Staying abreast of regulatory changes is crucial for sustainable investors navigating an evolving landscape. In Q4 2024, we see significant updates from Europe, Asia-Pacific, and North America, with new requirements impacting disclosures, climate risk management, and sustainability practices across sectors. Here's a region-by-region breakdown of what to expect.
Europe
EU Taxonomy Expanded Disclosures
For fiscal year 2024, companies are mandated to expand their EU Taxonomy disclosures to include not just climate-related objectives but also four additional environmental metrics: biodiversity, water and marine resources, the circular economy, and pollution prevention. This expanded scope will apply to reports submitted in 2025, based on data collected in 2024.
SFDR Uncertainty Persists
The European Commission continues to review the updated SFDR Regulatory Technical Standards (RTS) published in December 2023. No official timeline for implementation has been set, rendering the status of the intended 2025 start date uncertain.
UK SDR and Anti-Greenwashing Rule
Effective from 31st May 2024, the UK’s Anti-Greenwashing Rule enhances transparency in sustainability reporting and fund labelling. While the deadline to meet labelling criteria for funds hoping to use restricted terms was initially set for early December, in recognition of concerns voiced by the industry the FCA have allowed an extension. While the new deadline will only apply for managers who have already submitted applications, these UK-based investment funds will now have until 5pm on 2nd April 2025 to comply with the criteria relevant to their desired sustainability label.
Sector-Specific Transition Guidance Published
The UK Transition Plan Taskforce (TPT) released new guidance in April 2024 tailored to seven sectors, including banking and oil and gas, which focuses on greenhouse gas emissions and need for transition finance. This guidance complements the TPT’s disclosure framework and aligns with the ISSB's standards on transition planning.
European Parliament Approves Supply Chain Due Diligence Rules
Approved in April, the EU Corporate Sustainability Due Diligence Directive (CSDDD) requires companies to assess and manage social and environmental risks in their supply chains. The new rules will be phased in starting in 2027, with varying compliance dates determined by company size and revenue thresholds. These requirements will extend to non-EU companies that conduct significant operations within the region.
EU Adopts Revised Energy Efficiency Rules for Buildings
New directives aim for zero fossil fuel emissions in new buildings by 2030, with significant energy reduction requirements for existing structures. Timelines vary by member state.
Asia-Pacific
Australia's Climate Risk Guidelines
Seeking to build on its 2021 Prudential Practice Guide (CPG 229) for managing climate change financial risks, the Australian Prudential Regulation Authority (APRA) launched a self-assessment period for financial institutions to evaluate their exposure to climate-related risks in April 2024. Results from the the self-assessments will inform the updated guidelines projected to be released by the end of the year.
Establishment of Australia’s Environment Protection Agency (EPA)
Announced in April, this new regulatory body will oversee a broad range of environmental issues, from air quality to hazardous waste. As it transitions to an independent agency, the EPA will have enforcement powers to ensure compliance with environmental standards, including oversight of project approvals, environmental assessments, and issuing permits. It will also oversee regulatory activities in areas such as recycling, hazardous waste, air quality, wildlife trafficking, and ozone protection, with new powers to monitor and enforce adherence.
South Korea Aligns Disclosure Standards
The Korea Sustainability Standards Board (KSSB) released draft sustainability disclosure standards aligned with ISSB frameworks, specifically IFRS S1 and IFRS S2, with adjustments for the South Korean market. These standards include two mandatory disclosures (KSSB 1 and KSSB 2) and an optional standard (KSSB 101) for selective reporting. Notable differences from ISSB include adjustments to the reporting requirements for Scope 3 emissions, with the final decision on mandatory Scope 3 reporting pending public feedback.
Malaysia Initiates Consultation on Enhanced Sustainability Disclosures
Also in April: Capital Markets Malaysia (CMM) launched a consultation to develop enhanced environmental and social disclosure guides for key sectors, specifically targeting the energy, transport and storage, construction and real estate, agriculture, and manufacturing sectors. While the focus is primarily on small and medium-sized enterprises (SMEs), CMM encourages participation from larger companies, multinationals, and publicly-listed firms. This sector-specific guide aims to complement CMM's Simplified ESG Disclosure Guide, released in October 2023, which provides standardised ESG disclosure guidelines in line with global and local frameworks.
US & Canada
US SEC Climate Rule Delays
As of Q4, legal challenges have delayed implementation of the SEC's climate disclosure rule, which would mandate Scope 1 and 2 emissions reporting for large filers by 2026. Uncertainty remains around the final timeline.
US EPA Finalises New Rules to Slash Carbon Emissions, Tackle Pollution
In April, the US Environmental Protection Agency (EPA) finalised four new rules aiming to curb carbon emissions and reduce pollution. Requirements include a 90% CO2 capture rate for coal and gas plants as well as to new natural gas-fired generators. They also mandate stricter mercury and air toxics standards, reducing toxic metals and mercury emissions by up to 70%, and that coal plants must reduce water pollutants by over 660 million pounds annually, with operators facing additional requirements to safely manage coal ash to prevent contamination.
Canada Introduces Federal Plastics Registry
Introduced in April, the Federal Plastics Registry mandates that companies track and report the types and quantities of plastics they manufacture, import, and market. Reporting starts in 2025 and applies to resin manufacturers, service providers, and product producers. Plastic product producers will also need to report on plastics collected for reuse, recycling, and disposal. Requirements will be phased in through 2027.
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