ESG Weekly Update – July 12, 2023

12 July 2023

Asia: Singapore Accounting and Corporate Regulatory Authority Recommends Mandatory Climate Reporting for Listed and Large Non-Listed Companies

On July 6, 2023, the Singapore Accounting and Corporate Regulatory Authority (“ACRA”) and the Singapore Exchange Regulation launched a public consultation on recommendations issued by the Sustainability Reporting Advisory Committee, which is a part of ACRA. The recommendations include:

  • Mandatory climate reporting from 2025 for all listed companies, including those incorporated overseas.
  • Mandatory climate reporting from 2027 for large non-listed companies—this is defined as companies with an annual revenue of $1 billion or above. Under the proposed rules, a large non-listed company will be exempted from mandatory reporting if it is a subsidiary of a parent company that already publicly reports on climate issues. A review will be conducted in 2027 to determine whether mandatory climate reporting should be extended to non-listed companies with an annual revenue of $100 million or above.
  • Requirement to obtain external assurances from ACRA-registered audit firms.

The proposed climate reporting will be aligned to the International Sustainability Standards Board standards.

The comment period is open until September 30, 2023.

ACRA Press Release

Asia: Thailand Launches Green Taxonomy

On June 30, 2023, Thailand officially adopted a green taxonomy (the “Taxonomy”), jointly developed by the Bank of Thailand and the Climate Bonds Initiative, with support from the International Finance Corporation.

To date, only Phase 1 of the Taxonomy has been released. It covers the energy and transport sectors, which account for approximately two-thirds of Thailand’s total emissions. Phase 2, which is currently under development, will focus on the manufacturing, agricultural, real estate, construction, and waste management sectors.

The Taxonomy will serve as a basis for issuing green financial products such as loans, labeling investment funds, and will facilitate the development of other green policies and initiatives. The Taxonomy diverges from regional trends by excluding coal phaseouts and the financing of early retirement of coal assets from its aligned activities.

The Taxonomy uses a traffic-light system of green activities (i.e., those compatible with a 2050 net-zero target), amber activities (i.e., those that facilitate significant short-term emissions reductions and have a realistic decarbonization plan), and red activities (i.e., those incompatible with a 2050 net-zero target). Activities in the energy and transport sectors must meet quantitative thresholds (with social and “do no significant harm” safeguarding requirements) to qualify as green under the Taxonomy. For instance, to qualify as green, activities in the energy sector must have emissions below 100 g CO2e/kWh until 2040 and 50 g CO2e/kWh thereafter. This is the same threshold as the EU Taxonomy.

Bank of Thailand Press Release
Taxonomy, Phase 1

Europe: UK Regulator Consults on Code of Conduct for ESG Data and Ratings Providers

On July 5, 2023, the Financial Conduct Authority (the “FCA”), the UK financial regulator, launched a consultation on a voluntary Code of Conduct for ESG data and ratings providers. The draft Code was prepared by an industry working group, organized at the FCA’s request, and supported by the International Capital Market Association and the International Regulatory Strategy Group.

The draft Code focuses on four themes:

  • good governance, requiring ESG data and ratings providers to have “appropriate governance arrangements;”
  • systems and controls, requiring written policies and procedures to ensure the consistency and quality of ESG ratings and data by disclosing data sources, ensuring transparency around methodologies, and conducting thorough analysis of the relevant information;
  • managing conflicts of interest by identifying, eliminating, mitigating, or disclosing actual or potential conflicts of interests; and
  • transparency, particularly around methodologies for ESG ratings and data.

The need for regulating ESG data and ratings providers has increased with the expanding usage and impact of ESG factors in financial markets. Other countries have taken similar steps. For example, Japan launched a similar code in December 2022. The EU is also considering introducing a regulation on the topic (which we reported on here).

The consultation is open until October 5, 2023. The final Code is expected by the end of the year.

Press Release
Draft Code
Japan Code of Conduct

Global: NZIA Changes Membership Criteria Following Exodus of Members

On July 6, 2023, the United Nations Environment Programme (the “UNEP”), which originally convened the Net Zero Insurance Alliance (“NZIA”) in 2021, announced that the NZIA will no longer require its members to set or publish targets. Instead, companies that join the NZIA will be “responsible and publicly accountable” for adhering to the targets, methodologies, and timelines they set.

These changes are seen to be in response to more than half of the NZIA’s members leaving the group since 23 attorneys general in Republican-led states wrote a letter threatening legal action in May of this year (which we reported on here). The UNEP suggests that these attorneys general have misconstrued its prior requirements, as membership “does not involve any coordinated competitive conduct or exchanges of competitively sensitive information.” It emphasizes that the NZIA Target-Setting Protocol serves as a “voluntary best practice guide” for insurance market participants—whether NZIA members or not—to aid in the accurate measurement, standardization, and comparability of targets.

UNEP Statement
AG Letter