ESG Policies and Regulations Update November 2023
The following document details framework updates that occurred in November, as well as highlighting some key updates and releases to be aware of in the coming few years. Frameworks such as those explored in this report can help stakeholders understand how an organisation manages risks and opportunities around such sustainability issues. Often used as a communication tool, it can play an important role in demonstrating the sincerity of a company’s actions as well as ensuring good governance.
The global regulatory landscape has experienced exponential growth in the past few decades, with 647% increase in ESG regulations since the start of the 21st century. In June, global ESG regulations were found to have increased by 155% in the last 10 years. 1,255 ESG regulations have been introduced worldwide since 2011 yet to compare, only 493 regulations were published in the 9 years from 2001 to 2010.
Furthermore, four in ten British businesses believe sustainability to be profitable, according to a study conducted by SAP. 37% of 300 UK-based business leaders have stated they are therefore motivated to act on environmental sustainability as they see opportunities to boost financial performance.
November 2023 Update
The general observed trends within frameworks include a growing focus on disclosure, regarding both data and strategy, as well as an increased engagement of supply chains. Climate impacts are also seeing greater levels of inclusion into regulations and policies.
| Framework | Update | Date |
|---|---|---|
| SBTi | The SBTi has updated its definition of Small and Medium-Sized Enterprises (SMEs) that qualify for the SME target validation route. | 1 Nov 2023 |
| ESRS | The launch of a new agreement will see CDP maximise the alignment of its disclosure system with the EU’s recently adopted ESRS, which underpins the CSRD. | 8 Nov 2023 |
| SBTN | The Science-Based Targets Network plans to roll out target validation process in mid-2024. | 17 Nov 2023 |
| GRI | The GRI climate change-related Standards, GRI 302: Energy 2016 and GRI 305: Emissions 2016 have been revised. | 21 Nov 2023 |
| SBTi | The SBTi has opened a call for Financial Institutions to pilot its updated Near-Term Criteria and Recommendations. | 24 Nov 2023 |
| SDR | The SDR consultation policy statement has been released by the Financial Conduct Authority. | 28 Nov 2023 |
Implications
The Science-Based Target initiative (SBTi)
The SBTi is a global body enabling businesses to set ambitious emissions reductions targets in line with the latest climate science. Following the new definition of a Small and Medium-Sized Enterprise (SME), all of the below points must be met for a company to be considered an SME:
- Have <10,000 tCO2e across scope 1 and location-based scope 2 emissions
- Do not own or control maritime transport vessels
- Do not own or control power generation assets
- Are not classified in the Financial Institution (FI) Sector or Oil & Gas (O&G) Sector
- Are not a subsidiary of a parent company whose combined businesses fall into the standard validation route
And two or more of the below points:
- Employ <250 employees*
- Turnover of <€40 million*
- Total assets of <€20 million*
- Are not in a mandatory Forest, Land and Agriculture (FLAG) sector
*aligned to the European Union’s CSRD SME Criteria
This means that companies who are now in scope of the new definition of SME do not need to set near-term targets for their scope 3 emissions. Instead, they must commit to measure and reduce these emissions. However, if organisations are no longer in scope, scope 3 will therefore need to be included in these targets.
Alongside the new SME definition, the Science Based Target Network (SBTN) is expecting to finish the pilot for nature targets in the spring in 2024. This means the process and land targets will be rolled out by the end of the first half of the year. A few months of delays were needed to ensure “the optimal balance between scientific rigor and practicality”.
Finally, Financial Institutions should consider piloting the updated Near-Term Criteria and Recommendations V2.
European Sustainability Reporting Standard (ESRS)
The ESRS are standards that define the rules of the Corporate Sustainability Reporting Directive (CSRD). They require companies to report on their impacts on people and the external environment alongside reporting financial risks and opportunities impacted by environmental and social issues.
The CDP (formerly Carbon Disclosure Project) will explore and implement alignment of its disclosure system. CDP will offer webinars and detailed technical guidance materials to support companies reporting on ESRS data points through CDP. The ultimate aim is to accelerate the market uptake of the ESRS, as CDP disclosing companies represent two-thirds of global stock market capitalisation and nearly 90% of European market value.
