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 Taskforce on Nature-related Financial Disclosures’ final recommendations, Brazil’s sustainable taxonomy and the US Securities and Exchange Commission’s decision to strengthen rules on how investment firms name funds.

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

International

TNFD publishes final recommendations to guide companies on nature risk reporting

The Taskforce on Nature-related Financial Disclosures (TNFD) published on Sept. 18 its final recommendations to steer companies in disclosing their dependencies and impacts on nature. The recommendations cover topics such as management's role in assessing nature-related risks, the material effects of nature on a company's strategy and how a firm can identify nature-related risks and opportunities in its business. The recommendations are structured like the Task Force on Climate-related Financial Disclosures framework, which focuses on climate-related risks. They also consider the recently released global sustainability disclosure standards from the International Sustainability Standards Board. The TNFD said it would track the voluntary adoption of its framework through an annual status report as of 2024.

Europe

European Commission launches consultation on implementation of disclosure regulation

The European Commission launched on Sept. 14 a consultation on the implementation of its Sustainable Finance Disclosures Regulation, which has been in force from March 10, 2021, and requires asset managers, pension funds and insurers to disclose how they consider ESG risks in their investment decisions. The Commission is seeking comment on how the SFDR’s current requirements work in practice — for example, whether the regulation is being used as a labelling and marketing tool rather than a disclosure framework. The consultation also asks whether the regulation has led to increased costs for investment funds and whether data gaps are preventing market participants from fully disclosing in line with the SFDR. Other questions include how the SFDR fits in with other EU sustainability-related regulation such as the EU taxonomy, a classification system of sustainable activities, and whether all financial products in the EU should be subject to the disclosure regulations. The consultation runs until Dec. 15.

European Commission adopts new rules to prevent microplastics pollution

The European Commission said on Sept. 25 it had adopted new rules to prohibit the sale of microplastics and products such as cosmetics and detergents which include microplastics. The Commission said the new rules would prevent the release of about half a million metric tons of microplastics to the environment. As microplastics do not biodegrade and cannot be removed, they accumulate in animals, including fish and shellfish, and are consequently also consumed as food by humans, resulting in ongoing pollution of nature and food chains, the Commission said. The initial measures include a sales ban on cosmetics containing microbeads, which are already being phased out, and loose glitter made of plastic. It will, however, take another four to 12 years for other cosmetics to be subject to the rules, the Commission said.

ECB sees need to accelerate transition to low-carbon economy following climate stress test

The European Central Bank said on Sept. 6 that banks, companies, and households need to speed up the transition to a low-carbon economy at a faster pace than under current policies to reduce the costs of climate change to the economy. Under its second economy-wide climate stress test, the ECB analyzed the resilience of banks, firms and households under three scenarios. The first, an “accelerated transition,” would lead to a reduction in emissions by 2030 in line with the goals of the Paris Agreement on climate change. The second, a “late-push transition,” continues current policies that would accelerate in 2026 and still achieve Paris-aligned emission reductions by 2030. The third is a “delayed transition” starting in 2026 and does not meet the goals of the Paris Agreement by 2030. Banks would be exposed to the highest credit risk in the case of a delayed transition. In a late-push transition, their credit risk could rise by more than 100% by 2030 compared with 2022. In the accelerated transition, the increase would be 60%, the ECB said.

United States and Canada

US Securities and Exchange Commission tightens rules on how investment firms name funds

The US Securities and Exchange Commission adopted on Sept. 20 amendments to the “Names Rule” of the Investment Company Act to ensure that a fund’s name reflects its portfolio and does not mislead investors. The rule will be expanded to include funds that include certain words such as "growth," "value" or "ESG" in their names. The Names Rule requires that 80% of assets are consistent with the label, or name, of the fund. Fund managers will be required to review funds under the 80% investment policy at least quarterly, the SEC said. If they do not comply with the new rules, they will have 90 days to rectify the situation, the SEC said. The amendments will also include enhanced prospectus disclosure requirements for terminology used in fund names, the SEC said.

California lawmakers pass bills on carbon emissions reporting and climate-related risk disclosure

California’s state senate passed on Sept. 12 a bill requiring companies to report greenhouse gas emissions across all aspects of their business. The bill applies to public as well as privately held companies with operations in the state and at least $1 billion in annual revenue. They would be required to estimate and report all Scope 1 and Scope 2 emissions from 2026, and Scope 3 emissions — the indirect emissions that occur up and down a company's value chain — a year later. Scope 1 emissions are emissions from direct operations, while Scope 2 emissions are indirect emissions primarily derived from purchased energy. Lawmakers also passed a climate-risk disclosure bill on Sept. 13 that would require companies with annual revenue of $500 million or more to begin disclosing climate-related financial risks from 2026. They would have to publish a report on their climate-related financial risks based on the TCFD’s recommendations and would have to detail the measures they are taking to reduce and adapt to climate risks.

