1 Apr, 2022

Sustainable Finance Regulatory Update: March 2022


With a growing influence and reach of non-state actors, there has consistently been an effort to design standards and frameworks aligning the activities of the private sector with sustainability objectives. In the context of trade, the legitimacy of EU’s climate sovereignty will be preserved using a new carbon-leakage mitigation measure. The S.E.C. has sounded off the alarm bells for climate-related financial risk, but progressive rulemaking to this effect is tricky in Washington. A new biodiversity successor to TCFD – the TNFD – brings the topic of biodiversity into focus. Leading standard-setters GRI and IFRS will work together to develop a sustainability reporting ‘baseline’ through an investor-focused lens. These are some of the major ESG regulatory updated featured in our March 2022 update below. 

EU imposes carbon tax on imported products 

EU countries have reached an agreement on a Carbon Border Adjustment Mechanism (CBAM) to prevent the risk of carbon leakage. The policy will take aim at companies outsourcing carbon emissions abroad, where it may be easier to eschew manufacturing processes oversight. CBAM will be implemented in 2023 to address the offsetting of EU’s GHG emissions reduction efforts and lighten transition risk for companies importing carbon-intensive products to high-value markets. Read more  

EU Taxonomy technical criteria: non-climate objectives and environmental transition taxonomy report published 

The EU boosts its commitment to accountability criteria with its latest publication of technical recommendations for the disclosure of the remaining four non-climate environmental objectives – marine conservation, pollution prevention, circular economy, biodiversity and ecosystems. The new Platform’s report covers more than 60 economic activities in 12 sectors, including manufacturing, transport, agriculture, fishing, buildings and disaster risk management. The European Commission is expected to draft a new Delegated Act building on the Platform’s recommendations in the autumn. Read more 

SEC proposed climate rule

 On 23 March 2022, the SEC published a proposed rule that would require public companies to disclose climate change related risks that “are reasonably likely to have a material impact on its business, operating results in financial condition. The rule, once finalized, will require Scope 1 and 2 GHG emissions metrics to be disclosed separately, shown both by disaggregated constituent GHGs and in the aggregate, as well as in absolute and intensity terms. The SEC offers leeway for supply chain emissions, as Scope 3 emissions reporting is subject to materiality. Read more 

TNFD releases beta version of framework for nature-related risk management 

TNFD released the first version of a framework to demystify the concepts and definitions of nature-related risks and opportunities. It follows an “open innovation” approach by soliciting feedback from market participants on an online platform. The framework’s beta version offers guidance to support internal strategy and risk management processes within corporations and financial institutions, thus illustrating the function of disclosure findings to inform corporate and capital allocation decisions. Read more  

GRI and IFRS announce collaboration on global sustainability standards 

The Global Reporting Initiative (GRI) and the IFRS Foundation have agreed to jointly develop a global baseline for investor-focused sustainability reporting standards. GRI’s sustainability reporting requirements will complement IFRS’s investor-focused capital markets standards to promote good governance schemes and meet multi-stakeholder needs. Both organizations’ standard-setting boards will work in a consultative capacity in the lead up to ISSB’s draft publication of “game changing” standards for climate reporting published on 31st March 2022 week. Read more

Republic of Korea enacts Carbon Neutrality and Green Growth Act for Climate Change 

South Korea enacted the Carbon Neutrality and Green Growth Act for the Climate Change. In furtherance of targets set forth at COP26, Korea will require its government to cut its greenhouse gas emissions by 35% of 2018 levels and achieve carbon neutrality by 2050. The law entered into force on 25th March 2022. Read more 

Other News & Resources 

  • BIS Working Paper: Deconstructing ESG scores: In this working paper, BIS proposes sustainability impact assessment by breaking down ESG scores into granular components. In what is called a “targeted” ESG investment strategy, asset managers may exclude firms with the lowest selected ESG category scores and reinvest proceeds in firms with the highest scores having the same regional and sectoral composition. Read more 
  • U.S. Department of Labor takes measures to protect retirement savings from climate-related risks: The U.S. Department of Labor has issued a Request for Information seeking input from the public on agency actions to protect retirement savings from climate-related risks. Read more 
  • Bursa Malaysia doubles down on sustainability reporting: Malaysia’s Stock Exchange has proposed amendments to the “Listing Requirements” in a public consultation paper in order to enhance sustainability reporting practices and climate-related financial disclosures. The consultation paper on the proposed amendments to the Listing Requirements is available here. Interested parties are invited to submit their comments and feedback to Bursa Malaysia by 18 May 2022. Read more
  • European Supervisory Authorities clarify application of SFDR for investors: EU’s ESAs have issued a revised statement to promote the consistent application of SFDR. The supervisory bodies clarify disclosure expectations under the Taxonomy Regulation and encourage the application of relevant measures under SFDR. Read more
  • EFRAG issues its Due Process Procedures for Sustainability Reporting Standard Setting: EFRAG announced the publication of the Due Process Procedures for Sustainability Reporting Standard-Setting (the DPP). The provisions contained in the DPP apply to the preparation of draft EU sustainability reporting standards by EFRAG.