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 India’s new climate targets, new pay for performance disclosure rules in the U.S. and plans by Colombia’s financial regulator to make the country’s financial system more sustainable.
Europe Asia-Pacific United States and Canada Latin America and the Caribbean
Europe
Council of the EU adopts regulation on reducing gas demand
The Council of the EU, which brings together government ministers from the 27 EU member states, on Aug. 5 adopted regulation aimed at curbing gas consumption in EU countries by 15%. The measure is voluntary but could become mandatory if supply falls too low, according to the Council. Using measures of their own choice, member states agreed to reduce their gas demand by 15% compared to their average consumption in the past five years, between Aug. 1, 2022, and March 31, 2023, to prepare for possible disruption of gas supplies from Russia this winter, the Council said. The move comes as the EU is seeking to reduce its dependence on Russian fossil fuels. Russia accounted for almost half of the EU’s gas imports in 2021 and is the largest supplier of the bloc’s crude oil and coal imports, according to the European Commission, the EU’s executive arm.
EU regulators urge global consistency on sustainability reporting standards
In response to a consultation on the first set of draft European Sustainability Reporting Standards, the European Securities Market Authority said on Aug. 8 that it encouraged further cooperation between the European Financial Reporting Advisory Group, which proposed the standards, and the International Sustainability Standards Board to align their work for the benefit of companies and users of sustainability reporting. EFRAG advises the EU on accounting standards and developed the new Corporate Sustainability Reporting Directive for the European Commission. The European Sustainability Reporting Standards will form a key part of the new regulation. ESMA also said it supported the standards’ concept of “double materiality,” in which firms need to think of reporting not just in financial terms but also in how their business affects the environment, their employees and consumers. But it noted it did not support the standards’ “rebuttable presumption” principle, which would give a reporting entity the right not to disclose required information if it could justify doing so. Separately, the European Banking Authority also called for consistency of reporting standards.
Switzerland adopts framework for green bond issuance
Switzerland’s Federal Council adopted on Aug. 17 a framework for the country to issue its first green bonds to strengthen its position in sustainable finance. The first bond issue will take place in the autumn of 2022. Funds raised from the issue could be used to encourage public transportation, preserve nature and construct environmentally friendly buildings, the council said in a statement. The council said the targeted issuance volume is several hundred million Swiss francs annually. The framework is based on the International Capital Market Association’s Green Bond Principles, one of the market standards for issuing green bonds.
Asia-Pacific
Australian regulator says financial institutions have yet to fully incorporate climate in risk management
The Australian Prudential Regulation Authority, the country’s financial regulator, said on Aug. 4 that the results of its climate risk survey suggest that most of country’s banks, insurers and workplace pension fund providers have yet to fully integrate climate risk in their risk management frameworks. Almost 40% of financial institutions surveyed said climate-related events could have a material or moderate impact on their direct operations, but only 48% reported that they assess the potential impact of climate risk on a regular basis, according to the results. More than two-thirds of financial institutions publicly report how they monitor and manage climate risks, with 90% of those disclosing under the Task Force on Climate-related Financial Disclosures. The survey was launched in March following the regulator’s November 2021 prudential guidance for financial institutions on managing climate change risk.
Malaysian stock exchange to launch voluntary carbon market
The Malaysian stock exchange, Bursa Malaysia, said on Aug. 15 that it planned to create a voluntary carbon market exchange by year end. Companies will be able to buy voluntary carbon credits through auctions by the year, allowing them to offset their carbon emissions, the exchange said. The market will offer different carbon credit products derived from nature-based solutions and technologies that reduce or remove carbon emissions. The exchange will also label products to differentiate between carbon credits sourced in Malaysia and globally, it said. To ensure the integrity of its carbon credits, Bursa Malaysia said it would adopt the Verified Carbon Standard, a recognized standard for voluntary carbon markets, known as Verra, which accounts for nearly 70% of voluntary carbon credit issuances globally.
