May 2021 turned out to be yet another landmark month for ESG regulatory enthusiasts around the world, with particularly noteworthy developments taking place in the US, which is looking set to fill in the European Commission’s shoes as a leading sustainable finance regulator globally:
- US: The Federal Reserve recently joined the global central banks’ Network for Greening the Financial System, while the Securities Exchange Commission (SEC) launched a review of climate-related disclosure for public companies.
SEC Chair Gary Gensler announced that the SEC plans to propose a rule requiring public companies to provide certain human capital disclosures, including among other metrics, workforce metrics relating to diversity, turnover rate and a breakdown of the number of full and part-time employees. The SEC also recently convened the Climate and ESG Task Force to, amongst other things, develop initiatives to proactively identify ESG-related misconduct, with the Acting Chair of the SEC highlighting human rights as one of the fundamental issues to markets and investors.
If you haven’t already, read Commissioner Lee’s Keynote Remarks at the 2021 ESG Disclosure Priorities focusing on the role and importance of sustainability factors in implementing the principle of financial materiality.
- Germany: Human Rights Due Diligence: the German “Due Diligence Act”, or the “Supply Chain Act’, is expected to enter into force in 2022. The rules will apply to companies with more than 3,000 employees and will require that a human rights due diligence process be implemented across companies’ global supply chains. The German legislation must be read together with the EU’s proposed mandatory human rights and environmental due diligence law, which is set to introduce an even more comprehensive standard of due diligence across the EU.
- UK: The UK’s Financial Conduct Authority (FCA) appointed Sacha Sadan director of environment, social, and governance (ESG). He will oversee developing and advocating for the FCA’s approach to sustainable finance domestically and internationally.
- CFA Institute published its proposed harmonised ESG disclosures for funds. The proposal introduces a set of voluntary ESG disclosure standards to be used by investment managers to describe the ESG characteristics of funds and other products in a clearer and more consistent fashion, bringing greater transparency and accessibility to the sustainable investment market. The Exposure Draft further sets out general principles for investment disclosure, namely that all disclosures are complete, reliable, consistent, accessible, clear and concise. Feedback on the principles, requirements and recommendations outlined in the exposure draft of the CFA Institute’s ESG Disclosure Standards for Investment Products is requested by 14 July, with the aim of releasing a final version in time for COP26 in November. The Exposure Draft was written in conjunction with an 18-strong ESG technical committee, as well as asset owners, asset managers, consultants or service providers.
- IOSCO committed to issue reports on disclosures by issuers in mid-2021 and on disclosures by asset managers by end-2021:
With respect to sustainability-related issues in capital markets, the work program calls on IOSCO to re-double efforts in contributing to the urgent goal of improving the completeness, consistency, and comparability of sustainability reporting under the stewardship of its Sustainable Finance Task Force. The Task Force will also continue to progress on two other important areas covering (i) asset managers and greenwashing, and (ii) ESG ratings, and ESG data providers.