Global Reporting Initiative (GRI)
GRI is a broad framework of standards for reporting on sustainability with requirements, recommendations and guidance on 900 sustainability topics. Following the need to report impacts beyond energy consumption and GHG emissions, new subjects have been included in GRI 302: Energy 2016 and GRI 305: Emissions 2016, including transition plans, carbon credits, emissions targets and just transitions. These incorporate impacts that reflect stakeholder expectations, to represent updates and internationally agreed best practice and align with recent developments and relevant authoritative intergovernmental instruments.
The Climate Change Standard draft will enable organisations to:
- Focus on the social impacts of climate change under the new just transition disclosure
- Report the impacts of climate change on biodiversity
- Detail annual progress on emissions reduction targets
- Disclose climate change transition and adaptation plans and actions
- Be transparent on carbon credits and GHG removals
The revised Energy Standard focuses on energy consumption, reduction, efficiency and renewable energy sourcing.
Sustainability Disclosure Requirements (SDR)
The SDR is an integrated and streamlined reporting framework that brings together sustainability-related reporting requirements under one roof for corporates and financial institutions. The aim is to improve the trust and transparency of sustainable investment products and minimise greenwashing. The publication of SDR statement sees four labels introduced to sustainable funds, to help investors understand what their money is being used for, based on clear sustainability goals and criteria. These four labels are “sustainable focus”, “sustainable improvers”, “sustainable impact” and “sustainability mixed goal”.
The new label, “sustainability mixed goal”, will bring funds that invest in a blend of strategies into the regime. The new regime will largely come into force in December 2024, but labels can be used from August. This means those financial firms with the ability to mobilise quickly can gain a commercial advantage.
Upcoming Changes
| Date expected | Framework | Description |
|---|---|---|
| December 2023 | GRI | New GRI Biodiversity Standards expected to be approved |
| December 2023 | CDP | New questions to be released on biodiversity, requesting Board level oversight, public commitments, the impact of the value chain, actions to progress the topic, indicators and related publications |
| January 2024 | ISSB | IFRS S1 and IFRS S2 annual reporting begins |
| January 2024 | Taxonomy | Financial undertakings are required to disclose KPIs and other specified information |
| January 2024 | ESRS | Mandatory disclosure requirements under CSRD coming into effect |
| June 2024 | TCFD | FCA ESG Rules: TCFD disclosures relating to Financial Year 2023 to be finalised |
| June 2024 | SDR | First elements of the new rules (excluding anti-greenwashing rule) to come into force – at the earliest |
| July 2024 | ESRS | Anticipated adoption of the second draft of ESRS |
| July 2024 | UK SDS | Secretary of State for Business and Trade will consider the endorsement of the IFRS Sustainability Disclosure Standards, to create the UK SDS |
| 2024 | CSRD | Due to supersede NFRD in 2024. Large companies already subject to NFRD must begin reporting on the fiscal year 2024 |
| 2024 | CSDDD | Application of CSDDD to certain EU and non-EU companies expected to begin at some stage in 2024 |
| 2024 | GHG Protocol | Expected to release drafts of revised text |
| January 2025 | CSRD | Expected application of CSRD to large EU reporting. Sustainability reporting in 2026 for Financial Year 2025 |
| 2025 | GHG Protocol | Final standards and guidance to be released |
| 2025 | UK SDS | Suite of KPIs will need to responded on from 2025 onwards |
| January 2026 | CSRD | Expected application of EU CSRD to listed SMEs (may affect a small number of portfolio companies) |
| January 2028 | CSRD | Expected application of EU CSRD to non-EU companies, reporting in 2029 for Financial Year 2028 |
How we can help
We can support you and your organisation navigate the complexities of voluntary and mandatory reporting, as well as the regulatory frameworks around sustainability. Please contact us to speak to one of our experts.
Abbreviations
CDP – (formerly) Carbon Disclosure Project
CSRD – Corporate Sustainability Reporting Directive
ESRS – European Sustainability Reporting Standards
GHG Protocol – Greenhouse Gas Protocol
GRI – Global Reporting Initiative
ISSB – International Sustainability Standards Board
NFRD – Non Financial Reporting Directive
SBTi – Science Based Target initiative
SBTN – Science Based Target Network
SDR – Sustainability Disclosure Requirements
TCFD – Taskforce for Climate Related Disclosure
UK SDS – Sustainability Disclosure Standards
