The momentum in sustainable finance and reporting has reached a new stage, marked by critical developments that are reshaping sustainability. With different policy shifts the focus on accountability and transparency has never been more visible.
WISF’s Regulatory Affairs Department summarised some of the significant regulatory developments in sustainable finance.
European Union
With regards to the current main topic within sustainability reporting, a list of developments in context of the EU Corporate Sustainability Reporting Directive (CSRD) should be considered.
The European Financial Reporting Advisory Group (EFRAG) has been active in the last quarter of 2024. EFRAG has been working on the Sustainability Reporting Standards for Non-EU Groups (NESRS) required by Article 40a of the Accounting Directive and published its first proposal on October 22, 2024, The draft published for discussion in EFRAG's Sustainability Reporting Technical Expert Group (SR TEG) focuses exclusively on financial materiality. These draft standards aim to simplify sustainability reporting requirements for companies operating in the EU.
Furthermore, EFRAG issued a draft guidance on transition plans for climate change mitigation on November 4, 2024. While not directly applicable to financial institutions due to their different business models, it supports companies in formulating a net-zero transition plan in line with EU climate objectives, including the Paris agreement.
EFRAG published 64 new Q&As on December 6, 2024 and five environmental questions on December 19, 2024, bringing the total number of answered questions to 162. These aim to clarify technical aspects of the European Sustainability Reporting Standards (ESRS) and provide crucial guidance to companies preparing their reports and navigating the complexities of compliance.
EFRAG also published an addendum to IG3 "List of Datapoints" on December 20, 2024, which provides a limited number of clarifications an corrections based on the suggestions received from stakeholders.
In addition, the EU Commission's draft FAQ on the EU Taxonomy, published on November 29, 2024, provides updated supporting information on the classification of environmentally sustainable economic activities. By increasing clarity, the EU aims to streamline taxonomy-aligned reporting and ensure consistency across the frameworks.
Most importantly, the announcement of the EU Omnibus Regulation, announced by European Commission President Ursula von der Leyen on November 8,, 2024 is expected to streamline sustainability reporting by reducing regulatory burdens and enhancing consistency across different legal frameworks.
Key objectives of the Omnibus Regulation:
Simplification of reporting requirements: The regulation aims to reduce the administrative burden on companies by harmonising overlapping obligations in existing sustainability regulations.
Alignment of regulatory frameworks: It focuses on ensuring coherence between the EU Taxonomy Regulation, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
Increasing efficiency: By removing inconsistencies and redundancies, the regulation aims to create a more efficient reporting environment, making compliance easier for companies.
The European Commission plans to publish the Omnibus simplification package by February 26, 2025.
With regards to sustainable finance products, the recent publication by the EU’s Platform on Sustainable Finance is crucial.
On December 17, 2024 the Platform on Sustainable Finance, an advisory body to the European Commission, published a briefing note proposing a categorisation system for sustainable finance products.
The proposed framework for categorising sustainable financial products focuses on aligning investments with environmental, social, and governance (ESG) objectives while providing clarity and flexibility for different market needs. It introduces three categories:
Sustainable investments: These are fully aligned with the EU Taxonomy and support activities that substantially contribute to environmental goals such as climate change mitigation or adaptation, while meeting strict social and technical screening criteria (DNSH principles and minimum safeguards).
Transition investments: Designed for activities that are not yet fully sustainable, but aim to support progress towards alignment through clear, science-based transition pathways (transition from brown to green). These investments target companies or projects committed to decarbonisation or environmental improvement with measurable targets.
ESG-Collection investments: This broader category covers financial products that employe ESG strategies that contribute to sustainability goals but do not strictly follow the EU Taxonomy. These investments may include thematic funds or socially responsible investments that address broader ESG perspectives.
All other products should be identified as unclassified products.
This framework aims to increase transparency in sustainable finance, support informed investor decisions, and align with the EU's ambitious environmental and climate goals.
Switzerland
Switzerland is updating its Climate Disclosures Ordinance, which came into force on January 1, 2024. A public consultation on these revisions was published on December 6, 2024 and is open until March 21, 2025. The proposed changes aim to align with international reporting standards by removing explicit references to the Task Force on Climate-related Financial Disclosures (TCFD) and instead recognising standards such as those of the International Sustainability Standards Board (ISSB) and the European Sustainability Reporting Standards (ESRS). For financial institutions in particular, the revisions introduce principles-based minimum requirements for roadmaps (formerly transition plans) to achieve net-zero targets. These roadmaps should include quantitative, science-based reduction targets, specific to asset classes and sectors where appropriate and possible with measurable interim goals for all relevant greenhouse gas emissions, as well as plans for adopting climate-friendly technologies.
