ESG Regulations: Global Update June 2023
As ESG regulations rapidly develop, FTI Consulting is providing a quick summary of need to know updates across the globe.
ESG Ratings
Climate-related Financial Risks
Human Capital Management
Emissions Reporting
Fossil Fuel Divestment
This month, we cover the EU ‘s proposal to regulate ESG ratings providers for sustainable investment funds. In the US, we outline updated timings from the United States SEC on disclosure rules, and proposed legislation in California to require corporate emissions and climate reporting, as well as public divestment from fossil fuels.
1. Proposal for a Regulation of ESG Ratings Providers
What do I need to know?
The European Commission put forward a proposal to provide transparency and ensure quality from ESG ratings providers for sustainable investment funds. The proposal requires authorization and supervision by the European Securities and Markets Authority (ESMA) for ESG ratings providers with services in the EU. The regulation would also mandate rigorous and systematic methodologies that are reviewed annually, as well as public disclosure of the models and methodologies that inform the ESG ratings. Additionally, ESG rating providers would be required to eliminate opportunities for conflicts of interest in their organizational design to ensure objectivity.
What’s next?
The file will now enter European Parliament and Council for negotiations. If passed, these regulations would go into effect in 2025 at the earliest.
2. Updates to SEC Disclosure Timings
What do I need to know?
The United States Securities and Exchange Commission (SEC) updated the date for the finalization of its Climate Change Disclosure rule, which would require companies to disclose information on climate-related risks to financial condition. The SEC also published an October 2023 date for the release of draft legislation on Human Capital Management Disclosure, which would mandate that companies disclose information on their human-capital resources, potentially covering metrics related to diversity, retention, and development of staff.
What’s next?
Barring further delays, we can expect further action on both of these pieces of legislation in October of 2023.
3. California State Legislation on Emissions, Climate Reporting, and Fossil Fuel Divestment
What do I need to know?
California’s legislature has put forward several ESG-related proposals across the public and private sectors. For large companies, the state is reviewing legislation that would require corporations with firmwide revenues greater than $1 billion doing business in California to report Scope 1, 2, and 3 emissions annually, starting in 2026. This comes at the same time as another proposal that would mandate companies with at least $500 million in revenue that do business in California to report on their climate-related financial risks by December 31, 2024. For the public sector, a third proposal aims to have California’s two major public pension funds – the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) – divest from fossil fuel companies by July 1, 2030.
What’s next?
These proposals have passed the Senate and have progressed to review by the relevant Assembly committees.
Contact us: For further information on how your business can better navigate emerging ESG regulations, please contact Ben Herskowitz, Senior Managing Director, U.S. at [email protected]
The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.
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