ESG Regulations
ESG regulations are government standards for ESG actions or disclosures. While the ESG space is mainly unregulated, legal requirements are coming in different countries and at different paces. Some are already in force and certain businesses may already find themselves having to undertake ESG disclosures depending on their size and industry.
ESG Regulatory Requirements
There are already some EU rules on ESG reporting, and the US Securities and Exchange Commission (SEC)’s investment committee moved forward this year to start creating a framework for ESG disclosure. SEC Chair Gary Gensler has hinted what the forthcoming SEC requirements will entail, specifically signalling that the new climate disclosure regime should be inspired by the TCFD climate risk reporting framework.
The UK will also introduce new ESG disclosure requirements for Financial Conduct Authority (FCA)-authorized investment managers based on the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD). The UK’s Joint Government-Regulator TCFD Taskforce has said the UK’s proposed rules will likely include disclosure of strategy, policies, and processes.
In addition, disclosures, reporting and due diligence on ESG related matters are not new. For example, the Modern Slavery Act, the EU Timber Regulations 2013, the Conflict Minerals Regulation and the Dutch Child Labour Due Dilligence Act all include ESG aspects.
A guide to international ESG compliance
There are a lot of acronyms flying around with ESG. There’s at least a dozen reporting frameworks out there, and it can be hard to know which one to use when a regulation may be coming down the line which mandates one over the other.
While the ESG space is mainly unregulated, legal requirements are coming in different countries and at different paces. Some are already in force and certain businesses may already find themselves having to undertake ESG disclosures depending on their size and industry.
SEC Chair Gary Gensler has hinted what the forthcoming SEC requirements will entail, specifically signalling that the new climate disclosure regime should be inspired by the TCFD climate risk reporting framework.
Aligning to the TCFD framework is one of the most important steps global businesses can take. TCFD are a good set of guidelines to how organisations can begin tracking, reporting, and integrating climate-related risks into their longer-term strategy, which are some of the fundamental methods to begin preparing for compliance with upcoming SEC requirements. Of course this is only one part of the wider ESG framework and it is important for companies to consider their ESG strategies in the round.
Here are the key ESG regulations which are already in force, and ones which are planned in the near future. These are listed by jurisdiction. Some are in development, meaning governments have proposed the rules, but they are not yet in force.
List of international ESG regulations
Last updated – 1 February 2022
* denotes new since last update.
European Union
Sustainable Finance Disclosure Regulation (SFDR)
EU Taxonomy Regulation Article 8 Delegated Act
In development: Corporate Sustainability Reporting Directive (CSRD)
Regulatory body: European Commission (EC)
United Kingdom
In development: Sustainability Disclosure Requirements (SDR) and Investment Labels
In development: Diversity and Inclusion on Company Boards and Executive Committees
In development: Climate-related Disclosure Requirements
Regulatory body: Financial Conduct Authority (FCA)
United States
In development: Climate Disclosures for Public Companies
Regulatory body: Securities and Exchange Commission (SEC)
In development: Climate-related Financial Risks and Insurers
Regulatory body: US Federal Insurance Office (FIO)
*In development: California – Climate Corporate Accountability Act (CCAA)
Regulatory Body: California Secretary of State Office
*In development: New York – Fashion Sustainability and Social Accountability Act (FSSAA)
Regulatory body: New York State Department of Law
Australia
Prudential Practice Guidance on Climate Change and Financial Risks
Regulatory body: Australian Prudential Regulation Authority
Brazil
Management and Disclosure of Social, Environmental and Climate Risks
Regulatory body: Central Bank of Brazil (BCB)
*In development: Circular on providing for the requirements for sustainability, to be observed by companies, insurance companies, open supplementary pensions (EACPCs) capitalisation companies and local reinsurers.
Regulatory body: Superintendent of Private Insurance (Susep)
Canada
In development: ESG-related Investment Disclosure for Funds
In development: Climate-related Disclosures for Listed Issuers
Regulatory body: Canadian Securities Administrator (CSA)
Chile
Sustainability and Corporate Governance Requirements in Annual Reports
Regulatory body: Financial Market Commission of Chile (CMF)
China
ESG-related Amendments to the Disclosure Rules Applicable to Listed Companies
Regulatory body: China Securities Regulatory Commission
Germany
*Supply Chain Act
Regulatory body: Federal Office for Economic Affairs and Export Controls (BAFA)
Hong Kong
In development: Green and Sustainable Finance Strategy (Climate-related Disclosures)
Regulatory body: Hong Kong Securities and Future Commission (SFC), Hong Kong Monetary Authority (HKMA)
Japan
Revisions of Corporate Governance Code
*In development: Mandatory TCFD reporting for prime segment listed companies
Regulatory body: Japan Financial Services Agency (FSA)
New Zealand
In development: Mandatory TCFD Reporting
Regulatory body: External Reporting Board New Zealand (XRB)
Singapore
Environmental Risk Management for Asset Managers, Banks and Insurers
Regulatory body: Monetary Authority of Singapore (MAS)
South Korea
In development: Mandatory ESG Report Disclosure
Regulatory body: Financial Services Commission of South Korea (FSC)
Switzerland
*Articles 964a-964c, 964j-964l of the Code of Obligations
Regulatory body: Federal Audit Oversight Authority (FAOA)
