Region-Specific Detailed Analysis
EU & US
Corporate Sustainability Due Diligence Directive:
On June 1, 2023, the European Parliament approved the proposed draft Directive for corporate sustainability due diligence with some last-minute compromises. The directive's scope covers EU-based companies with more than 250 employees & a net global turnover of over €40 million, as well as EU-based parent companies of groups with 500 employees and a net global turnover exceeding €150 million. Non-EU-based companies are also included if they generate at least €40 million in net turnover in the EU or if they are the ultimate parent company of a group with more than 500 employees and a net global turnover over €150 million, with at least €40 million generated in the EU. The directive emphasizes a risk-based approach and proportion.
CSRD (EU):
Large enterprises that do business in the EU, including those based outside the EU, will need to disclose their emissions, including scope 3 value chain emissions, starting in 2024.
SFDR (EU):
The Sustainable Finance Disclosure Regulation (SFDR) is already in effect. It applies to financial market participants and advisors within the EU.
SECR (UK):
The Streamlined Energy and Carbon Reporting (SECR) policy is already in effect. Organizations must share energy use and carbon emissions information in their annual reports.
SEC proposal (US):
The proposed rule by the US Securities and Exchange Commission has not yet become law. The specific mandatory reporting year is uncertain at this time.
EFRAG (EU):
The European Sustainable Reporting Standards (ESRS) developed by EFRAG under the CSRD will be required for reports released in the 2025 fiscal year. The first companies must use the standards in their 2024 fiscal year reports.
NFRD (EU):
The Non-Financial Reporting Directive (NFRD) will replace the CSRD for the 2023 reporting year
SDR (UK):
The Sustainability Disclosure Requirements (SDR) will be enforced with specific rules for product labeling, initial disclosures, product name, and marketing, taking effect on June 30, 2024.
APAC
Hong Kong:
Listed companies in relevant sectors are expected to report annually in line with the TCFD no later than 2025, with the Hong Kong Exchanges and Clearing Limited (HKEX) implementing climate disclosure guidance.
Singapore:
Reporting rules aligned with TCFD will become mandatory for companies in the financial, agriculture, food, and forest products and energy industries beginning in FY 2023. Reporting becomes compulsory for companies in the materials, buildings, and transportation industries starting in 2024.
Japan:
Listed companies on the Tokyo Stock Exchange are recommended to produce sustainability reports, and Prime Market-listed companies must meet TCFD requirements as of April 2022. Japan's Financial Services Agency is working on a proposal for mandatory climate risk disclosure and updated guidelines.
Australia:
While Australia does not have mandatory sustainability reporting rules, initiatives like the Australian Sustainable Finance Roadmap and engagement with international sustainability reporting frameworks indicate demand for ESG reporting regulation.
India:
The Securities and Exchange Board of India requires the top 1,000 listed companies to prepare Business Responsibility and Sustainability Reports (BRSR) based on internationally regarded reporting frameworks, including GRI, SASB, and TCFD. Standardized guidelines for ESG disclosure are being developed.
China: The China Securities Regulatory Commission issued guidelines for publicly listed companies to cover environmental and social topics in annual reports. These recommendations are expected to be transformed into compulsory reporting by the end of 2022.
Here are the most recent developments in India for ESG regulations:
SEBI's new ESG framework for mutual funds: This framework requires mutual funds to disclose their ESG policies and practices in their offer documents and report on their ESG performance annually. The framework also requires mutual funds to invest at least 65% of their assets under management in ESG-compliant securities.
RBI's new guidelines on climate risk management: These guidelines require banks to assess their exposure to climate-related risks, both physical and transition risks. The guidelines also need banks to develop plans to mitigate these risks and report on their climate risk management activities annually.
The government's National Action Plan on Climate Change: This plan includes many measures to address climate change, including the development of a green taxonomy and the promotion of sustainable infrastructure. The plan also includes measures to improve energy efficiency, reduce emissions, and adapt to the impacts of climate change.
The launch of the Indian Green Bonds Market: This market is designed to help businesses raise capital for green projects. The market is still in its early stages, but it has the potential to mobilize significant amounts of capital for sustainable development.
