Regulatory and Standards Tracker
The European Securities and Markets Authority (ESMA), published a Final Report on the Guidelines on Enforcement of Sustainability Information and a Public Statement on the first application of the ESRS.
CS3D published in the Official Journal/FAQ
The Corporate Sustainability Due Diligence Directive (CS3D) has been published in the Official Journal of the EU on 5 July 2024. Member states have two years to transpose the CS3D into national laws with CS3D applying the year after.
The Commission has also published related frequently asked questions to assist companies in the application and implementation of CS3D. As well as covering scope and application of CS3D, the FAQs also clarify issues relating to auditing and assurance requirements.
EFRAG has released a study into preliminary practices related to the implementation of European Sustainability Reporting Standards (ESRS). Recognising the nascent stage of implementation, the study aims to provide an overview of emerging practices analysed against four focus areas key to the implementation of ESRS (being materiality assessment, value chain, gap analysis on data and organisational approach). The study also highlights key challenges and is based on information relating to 28 large undertakings based in the EU and includes both financial and non-financial undertakings.
Further information and analysis in relation to the four focus areas and ESRS can be found in Horizons01 and Horizons02.
EFRAG announced the release of 23 further Explanations for the purposes of providing practical and timely support to stakeholders in implementing ESRS. The explanations have been added to the Compilation of Technical Explanations and increases the number of explanations announced during 2024 to 93. Users will find the additional explanations grouped according to their nature and relevant disclosure requirements. In an effort to improve usability, hyperlinks and a log of questions received can now be found in the Compilation of Technical Explanations.
Further information and analysis in relation to guidance and resources provided by EFRAG can be found in Horizons01 and Horizons02.
In a further aim to improve usability and increase efficiency, on 6 August 2024, the European Commission published a set of frequently asked questions aimed at supporting users to implement the EU corporate sustainability reporting rules. The FAQs (i) set out the interpretation of certain provisions of Corporate Sustainability Reporting Directive (CSRD), (ii) clarify certain provisions of SFDR and (ii) clarify certain aspects of the first set of ESRS.
Further information and analysis in respect of CSRD, SFDR and ESRS can be found in Horizons01 and Horizons02.
“The EU has taken major steps in building a comprehensive sustainable finance framework over the past six years, encouraging companies to embark on their transition paths. Our focus now is to ensure that our tools are usable and effective, while continuing to reduce the administrative burden on companies.”
Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuiness.
ESMA has published an opinion aimed at improving the usability and coherence of the EU sustainable finance regulatory framework. The opinion takes into account the Joint ESAs Opinion on the SFDR (see Horizons02). The following key recommendations are included in the opinion: (i) the EU Taxonomy should be completed and extended to include a social taxonomy and become the sole, common reference point for assessment of sustainability; (ii) the concept of ‘sustainable investments’ in SFDR should be phased out; (iii) a number of recommendations have been made in support of the transition including providing a legal definition of transition investments and high-quality standards for transition bonds and sustainability-linked bonds; (iv) adapted transparency recommendations including minimum sustainability KPIs for all sustainability financial products; and (v) introduction of a product categorisation system for sustainable and transition investments
The Financial Reporting Council (FRC) announced changes to the UK Stewardship Code application process in July 2024 committing to five key areas as part of the next stage of revisions to the Code. These five areas are: (i) purpose (considering all stakeholder views and clarifying what is meant by effective stewardship), (ii) principles (the reporting that is necessary), (iii) proxy advisors (how the Code can promote greater transparency), (iv) process (reducing the burden of reporting and improving the usability and accessibility of information) and (v) position (aligning and working with other regulators).
The FRC issued its second assessment of the quality of reporting from private companies choosing to follow the Wates Principles. The report shows that the Wates Principles are most frequently used amongst large private companies. The assessment highlights some areas of improvements since the last report however indicates that companies continue to find certain key disclosures challenging including outlining purpose, relating such purpose to wider strategy and values and explaining the impact of stakeholder engagement on board decision-making.
TNFD/GRI: alignment and interoperability
The TNFD and GRI have published a guidance document and the TNFD-GRI interoperability mapping aligning the TNFD’s Recommendationswith relevant GRI standards.
Please see Horizons01 and Horizons02 for further analysis on TNFD Recommendations, GRI standards and alignment of ESG standards.
In July the Taskforce for Nature-Related Financial Disclosures published additional guidance for banks, re/insurance companies, asset managers, owners and DFIs. The document includes guidance final TNFD disclosure metrics, mapping SFDR Principal Adverse Impact metrics to TNFD core metrics as well as additional resources and references.
The Science Based Targets initiative has published four technical outputs as part of the revision of the SBTi Corporate Net-Zero Standard. The technical outputs include (i) a scope 3 discussion paper (ii) evidence received on the effectiveness of Environmental Attribute Certificates (iii) Synthesis report of evidence on the effectiveness of Environmental Attribute Certificates in corporate climate targets – Part 1: Carbon credits and (iv) Findings of independent systematic review on the effectiveness of carbon credits in corporate climate targets.
The updated NZIF revises terminology, criteria as well as the guidance on several asset classes. The updates include: (i) the new Portfolio Decarbonisation Reference Objective has been clarified to better support the goal of “financing reduced emissions” rather than “reducing financed emissions, (ii) new guidance has been included for Sovereign Bonds, Real Estate and Private Debt, Infrastructure and Private Equity, and (iii) new emissions performance criterion for listed equities and corporate fixed income. NZIF also includes examples of best practice.
The International Corporate Governance Network has published a report which sets out a guide to understanding sustainability reporting, investor expectations regarding sustainability reporting, the quality of external assurance and key questions that investors can consider raising with boards.
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