On December 12, 2024 FINMA issued its Circular on Nature-related Financial Risks, which sets out expectations for banks and insurers on the management of climate and nature-related risks. The circular requires institutions to establish governance frameworks, assess physical and transition risks using scenario analysis, and integrate material risks into risk management processes. Stress tests must include nature-related risks, while banks and insurers must adjust credit, underwriting, and investment practices to reflect these risks. Compliance deadlines vary, with larger institutions starting to implement climate risk by January 2026 and full nature-related risk compliance by January 2028, ensuring that Switzerland is in line with global sustainability standards.
United Kingdom
The UK government published a consultation on the UK Green Taxonomy on October 17, 2023, to create a framework for defining environmentally sustainable economic activities, similar to the EU Taxonomy. The taxonomy aims to channel investments into green initiatives, address greenwashing, and support the UK’s net-zero and sustainability objectives.
The consultation document focuses on international alignment for cross-border investment, transition finance to enable economic shifts, and design features such as sectoral coverage and regular updates to maintain relevance. The consultation is open until February 6, 2025 and seeks input from financial institutions, businesses and other stakeholders to ensure the taxonomy effectively supports green investment and integrates with existing policies.
Hong Kong
On October 21, 2024, the Hong Kong Monetary Authority (HKMA) launched the Sustainable Finance Action Agenda. Key objectives include net-zero targets for the banking sector’s operations by 2030 and for financed emissions by 2050. The initiative focuses on increasing transparency on climate-related risks and addressing knowledge gaps in sustainable finance.
China
China has introduced its Corporate Sustainability Disclosure Standards - Basic Standards. Released by the Ministry of Finance on December 17, 2024, these standards provide a framework for companies to voluntarily disclose sustainability-related information. The initiative aims to be fully implemented by 2030, increasing transparency and comparability of corporate sustainability practices across China. By 2027, China plans to introduce specific standards and application guidelines, gradually moving from voluntary to mandatory disclosure for both listed and non-listed companies. The standards are based on international frameworks, such as those of the International Sustainability Standards Board (ISSB), while adapting the requirements to the Chinese context.
USA
New York Governor Kathy Hochul signed the Climate Change Superfund Act into law on December 26, 2024 requiring major fossil fuel companies to pay fees to address the impacts of climate change. The law targets major greenhouse gas emitters from 2000 to 2018 and requires them to contribute to a state fund dedicated to infrastructure projects to mitigate and repair climate-related damage. The law's implementation will include the establishment of regulations to identify responsible parties and assess fines.
What to expect in 2025
Morningstar released a research report on December 20, 204 highlighting the top six trends to watch in 2025.
A test year for ESG Regulations: Global efforts to standardise ESG reporting frameworks, such as the EU’s CSRD and ISSB standards, will take centre stage in 2025. However, the EU is facing a backlash over compliance costs, while there are expectations that the Omnibus Regulation could reduce the administrative burdens. In the US, on the other hand, ESG initiatives may be rolled back under the Trump administration, leading to challenges such as "greenhushing".
Transition investing: Investors are moving beyond target setting to ensure companies are taking actionable steps towards decarbonisation. Climate adaptation and resilience are gaining traction, with investments expected in technologies and strategies to mitigate climate risks.
Sustainable bonds: Lower interest rates are likely to further boost the issuance of green, social, and sustainability-linked bonds. The new EU Green Bond Standard (applicable from December 21, 2024) will add credibility, while transition financing and nuclear energy-related investments are gaining momentum.
Reshaping the global ESG fund landscape: Anti-greenwashing regulations in the EU may lead to significant rebranding (including ESMA fund labelling criteria), strategy adjustments or even closures of ESG funds. In the US, the ESG fund market is shrinking due to reduced investor demand and regulatory uncertainty.
Biodiversity finance: Biodiversity is emerging as a key investment theme, alongside climate, supported by frameworks like the TNFD. New financial tools and disclosure mechanisms are enabling investors to address biodiversity loss and seize nature-related opportunities.
The ethics of AI: While Artificial Intelligence (AI) offers sustainability benefits, such as optimising energy use, it also raises ethical concerns, including environmental impacts, privacy issues, and biased information distribution. Different approaches to AI regulation between the EU and US will potentially affect global standards.
WISF looks forward to a crucial year in sustainable finance delivering the right progress.
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