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 International Sustainability Standards Board’s (ISSB) new jurisdictional guide on adoption of its disclosure standards, the results of the US Federal Reserve’s climate stress test for the largest US banks and the publication of Hong Kong’s sustainable finance taxonomy, among other topics.

INTERNATIONAL    EUROPE    UNITED STATES AND CANADA   ASIA PACIFIC   LATIN AMERICA AND THE CARIBBEAN

INTERNATIONAL

ISSB issues jurisdictional guide on adoption and use of sustainability standards

The ISSB published on May 28 a guide for jurisdictions seeking to adopt or use its sustainability-related disclosure standards issued in June 2023. The guide aims to demonstrate the progress jurisdictions are making in disclosing consistent and comparable sustainability-related information globally, the ISSB said. It explains the various ways jurisdictions can use the standards, as described in the endorsement of the standards by the International Organization of Securities Commissions in July 2023, the ISSB said. The ISSB also published on May 2 interoperability guidance with the European Financial Reporting Advisory Group to show to what extent the ISSB standards and the European Sustainability Reporting Standards align and how a company can apply both sets of standards.

EUROPE

European securities market regulator publishes guidelines on ESG fund names

The European Securities and Markets Authority (ESMA) published on May 14 guidelines for the use of ESG or sustainability-related terms in investment fund names. The publication follows a consultation launched in November 2022. If a fund uses any ESG-related words in its name, a minimum threshold of at least 80% of its investments should be used to meet environmental or social characteristics or sustainable investment objectives, ESMA said. The guidelines also include exclusion criteria for different terms used in fund names based on EU climate benchmark regulation, the regulator said. 

UK to publish sustainability disclosure standards in 2025 

The UK plans to endorse and publish in the first quarter of 2025 sustainability disclosure standards based on the IFRS S1 and S2 disclosure standards developed by the ISSB, subject to the results of a consultation, the UK government said May 16. The Financial Conduct Authority (FCA) would be able to use UK Sustainability Reporting Standards to introduce requirements for UK-listed companies to report sustainability-related information, the government said. Subject to a positive endorsement decision, the UK will hold another consultation in the second quarter of 2025 to decide on requiring companies not under the FCA’s remit to report using the standards. Disclosure requirements would be effective no earlier than Jan. 1, 2026, due to consultations and Parliamentary approval for any new legislation, the government said.  

Council of Europe adopts international treaty on AI and human rights 

The Council of Europe, an international organization distinct from the European Union that aims to promote human rights in Europe and elsewhere, adopted on May 17 an international legally binding treaty designed to protect human rights, the rule of law and democracy when using AI. Under the Council of Europe Framework Convention on artificial intelligence and human rights, democracy, and the rule of law, parties will have to adopt measures to prevent risks and assess the need for a moratorium, a ban or other measures regarding the use of AI if the risks are incompatible with human rights. They will also have to ensure that AI systems respect equality, including gender equality and privacy rights and that victims of human rights violations related to AI have access to legal remedies. The treaty also requires parties to adopt measures that ensure AI is not used to undermine democratic institutions and processes, including the principle of separation of powers, respect for judicial independence and access to justice.

EU signs agreement with Australia on sustainable critical and strategic materials

The EU said on May 28 that it had a signed a memorandum of understanding with Australia over cooperation on critical mineral supplies and development. The EU said the agreement would help the EU diversify its supply of critical minerals necessary for the green transition and contribute to the development of Australia's domestic critical minerals sector. The partnership covers the entire critical and strategic minerals value chain, including exploration, extraction, processing, refining, recycling, and processing of extractive waste. The agreement should enhance integration of sustainable raw materials value chains, cooperation on research and innovation within raw materials value chains as well as collaboration to promote high environmental, social, and governance standards and practices, the EU said. The two sides will jointly develop a roadmap with concrete actions over the next six months, the EU said. 

UNITED STATES AND CANADA

US issues final rule on methane emission reporting requirements  

The US Environmental Protection Agency (EPA) issued on May 6 a final rule aimed at strengthening methane reporting requirements for the oil and natural gas industry. Studies show the oil and gas industry emits far more methane than it reports to the EPA, and the final rule addresses this gap, the agency said. The rule permits for the first time the use of advanced technologies such as satellites or aircraft to help quantify emissions, the EPA said. It also covers previously unreported sources of emissions, the EPA said in a fact sheet. The EPA will use the information gathered on methane emissions to impose a methane fee mandated by the Inflation Reduction Act.

