ESG Regulations: Global Update May 2024
As ESG regulations rapidly develop, FTI Consulting is providing a quick summary of need to know updates across the globe.
Corporate Sustainability Disclosures
ISSB Global Sustainability Standards
SEC Climate Rule
As ESG regulations rapidly develop, FTI Consulting is providing a quick summary of need-to-know updates from around the globe. This month we cover the status of the recently adopted climate disclosure rule in the United States, efforts from the government in China to chart a path for sustainability disclosures, and the official launch of ISSB-aligned climate reporting standards in Hong-Kong.
1. Securities Exchange Commission (SEC) Stays Climate-Related Disclosure Rules for Investors
What do I need to know?
- The SEC has voluntarily stayed the implementation of the climate rules, adopted recently in March, in part to avoid regulatory uncertainty if registrants were to become subject to the final rules’ requirements during the pendency of the challenges to their validity.
- The rule’s pause creates uncertainty for SEC-listed corporate registrants, but companies shouldn’t delay efforts to prepare, as it is currently unclear whether or how the stay will affect the timeline for implementation.
What’s next:
- The SEC has clearly vowed to defend the validity of its regulation in court, but the court outcome is uncertain.
2. The Chinese Ministry of Finance Issues a Proposal for an ESG Reporting Guideline
What do I need to know?
- The proposed reporting guideline generally aligns with the IFRS S1 standards of the ISSB framework, with differentiated elements implemented to “reflect Chinese characteristics”.
- Most notably, different from ISSB, the Chinese reporting guideline will require entities to provide disclosures on sustainable risks and opportunities that have an impact on the business as well, including impacts that a business has on stakeholders in the value chain, aligning closely with CSRD’s concept of double materiality. The ISSB framework in its original form focuses exclusively on single materiality, or how sustainability issues affect a company’s financial performance.
- The new framework has an overarching goal to unify existing requirements mandated by China’s main stock exchanges which currently require listed and dual listed companies to report on select sustainability themes. The new guidelines will be phased in gradually, first requesting disclosures on a comply-or-explain basis for listed companies, and then extending to non-listed companies over time.
- The proposal does not state any requirements for limited assurance.
What’s next?
- There are no immediate requirements, as the Ministry of Finance is soliciting public comments until June 24, 2024.
- The Ministry of Finance aims to introduce the Basic Corporate Sustainability Disclosure Standards by 2027, and fully establish a unified national system for sustainability disclosures by 2030.
2. Hong Kong launches New Climate Requirements
What do I need to know?
- The Hong Kong Stock Exchange (HKEx) published conclusions to the proposal they issued last year for the Enhancement of Climate-related Disclosures Under the Environmental, Social and Governance Framework, resulting in the adoption of the ISSB standards for sustainability disclosures.
- The New Climate Requirements align with IFRS S2 standards and will mandate Scope 1 and 2 emissions disclosures beginning as soon as 2025, for reporting year starting on or after January 1st 2025, with large cap issuers required to report Scope 3 and other emissions the following year, for reporting year starting on or after January 1st, 2026.
- Limited assurance is not yet required, but will be gradually phased in.
What’s next?
- The New Climate Requirements has been adopted and will come into effect on January 1st, 2025.
- All issuers listed on HKEx will be required to provide climate-related disclosures.
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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