11 January 2024

6 min read

ESG Watch | January 2024

January 2024
European Union flags

 

Key news in this edition:

  • European Union reaches a political agreement on the Corporate Sustainability Due Diligence Directive
  • The UK’s Financial Conduct Authority urges ESG ratings providers to adhere to new code of conduct
  • China launches ESG disclosure guidance for insurance industry.

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Europe  

European Union reaches a political agreement on the Corporate Sustainability Due Diligence Directive

On 14 December 2023, the European Council and the European Parliament reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). The directive aims to improve the protection of human rights and environment in the EU and globally by reshaping corporate due diligence requirements. The CSDDD covers the companies’ own operations, operations of their subsidiaries, and their business partners. The provisional agreement clarifies the penalties and civil liabilities for non-compliant companies that violate the directive’s requirements, including a fine of up to 5 percent of group turnover. Furthermore, the CSDDD requires companies to develop business models and strategies in compliance with the Paris agreement on climate change.

The scope of the directive targets large companies with more than 500 employees. These companies should have a net global turnover of EUR 150 million or, if they are non-EU companies, they should have a turnover of EUR 150 million made in the EU, within three years from the directive is effective. Smaller companies of more than 250 employees and EUR 40 million in turnover will also fall into scope if they are deemed to operate in a high-risk sector. Once the agreement is finalised, EU member states will have 2 years in which to enact the provisions of the directive into national law.

The UK’s Financial Conduct Authority (FCA) urges ESG ratings providers to adhere to new code of conduct

On 14 December 2023, the FCA, the UK’s financial regulator, announced the launch of a voluntary code of conduct for ESG ratings providers (‘the Code’) which primarily focuses on promoting transparency, good governance, appropriate management of conflicts of interest, and strengthening controls in the sector. The Code is part of the FCA’s ESG strategy, and was prepared by the International Capital Market Association (‘ICMA’) and the International Regulatory Strategy Group (‘IRSG’).

ESG ratings have become increasingly important as public and private interest in a company’s ESG stance has grown. This ESG ratings rush is often criticised for its lack of synchrony with accompanying regulation, and ESG rating organisations are criticised for their lack of uniformity, transparency and consistent methodology. Therefore, with the Code, the FCA seeks to provide a benchmark for ESG rating providers, who at present remain unregulated.


Middle East

Turkey’s Sustainability Reporting Standards (TSRS) came into effect on 1 January 2024

On 26 December 2023, the Turkish Public Oversight, Accounting and Auditing Standards Authority, the country’s financial market regulator, published its decision on Sustainability Reporting Standards (TSRS), according to which certain companies will be subject to mandatory sustainability reporting, starting on 1 January 2024. TSRS is designed to ensure that the ESG performances of large companies in the capital markets are evaluated in a more transparent and accountable manner.

This comes as part of Turkey’s efforts to comply with the global sustainability disclosure standards of the International Sustainability Standards Board (ISSB) at the national level.

TSRS will apply to companies in the capital markets that meet at least two of the following conditions: (i) total asset value of TRY 500 million (USD 16.73 million) and above; (ii) an annual net sales revenue exceeding TRY 1 billion (USD 33.45 million); and, (iii) more than 250 employees. Additionally, TSRS will apply to all banks without being subject to any of the threshold values stated above.


Asia Pacific

China launches ESG disclosure guidance for insurance industry

In December 2022, the Insurance Association of China, an industry self-regulating body in the PRC, issued ESG Disclosure Guidance for insurers to use as reference when publishing ESG data. At least 10 insurers, including Ping An Group, PICC, China Re, China Taiping Insurance Group Ltd, China Pacific Insurance Company and Century Sunshine Group, took part in drafting the guidance. It is up to individual insurers to integrate the guidance into their internal ESG control procedures, with the purpose to ensure that ESG disclosures are accurate and comprehensive.

The association indicated that the guidance aligns with international ESG disclosure standards, such as that of the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and the Stock Exchange of Hong Kong. Based on these international benchmarks, the guidance also touched on industry-specific disclosure standards such as sustainable insurance products and green investment with policy funds.