US Federal Reserve announces results of climate stress test pilot for largest banks

The US Federal Reserve Board published the results of its climate stress test for the nation’s six largest banks, with the lenders taking part reporting significant data and modeling challenges in estimating climate-related financial risks. Under the stress test, lenders had to analyze the impact of different climate scenarios on specific bank portfolios and business strategies. The Federal Reserve said lenders noted a lack of comprehensive and consistent data on issues such as insurance coverage and counterparties’ plans on managing climate-related risks. The banks taking part in the exercise were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. The climate stress test was exploratory in nature and will not result in higher capital charges for lenders, but it will provide a basis for the regulator to work with banks on their climate-related financial risks, the Federal Reserve said. 

US announces new principles to raise integrity of voluntary carbon markets

The US announced on May 28 new principles that are designed to improve the integrity of voluntary carbon markets. The joint policy statement and principles signed by the secretaries of treasury, energy, and agriculture "represent the US government’s commitment to advancing the responsible development of voluntary carbon markets, with clear incentives and guardrails in place to ensure that this market drives ambitious and credible climate action and generates economic opportunity," the White House wrote in a news release. The principles will also guide how the US government engages with the voluntary carbon markets. Strong integrity standards will allow corporate buyers to direct “significant, necessary financial resources” to address climate change through voluntary carbon markets, the administration wrote.

ASIA-PACIFIC

Hong Kong financial regulator publishes sustainable finance taxonomy

The Hong Kong Monetary Authority (HKMA) published on May 3 the Hong Kong Taxonomy, a classification system of sustainable activities. The taxonomy incorporates 12 economic activities across four different sectors, power generation, transportation, construction, as well as water and waste management. Its principle environmental objective is climate change mitigation, and certain economic activities are required to keep their emissions intensity in line with the goals of the Paris agreement, which aims to limit global warming to “well below” 2 degrees C and “preferably” to 1.5 degrees C compared to preindustrial temperatures. It also seeks to align with sustainable taxonomies globally such as the EU taxonomy. The HKMA said it will expand the coverage of the taxonomy to include more sectors and activities, including transition activities. Taxonomies have been springing up globally to steer investment into sustainable activities.

China issues draft sustainability disclosure standards aligned with ISSB

China’s Ministry of Finance published on May 22 draft sustainability-related disclosure standards based on the ISSB’s standards. The draft sets out general requirements for corporate sustainability information disclosures for certain companies in China, the government said. The requirements will be phased in starting with listed companies and then will be extended to nonlisted companies. They will initially be voluntary with a view to becoming mandatory in the future. The government said it expects to introduce basic corporate sustainability disclosure standards and climate-related disclosure standards by 2027 and plans to establish a nationwide standard by 2030. 

India’s market regulator proposes easing certain sustainability disclosures 

The Securities and Exchange Board of India (SEBI) proposed on May 22 easing some sustainability-related disclosures for listed companies who are required to report under the country’s business responsibility and sustainability reporting framework.  Under the proposals, listed companies would only need to report on partners in their supply chain that account for 2% or more of the listed company’s purchase or sales by value. The SEBI included an alternative proposal whereby listed companies would be required to report on partners in their supply chain that cumulatively comprise at least 75% of the listed entity’s purchases or sales by value, in addition to the 2% reporting requirement. In addition, companies disclosing on their supply chain would be subject to voluntary reporting for the first year of reporting. 

Australia launches consultation on sustainable finance taxonomy

The Australian Sustainable Finance Initiative, an industry group that is working with the Australian government to develop a sustainable finance taxonomy, launched on May 28 the first part of a consultation on developing the taxonomy. The group is seeking feedback on the tool’s environmental objectives, which are climate change mitigation; climate change adaptation and resilience; biodiversity and ecosystem protection; sustainable use and protection of water resources; pollution prevention and control; and transition to a circular economy. It is also seeking comments on draft climate change mitigation criteria for sectors including electricity generation and supply; minerals, mining and metals; as well as construction and the built environment. A second consultation will take place in the fourth quarter of 2024. It will seek feedback on climate mitigation criteria for manufacturing and industry; transport; agriculture and land use; and on the taxonomy’s “do no significant harm” framework, where progress on one objective cannot come at the expense of another. The consultation closes on June 30.

LATIN AMERICA AND THE CARIBBEAN

Brazil’s market regulator proposes ISSB-aligned standards 

Brazil’s securities regulator, Comissão de Valores Mobiliários (CVM), proposed on May 13 two draft sustainability-related disclosure standards aligned with the ISSB’s standards. The first draft is based on the ISSB’s IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, under which companies are required to disclose sustainability-related risks and opportunities. The second draft is based on the ISSB’s IFRS S2 Climate-related Disclosures, which asks for specific metrics such as greenhouse gas emissions. The draft proposals would make the standards mandatory for listed companies, the CVM said. Brazil announced plans to adopt the ISSB’s standards in October 2023.