top of page

Significant Regulatory Developments: Quarterly Update Q2-2024

The second quarter of 2024 saw significant regulatory developments in sustainable finance and reporting. These topics remain at the heart of political and industry discourse, highlighting a collective commitment. As sustainability remains high on the global agenda, WISF supports the continuous discourse and resulting advancement that is critical to driving meaningful progress.



WISF’s Regulatory Affairs Department summarised key developments of the last quarter in the EU, Switzerland, UK, and Australia.


European Union

The EU Parliament approves the EU Corporate Sustainability Due Diligence Directive after several political discussions:

The EU Parliament adopted the EU Corporate Sustainability Due Diligence Directive (CS3D), on April 24, 2024. The CS3D raises compliance obligations for large EU and non-EU companies concerning human rights and the impact on the environment in their operations and supply chains. Ultimately, the Directive represents a landmark shift from voluntary and due diligence in corporate responsibility to a mandatory obligation for corporations to prevent and address human rights abuses and environmental harm. The CS3D impacts not only EU corporations. It has an extra-territorial effect, imposing rules as well on non-EU companies with business activities in the EU.


Commission publishes summary feedback from the SFDR RTS public and targeted consultation:

On May 3, 2024, the EU Commission published the summary feedback from its consultation on the EU Sustainable Finance Disclosures Regulation (SFDR), which was held from September 14 to December 15, 2023. Key points that emerged from the feedback round:

  • Many respondents support the objectives of the SFDR. Opinions differ on how well the framework has worked so far. Issues such as  unclear legal terms, some irrelevant disclosure requirements and data availability were mentioned.. 

  • Respondents agree on the need for consistency across various sustainable finance rules. However, issues were identified regarding the interaction of the SFDR with the EU Taxonomy, CSRD, MiFID II, Insurance Distribution Directive, and EU Climate Benchmarks.

  • There is strong support for uniform disclosure requirements for all financial products in the EU, with additional disclosures for products making sustainability claims.

  • There is also a strong preference for a voluntary categorisation system at EU level. 


ESMA publishes final guidelines on sustainability-related fund names:

The European Securities and Markets Authority (ESMA) published the Final Report on Guidelines on funds' names using environmental, social, and governance or sustainability-related terms, on May 14, 2024. 

ESMA classified ESG-related fund names into three categories, each with specific  sustainable finance strategy requirements:

  • Transition, Social, and Governance Terms: referring to terms like "transition", "social" and "governance" that indicate improvements, social characteristics, or governance focus.

  • Environmental and Impact Terms: referring to terms like "green", "climate" or "impact".

  • Sustainability Terms: referring to terms derived from "sustainable”. 


ESMA has issued rules regarding quantitative thresholds and minimum safeguards (exclusions) for each of the categories. 

Funds using transition, social, and governance-related terms shall invest at least 80% in environmental or social investments. These funds shall exclude companies involved in controversial weapons, tobacco, or those violating UN or OECD guidelines. Additionally, investments need to be on a measurable path to social or environmental transition.

Funds using impact-related terms also require 80% investment in projects with a positive social or environmental impact. They shall exclude the same companies as transition funds, as well as those with significant revenue from coal, oil, gas, or high greenhouse gas emissions. These investments shall aim for measurable social or environmental impact alongside financial returns.

Funds using sustainability-related terms shall invest 80% in environmental or social investments and exclude the same companies as impact funds. These funds shall commit to meaningful investments in sustainable projects.

Where the name of a fund combines terms from different categories, the stricter requirements shall prevail, except for "transition" terms, which shall take  precedence.


EFRAG issues the final implementation guideline documents for ESRS:

On May 31, 2024, EFRAG published the first three Implementation Guidance (IG) documents for the ESRS. The guideline documents assist companies subject to the Corporate Sustainability Reporting Directive (CSRD) in implementing their disclosure obligations. These documents include implementation support for the “Double Materiality Assessment”, for “Value Chain” definition and reporting, and IG 3 on the “ESRS Data Points”, supported by further explanations and feedback statements.

  1. Materiality Assessment (MAIG): Provides guidance on reporting requirements and steps to perform  the double materiality assessments tailored to the organisation’s circumstances. 

  2. Value Chain (VCIG): Defines reporting requirements on value chain impact, risks and opportunities. The updates address the reporting boundary, clarify compatibility with the GHG Protocol, and explain financial control concepts relevant to ESRS disclosures.

  3. List of ESRS Data Points (DP): This IG lists all disclosure requirements under the ESRS and data collection and gap analysis. 


The European Supervisory Authorities (ESAs) joint opinion on the assessment of the Sustainable Finance Disclosure Regulation (SFDR):

The Joint Opinion by the ESAs, issued on June 18, 2024, provides policy recommendations to prevent the misuse of the SFDR. The main points of the recommendations are:  

  • introducing a categorization system and/or a sustainability indicator 

  • reviewing the definition of 'sustainable investment' under Article 2(17) of the SFDR

  • expanding the SFDR’s scope to include additional financial products

  • simplifying pre-contractual product disclosures, and 

  • enhancing the principal adverse impacts disclosure framework.