Singapore publishes code of conduct for providers of ESG rating and data products

On 7 December, the Monetary Authority of Singapore (‘MAS’) published a finalised industry code of conduct for ESG rating and data product providers, and firms are urged to publicly disclose their adoption of the code of conduct within 12 months. The finalised code of conduct listed seven principles for the providers, including that they should ensure the issuance of high quality ESG rating and data products, and independent decision-making. The providers should also avoid, manage and disclose potential conflicts of interest. Firms have been urged to publicly disclose their adoption of the code of conduct within 12 months.

 

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Americas

Norway and the UK donate GBP 74.6 million to the Amazon Fund

Brazil’s National Bank for Economic and Social Development approved new donations for the Amazon Fund from Norway and the UK, totalling BRL 465 million (GBP 74.6 million). The donations were announced during the 2023 United National Climate Change Conference, COP28, held in Dubai and support Brazil’s commitment to reduce deforestation in the Amazon rainforest, and to ensure sustainable development in the region. The Amazon Fund was created in 2008 to enable international support in the fight against deforestation, with payment for results obtained through the reduction of greenhouse gas emissions, rather than a financial return on investment. Since its creation, the Fund has supported 106 different projects, with a total investment of BRL 1.8 billion (GBP 288.6 million).

Petrobras advances its energy transition goals with the production of biofuels

On 30 December 2023, the Brazilian oil company Petrobras announced a strategic partnership to import new technology that would allow for the production of 100% renewable diesel and aviation biokerosene. Petrobras stated that it would be acquiring the technology from Honeywell UOP, an American multinational focused on the development of fuel production solutions. With the use of this technology, Petrobras will be able to produce HVO diesel and sustainable aviation fuel from renewable sources such as soy oil and beef tallow, a crucial step in the company’s goal of being able to deliver products to a low-carbon market.

As part of Petrobras’ BioRefino program, the company seeks to invest GBP 1.2 billion in refineries for sustainable and efficient fuel development, with lower greenhouse gas emissions. In total, Petrobras’ energy transition program for 2024 to 2028 includes investments of GBP 9.1 billion.

ESG Watch is S-RM’s round-up of the latest regulatory and policy updates relating to ESG from around the globe.

To discuss these articles or other related developments in ESG, please reach out to one of our experts.

Authors

Natalie Stafford
Natalie Stafford
Director, ESG

Natalie is Head of ESG at S-RM. She collaborates closely with deal and new ventures teams, executives, investment professionals, compliance principals, and legal counsel. She advises a range of clients, including FTSE 100 and Fortune 500 companies. Her previous roles at S-RM have included leading the sub-Saharan African regional desk and most recently overseeing work throughout the Africa and the Middle East regions. Natalie joined S-RM in 2016. Before S-RM, Natalie was head of political risk at G4S Risk Management. She has also worked for two UK members of parliament, with a focus on foreign affairs. Natalie has an MPhil in International Relations and a BA in Geography, both from the University of Cambridge.

Dominik Wilk
Dominik Wilk
Associate, Corporate Intelligence

Dominik is an associate on the Europe desk at S-RM's London office. He joined S-RM's APAC team in 2018 and worked on numerous public record- and human source-led reports focused on PRC state-owned companies and their international investments though the Belt and Road initiative. For the last two years, Dominik has been a member of the Europe team, and currently manages cases focused on Portugal, Central and Eastern Europe, and Scandinavia.

Dominik holds a bachelor's degree in Asian Studies and a master's degree in Law from Jagiellonian University in Kraków, Poland. Prior to joining S-RM, he spent a year studying Chinese at Yunnan University in Kunming, China. Dominik is a native Polish speaker, and also speaks Swedish, Chinese, and Portuguese.

Natalie Stafford
Natalie Stafford

Director, ESG

Dominik Wilk
Dominik Wilk

Associate, Corporate Intelligence

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