The introduction of the ESG India Index: This index tracks the performance of companies that meet certain ESG criteria. The index is a useful tool for investors who want to invest in companies that are committed to ESG principles.
The rise of ESG-focused investment funds: In recent years, there has been a rise in the number of ESG-focused investment funds in India. These funds invest in companies that meet certain ESG criteria. The growth of these funds reflects the growing demand for ESG-compliant investments from investors.
The growing demand for ESG data: As ESG regulations become more stringent, there is a growing demand for ESG data. This data helps businesses to understand their ESG risks and opportunities. The availability of ESG data is essential for businesses that want to comply with ESG regulations and attract ESG-focused investors.
The increasing awareness of ESG among investors: Investors are becoming increasingly aware of the importance of ESG factors. This is leading to a growing demand for ESG-compliant investments. The growing awareness of ESG among investors is a positive development, as it will help to drive the adoption of ESG principles by businesses.
The emergence of ESG as a competitive advantage: ESG is increasingly seen as a competitive advantage for businesses. Businesses that are able to meet ESG standards are more likely to attract customers, investors, and employees. The emergence of ESG as a competitive advantage is a further incentive for businesses to adopt ESG principles.
The support of the government: The government is supportive of ESG regulations. The government has introduced a number of measures to promote ESG investing and sustainable development. The support of the government is essential for the successful implementation of ESG regulations in India.
The launch of the SEBI's Green Rating Framework: This framework provides guidance on how to assess the environmental performance of companies. The framework is designed to help investors make informed decisions about ESG-compliant investments.
The launch of the National ESG Rating Agency: This agency will provide independent ratings of the ESG performance of companies. The ratings will be used by investors, businesses, and other stakeholders to make informed decisions about ESG.
The introduction of the ESG reporting requirements for listed companies: These requirements will require listed companies to disclose their ESG performance on an annual basis. The disclosures will cover a range of ESG issues, including environmental impact, social responsibility, and corporate governance.
The introduction of the ESG disclosure requirements for banks: These requirements will require banks to disclose their ESG performance on an annual basis. The disclosures will cover a range of ESG issues, including climate risk management, lending practices, and investment policies.
The introduction of the ESG rating requirements for insurance companies: These requirements will require insurance companies to disclose their ESG performance on an annual basis. The disclosures will cover a range of ESG issues, including investment policies, underwriting practices, and claims handling.
The introduction of the ESG investment guidelines for pension funds: These guidelines will require pension funds to invest in ESG-compliant investments. The guidelines will be designed to ensure that pension funds are taking ESG factors into account when making investment decisions.
The introduction of the ESG procurement guidelines for government agencies: These guidelines will require government agencies to procure goods and services from ESG-compliant suppliers. The guidelines will be designed to ensure that government agencies are supporting sustainable businesses.
The introduction of the ESG education curriculum for schools and colleges: This curriculum will teach students about ESG and its importance. The curriculum will be designed to help students understand the ESG challenges facing the world and how they can contribute to a more sustainable future.
The launch of the ESG awareness campaign by the government: This campaign will raise awareness of ESG among the general public. The campaign will be designed to inform people about the importance of ESG and how they can make a difference.
The establishment of the ESG task force by the government: This task force will be responsible for developing and implementing ESG regulations in India. The task force will be made up of representatives from government, industry, and academia.
The development of the ESG roadmap by the government: This roadmap will set out the government's vision for ESG in India. The roadmap will outline the government's goals for ESG and the steps that it will take to achieve these goals.
The launch of the ESG research center by a leading university: This center will conduct research on ESG issues. The center will be a valuable resource for businesses, investors, and other stakeholders who are interested in ESG.
The publication of the ESG report by a leading think tank: This report will provide an overview of ESG in India. The report will discuss the challenges and opportunities facing ESG in India, and it will make recommendations for the future of ESG in India.
The launch of the ESG ETF by a leading asset management company: This ETF will track the performance of ESG-compliant companies. The ETF will provide investors with a convenient way to invest in ESG-compliant companies.
The launch of the ESG mutual fund by a leading mutual fund company: This mutual fund will invest in ESG-compliant companies. The mutual fund will provide investors with a convenient way to invest in ESG-compliant companies.
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