In addition, the ESAs propose a number of technical changes and stress the importance of consumer testing when developing policy options. The main recommendations focus on the introduction of a product classification system with clear and objective criteria, namely "sustainable" and "transition". For products that do not qualify for these categories, the ESAs recommend dividing them into those with some sustainability elements and those without. They also suggest considering a sustainability indicator to represent the level of environmental or social sustainability, similar to the nutrition rating of food products.


Switzerland

Self-regulation 2.0 on preventing greenwashing in the Swiss financial industry:

The Federal Council has decided that the updated or new self-regulations from AMAS, SBA, and SIA are effectively aligned with its stance on preventing greenwashing in finance. As a result, it announced on June 19, 2024, that it would not introduce any further regulations for the time being. AMAS, SBA, and SIA support this decision, preferring self-regulation because, unlike government regulations, it can adapt dynamically. Given the changing global rules on sustainable finance, the industry associations and the Federal Council consider self-regulation to be the best way to address the issue of greenwashing.

AMAS, SBA, and SIA are determined to protect the integrity of investments in the Swiss  financial centre. The industry associations categorically reject greenwashing and aim to maintain the credibility of the financial sector through their efforts. 

Recently, the associations worked closely with authorities to refine the existing self-regulations on the prevention of greenwashing based on the Federal Council's guidelines from December 16, 2022. The updates to the AMAS and SBA frameworks (self-regulations 2.0) have been updated and will take effect on September 1, 2024, with defined transition periods. For the first time, the SIA has issued  a self-regulation against greenwashing for unit-linked life insurance with a sustainability focus. It sets out requirements for organisation, product creation and sales and will come into force on January 1, 2025.

A key part of the updated or new self-regulation is the creation of a common standard for deciding which investment products and services can be labelled as sustainable. According to the Federal Council, these products must support specific sustainability goals along financial goals. 

In the coming months, AMAS, SBA, and SIA will focus on implementing the updated or new self-regulations, while staying close to the authorities with regard to future developments. 


Swiss Federal Council launches consultation on stricter sustainability reporting rules:

The Swiss Federal Council launched on June 26, 2024 a consultation implementing amendments to the sustainability reporting standards for Swiss companies. The proposed changes to articles 964a – 964c of the Swiss Code of Obligations (CO) aim to align Swiss non-financial reporting obligations with the EU's Corporate Sustainability Reporting Directive (CSRD), which took effect in 2024. 

Instead of adopting the CSRD in full, the Federal Council proposes to amend the existing non-financial reporting requirements under the CO. These amendments would broaden the scope, requiring more companies to prepare and publish sustainability reports. In addition, the draft allows organisations to opt for the  sustainability standards by the International Financial Reporting Standard Foundation (IFRS/ISSB)  in combination with the Global Reporting Standards (GRI). The consultation will be held until October 17,2024. 


UK

Progress update on Sustainability Disclosure Requirements (SDR): 

The UK government provided an update on its progress with the Sustainability Disclosure Requirements (SDR) on May 16, 2024 and released a policy paper outlining the framework for developing UK Sustainability Reporting Standards (SRS). These actions are in line with the government's commitment in its 2023 Green Finance Strategy to assess and potentially adopt the IFRS/ISSB sustainability disclosure standards  for use in the UK.

The UK plans to decide on supporting the first two UK SRS by Q1-2025, with Technical Advisory Committee (TAC) assessments of IFRS S1 and S2 starting in Q2-2024. The Financial Conduct Authority (FCA) plans to consult in 2025 on requiring UK-listed companies to report sustainability-related information based on the UK SRS. 

Additionally, the government consulted on disclosure guidance for large UK companies on their climate transition plans in Q2-2024. The FCA plans to strengthen disclosure requirements in line with the Transition Plan Task Force's Disclosure Framework, issued in October 2023.


Australia

Australia releases Sustainable Finance Roadmap:

The Australian Treasury released its Sustainable Finance Roadmap on June 20, 2024, outlining plans to transform financial markets to support the transition to a net zero economy. The roadmap includes creating regulatory frameworks for company disclosure on climate issues, sustainable investments and defining what activities are considered positive for the environment.

The roadmap follows the Treasury's Sustainable Finance Strategy of November 2023, which focuses on  what changes and investments are needed for a sustainable finance sector. 

The first goal is to establish reporting requirements for companies to disclose on climate risks and opportunities. Earlier this year, a draft law on climate disclosure requirements was proposed for large and medium-sized companies. 

The plan also focuses on developing a sustainable finance taxonomy, similar to the European model. The Australian Sustainable Finance Institute plans to complete the first set of rules by late 2024, starting with activities related to energy and industry. 

Australia is also committed to developing sustainable investment labels to increase market understanding and transparency around sustainable products. Work on this step will begin in early 2025, with new laws expected in 2026. 




WISF - Regulatory Affairs Department



Commenti


bottom of page