Asia-Pacific

Philippines regulators propose guidelines for sustainable finance taxonomy

The Philippines Financial Sector Forum, a group of financial regulators, proposed on Sept. 18 a set of guidelines for a sustainable finance taxonomy. The tool will initially focus on climate mitigation and adaptation, and future versions could include biodiversity, the circular economy and social issues, the regulators said. The taxonomy would support the financial sector in raising the estimated $168 billion needed to finance the low-carbon transition in the Philippines up to 2030. The regulators, which include the central bank, the Securities and Exchange Commission, Insurance Commission, and the Philippine Deposit Insurance Corporation, said the taxonomy would have six priority sectors: agriculture, forestry and fishing; manufacturing; electricity; transportation; construction and real estate; and water supply and waste management. It would use the “do no significant harm” principle, where progress on one objective cannot come at the expense of another. It also sets minimum social safeguards for economic activities that are aligned to the taxonomy, including respecting human rights, preventing forced labor and protecting children’s rights and reducing any negative impact of sustainable investments on local communities.  The regulators said they would use the results of a consultation that ended Oct. 6 to form the basis of future regulation.

Philippines Securities and Exchange Commission publishes guidelines for issuing blue bonds

The Philippines Securities and Exchange Commission said on Sept. 25 it had published guidelines for the issuance of blue bonds, a type of debt instrument used to finance or refinance new or existing projects and activities that address sustainable water management and ocean protection. They include sustainable fisheries management, sustainable aquaculture, and restoration of coastal, marine, river, and water-based ecosystems, the regulator said. They also must ensure they contribute to numbers six and 14 of the UN’s 17 Sustainable Development Goals, which seek to achieve sustainable management of water and sanitation and the conservation of oceans, seas, and marine resources. Issuers would have to assess and quantify, if possible, to what extent the blue bond contributes to the two SDGs. Quantifiable performance measures include reduced greenhouse gas emissions, renewable power generation, water conservation and a reduction in plastic waste, the regulator said.

Six Southeast Asia exchanges agree on governance metrics for listed companies

Six stock exchanges based in Southeast Asia agreed on Sept. 12 to 10 governance metrics aimed at encouraging companies to disclose consistent sustainability-related information on topics that are material to their business. Bursa Malaysia, Indonesia Stock Exchange, Philippine Stock Exchange, Singapore Exchange Group, Vietnam Exchange, and the Stock Exchange of Thailand said in a joint statement that the metrics would be aligned to international standards and would seek to drive sustainable investment in the region. The metrics include measuring gender equality on corporate boards, the percentage of independent directors on corporate boards and whether a company’s chairman and CEO roles are separate, equal treatment of shareholders and disclosure of a company’s code of ethics or conduct. The metrics are designed to complement sustainability-related metrics previously announced by the exchanges.

Latin America and the Caribbean

Brazil launches consultation on sustainable finance taxonomy

Brazil’s Finance Ministry said it had launched a consultation on Sept. 21 on the creation of the country’s own sustainable finance taxonomy to drive public and private investment in economic activities that have a positive environmental, social and climate impact, to promote technological innovations in sustainability and to create reliable data related to sustainable finance. The taxonomy’s environmental objectives include climate mitigation and adaptation, biodiversity protection, responsible use of water and marine resources and the transition to a circular economy, the ministry said. It will also focus on social issues such as decent work conditions, reducing inequalities based on race, gender and region and improving quality of life through expanded access to basic social services. The taxonomy is scheduled to be published in November 2024 and would become mandatory in 2026 after a first year of voluntary implementation, the ministry said. The consultation was scheduled to end on Oct. 20. Taxonomies have been springing up globally as a way to steer investment into sustainable activities.

Africa

Kenya commits to net-zero by 2050, launches green hydrogen strategy

The government of Kenya committed on Sept. 5 to a 2050 net-zero target and launched a new green hydrogen strategy and roadmap for the country, developed with the European Union. The roadmap outlines how Kenya aims to develop its green hydrogen industry by 2032 and beyond, the EU said. It focuses on domestic market development and growth and exports, and it includes specific objectives related to emissions reduction, job creation and direct investments. The EU also said it would commit almost €12 million in grants to leverage public and private investments in the Kenyan green hydrogen industry. The strategy is designed to help the country meet its goal of making its electricity system 100% renewable by 2030. The announcements were made during the Africa Climate Summit, which took place in the Kenyan capital of Nairobi between Sept. 4 to Sept. 6.

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.