India to ramp up renewables targets via climate package
The Indian government approved on Aug. 3 a set of climate commitments designed to help the country reach its goal of achieving net zero carbon emissions by 2070, a target announced at COP26 in Glasgow in 2021. Under the plan, India aims to generate 50% of its electricity needs from renewable energy by 2030 and reduce emissions related to the country’s economic output by 45% by 2030 from 2005 levels. The targets update India’s emission reduction pledges, known as nationally determined contributions, or NDCs,, under the 2015 Paris Agreement. The government said the updated NDCs would represent India’s framework for its energy transition between 2021 and 2030 and would include tax concessions and other incentives to promote the adoption of renewable energy.
India power plant overview
Operating and planned capacity
* Includes biomass, oil and other nonrenewable.
Map only includes plants with available geographic coordinates.
Design credit: Zain Ullah
Source: S&P Global Market Intelligence
Hong Kong market regulator considers adoption of international sustainability standard
Hong Kong’s Securities and Futures Commission said on Aug. 2 that it was considering adopting the proposed climate standard from the International Sustainability Standards Board, or ISSB, as part of a reporting framework for companies in Hong Kong. The ISSB’s proposed climate standard would require companies to disclose information on their climate-related exposure and their strategy for addressing climate risks. The commission also said it would seek to bring Hong Kong’s disclosure requirements into line with that of the ISSB and the Task Force on Climate-related Financial Disclosures. The Hong Kong regulator also said it would promote measures to support the development of ESG funds and a green taxonomy. It is also working on a regulatory framework for a potential carbon market, it said in its Agenda on Green and Sustainable Finance.
United States and Canada
U.S. SEC adopts new pay for performance disclosure rules
The U.S. Securities and Exchange Commission on Aug. 25 adopted final rules requiring firms to disclose information on the relationship between executive pay and a company’s financial performance. The rules implement a requirement mandated by the Dodd-Frank Act, legislation that was passed in 2010. Companies must provide data on executive compensation and financial performance for the last five fiscal years and demonstrate the connection between executive pay and net income, shareholder return and other financial metrics. Companies will have to comply with the new disclosure requirements in proxy and information statements for fiscal years ending on or after Dec. 16, 2022.
U.S. President Biden signs sweeping climate bill into law
U.S. President Joe Biden on Aug. 16 signed the Inflation Reduction Act, a comprehensive energy and climate law that allocates $369 billion in federal spending to dozens of climate projects in a bid to decarbonize the U.S. economy. The legislation includes tens of billions of dollars in spending over 10 years to support domestic clean energy and transportation manufacturing, renewable energy development and production as well as U.S. electric grid expansion. It also creates new tax credits for existing nuclear plants, stand-alone energy storage and clean hydrogen production. The law provides a federal consumer tax credit of up to $7,500 on new electric vehicle purchases from U.S. automakers.
Largest 10 owners by planned US solar installations 2022-2026 (MW)
Data compiled May 19, 2022.
Limited to projects with reported in-service years.
Source: S&P Global Market Intelligence
Largest 10 owners by planned US wind installations 2022-2026 (MW)
Data compiled May 19, 2022.
Limited to projects with reported in-service years.
Source: S&P Global Market Intelligence
Latin America and Caribbean
Colombia’s regulator proposes measures to make financial system more sustainable
Colombia’s financial regulator, the Superintendencia Financiera de Colombia, presented on Aug. 18 plans to make the Colombian financial system sustainable over the coming years. Its climate roadmap is designed to promote green financing and improve the financial sector’s ability to identify, measure and manage climate risks, the regulator said. The plan consists of five dimensions: the country’s green taxonomy; financial innovation; data and metrics; incorporating ESG criteria and tools; and supervising climate and nature risks, each of which will have a specific roadmap. According to the plan, banks will aim to develop financial products to help transform the economy and incorporate climate issues in their business decisions. Insurers will strengthen their role in climate resilience and adaptation, creating more sustainable insurance models to keep risks under control for companies, consumers and the country, the regulator said. Colombia launched its green taxonomy, a classification system of sustainable activities, in April 2022.
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.