tobacco companies and share of employees earning less than an “adequate” wage, among others, according to the joint consultation paper. The proposals also include additional disclosures for financial products on greenhouse gas reduction targets, including information on intermediate targets and how targets will be achieved. The supervisors are also proposing changes to disclosures on how sustainable investments “do not significant harm” to the environment and society. The consultation is open until July 4, 2023.
United States and Canada
US establishes White House Office of Environmental Justice
US President Joe Biden signed an executive order on April 21 that establishes a new White House Office of Environmental Justice, which will coordinate the implementation of environmental justice policies across the federal government. The order also directs federal agencies to improve the protection of vulnerable communities disproportionately exposed to environmental and health hazards. Agencies must take measures to prevent the impact of pollution and climate change on people from all communities, regardless of race, background, income, ability, tribal affiliation or location, the White House said. The order also requires agencies to warn nearby communities of toxic substance releases from federal facilities and to hold public meetings on health risks.
US proposes new carbon emissions standards for cars and trucks
The US Environmental Protection Agency (EPA) on April 12 proposed new vehicle emissions standards aimed at cutting greenhouse gas emissions by almost 10 billion metric tons by 2055, which represents more than twice total US emissions in 2022. The proposed standards would first apply to cars and medium-duty vehicles such as trucks and SUVs for 2027 to 2032 year models. They expand on emission rules finalized in December 2021, which require combined fleetwide emission reductions of 28% from model years 2023 to 2026. The new proposed standards for light- and medium-duty vehicles would require additional reductions of 56% and 44%, respectively, by 2032 compared with 2026. The EPA predicts that EVs could account for 67% of new light-duty vehicle sales and 46% of new medium-duty vehicle sales by 2032.
Asia-Pacific
Australia to introduce sovereign green bonds program, help fund sustainable taxonomy
The Australian government announced on April 21 it would introduce a sovereign green bonds program from mid-2024 to help attract green capital to Australia and scale up sustainable investment in the country. The Australian Office of Financial Management, which issues debt for the government, will manage the program once a green bond framework has been developed. The government also said it would co‑fund the development of a sustainable finance taxonomy with the Australian Sustainable Finance Institute, an industry group that has been seeking to create a taxonomy. Taxonomies have been springing up globally as a means to steer investment into sustainable activities.
Singapore financial regulator launches action plan to finance net-zero goals
The Monetary Authority of Singapore on April 20 launched a plan to mobilize capital to finance the transition to a low-carbon economy in Singapore and throughout Asia. The plan will build on a previous one announced in 2019 to include transition finance. The regulator will expand its sustainable bond and loan grant schemes to include transition bonds and loans and has set aside S$15 million over the next five years. It also said it would work with bodies such as the International Energy Agency to develop ways to reduce emissions across sectors and the region to support financial institutions’ adoption of science-based transition plans. The regulator also said on April 21 that it had established a green finance taskforce with China to increase public-private sector collaboration between the two countries as a means of speeding up Asia’s low-carbon transition.
Hong Kong Stock Exchange proposes mandatory climate reporting for listed companies
In a public consultation, the Hong Kong Stock Exchange proposed on April 14 mandatory climate-related disclosures in the ESG reports of companies with listings on the market. Under the proposal, it would introduce new climate-related disclosures based on the ISSB’s climate standard, the exchange said. The ISSB’s standards are expected to be finalized by the end of the second quarter of 2023. The proposed requirements include disclosure on governance procedures in monitoring and managing climate-related risks; disclosure on material climate-related business and financial risks, transition plans and climate resilience; risk management; and metrics and targets such as greenhouse gas emissions, internal carbon prices and executive renumeration. The consultation lasts until July 14.