S-RM’s round-up of the latest regulatory and policy updates relating to ESG from around the globe.
Key news in this edition:
- Council of the European Union formally adopts the Corporate Sustainability Reporting Directive
- Malaysian stock exchange launches voluntary carbon credit market
- Australia's Clean Energy Council uncovers modern slavery abuses in renewable energy supply chains.
LISTEN TO ESG WATCH
Council of the European Union adopts Corporate Sustainability Reporting Directive
On 28 November, the Council of the European Union adopted the Corporate Sustainability Reporting Directive (‘CSRD’). The CSRD expands on existing provisions of the 2014 Non-Financial Reporting Directive, by requiring all large companies and their subsidiaries to report on various matters including environmental rights, human rights, social rights, and governance issues. These requirements also apply to entities listed on regulated markets, with the exception of listed micro undertakings. By mandating consistent ESG reporting, the CSRD aims to attract private capital investment to support the transition towards a sustainable economy, as part of the European Green Deal and the Sustainable Finance Agenda.
UK Financial Conduct Authority establishES a new ESG Advisory Committee
On 13 December, the UK Financial Conduct Authority (‘FCA’) announced the establishment of a new ESG Advisory Committee to help its board implement its ESG strategy. The Committee will also advise the board about emerging ESG-related issues and assist the FCA in the development of an ESG strategy that aligns with the regulator’s principles and objectives. Six individuals were selected for the committee from academia and the private sector, they will be joined by the Chairman of the FCA, FCA’s Director of ESG and other non-executive directors.
Swiss Federal Council publishES Strategy to Prevent Greenwashing in the Financial Sector
On 16 December 2022, the Swiss Federal Council (‘SFC’), the governing body of the Swiss Confederation, published a position paper on the prevention of ‘greenwashing’ in the financial sector. According to the paper, in order to label or advertise a financial product or service as sustainable, it has to be compatible with, or contribute towards, the achievement of at least one specific sustainability goal. Furthermore, it outlined the necessity for reporting requirements, accountability and enforcement of its directives. The SFC also announced the creation of a new working group under the Swiss Federal Department of Finance, to assess and examine the best way to implement SFC’s position on greenwashing.
Malaysian Stock Exchange launches carbon credit market
On 9 December 2022, Bursa Malaysia Berhad, Malaysia’s stock exchange, launched the Bursa Carbon Exchange (‘BCE’), a Shariah-compliant, voluntary, market on which Malaysian companies will be able to trade carbon credits generated through climate-positive projects. Permitted projects include technology-based and nature-based solutions which contribute to the reduction, elimination and avoidance of greenhouse gas emissions. The BCE is due to begin trading in March 2023. The first trades on the platform will be conducted through an auction process. The BCE aims to provide incentives for the development of low carbon businesses, in order to help Malaysia meet its net zero greenhouse gas target by 2050.
Japanese Financial Service Agency publishes Code of Conduct for ESG Evaluation and Data Providers
On 15 December 2022, the Japanese Financial Service Agency (‘FSA’), the financial regulatory body in Japan, finalised guidelines establishing the code of conduct for ESG evaluation and data providers, who provide, collect, evaluate ESG initiatives of companies and ESG-related products such as bonds and loans. The guidelines, named “Code of Conduct for ESG Evaluation and Data Providers”, aim to heighten transparency and reliability of ESG research firms’ data-gathering methodologies. The new guidelines ask ESG data providers operating in Japan to adopt six principles which focus on the importance of data quality, transparency, professionalism, independence, confidentiality and communication. The FSA called on ESG ratings and data providers to endorse the code of conduct, publish it on their websites and notify the regulator.
Peruvian ruling prevents local governments from granting logging concessions on reserves owned by indigenous communities
On 21 November, the Supreme Court of Loreto, Peru ruled against logging concessions granted by the regional government of Loreto on reserves owned by indigenous communities. The court also ordered the regional government of Loreto to abstain from reactivating, re-shaping or establishing new forestry concessions within a wide number of indigenous reserves in the region. This decision also formally recognises the existence of these indigenous communities, including the Matsés, Remo -Isconahua, and Marubo peoples, who live in voluntary isolation in Peru.
Brazil regulator to apply new rules for ESG labelling
On 23 December 2022, Comissão de Valores Mobiliários (‘CVM’), Brazil’s securities and exchange commission, issued a new resolution containing changes to the labelling of ESG funds. The new resolution states that suffixes such as "ESG", "environmental", "green", "social", and "sustainable" can only be used in the names of investment funds that “seek to generate socio-environmental benefits". Funds wishing to adopt these labels must clearly specify, among other things, what environmental, social and governance benefits are expected and how their investment policy seeks to generate those; and which methodologies or principles would be adopted. The resolution will come into force in April 2023.
Australia's Clean Energy Council uncovers modern slavery abuses in renewable energy supply chains
On 29 November, Australia’s Clean Energy Council (‘CEC’), an Australia-based non-profit membership organisation focused on renewable energy, in collaboration with the law firm Norton Rose Fulbright (‘NRF’) published a white paper detailing evidence linking modern slavery to renewable energy supply chains. Among the examples detailed in the report are: allegations of substandard labour conditions in the provision of balsa wood for wind turbines from the Ecuadorian Amazon; and alleged forced labour in a cobalt mine in Zambia for lithium-ion batteries. The report recommends several strategies to be implemented by the government, businesses, investors and consumers, to better address modern slavery risks. These include greater supplier due diligence, a move towards improving domestic manufacturing capabilities, and a global supplier certification system.