Other Notable Developments

Sustainability Risks and Opportunities Guide: The IFRS Foundation published a guide for identifying sustainability-related risks and opportunities in accordance with IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information. The guide aims to support companies when disclosing material sustainability information regarding cash flows, access to finance or cost of capital in the short, medium, and long term.

Global: COP29 Delegates Agree to Climate Finance Deal

The 29th Conference of the Parties to the UN Framework Convention on Climate Change (“COP29”) was convened in Baku, Azerbaijan, on November 11, 2024. 

On November 24, 2024, two days after COP29’s intended conclusion, the parties agreed to the New Collective Quantified Goal on Climate Finance. The deal requires developed nations to increase contributions from $100 billion to $300 billion per year to developing nations by 2035 to fund climate action by those countries (the mechanism for allocating donors and recipients is not yet available). The funds will support investments in clean energy and measures to mitigate the negative impacts of climate change. Developing nations had originally sought $1.3 trillion per year in grants, arguing that, although they contribute the least to climate change, they suffer the most from its effects. However, the COP29 parties agreed to work together to scale up the funding to $1.3 trillion per year by 2035 through contributions from the public and private sectors.

COP29 also reached an agreement on standards for a centralized carbon credit market under Article 6.4 of the Paris Agreement and the process for country-to-country carbon credit trading under Article 6.2 of the Paris Agreement.

Links:

Press Release

COP29 Decisions


EU: Council Adopts Regulation on Forced Labor

On November 19, 2024, the Council of the European Union adopted a regulation that prohibits “placing and making available” on the EU market and “exporting from the [EU] market” products made using forced labor (the “Forced Labor Regulation”).  

The Forced Labor Regulation authorizes the European Commission (the “Commission”) or member state authorities (with the enforcement agency yet to be designated by the member states) to investigate if they have a “substantiated concern” that a company made available or exported such a product. Companies can be ordered to withdraw or dispose of products found to be made with forced labor.

The Forced Labor Regulation also creates a “Union Network Against Forced Labour Products” to serve as a platform for cooperation between member states and the Commission and to streamline enforcement, including by facilitating the coordination of investigations. Individual member states are responsible for establishing their own penalties for noncompliance with the Forced Labor Regulation. The Forced Labor Regulation also requires the Commission to establish a database of information on forced labor risks in specific geographic areas and with respect to specific products. The database will not name specific companies.

The Forced Labor Regulation will enter into force the day after its publication in the Official Journal and will apply three years after its entry into force. It is directly applicable in all member states.

The Forced Labor Regulation is part of a trend towards increased scrutiny over a company’s supply chain. Alongside the ensuing enforcement activity, such trend is likely to also see an uptick in litigation against suppliers, manufacturers, and other upstream business partners.

Links:

Press Release

Forced Labor Regulation


EU: Council Adopts ESG Ratings Regulation

On November 19, 2024, the Council of the European Union adopted a regulation on ESG ratings activities (the “ESG Ratings Regulation”) requiring ESG ratings providers operating in the EU to comply with transparency requirements, including with respect to their ratings methodologies and information sources.

The ESG Ratings Regulation applies to ratings opinions regarding a company’s or financial instrument’s sustainability, societal, and environmental impact and risk exposure (“ESG ratings”). It aims to (i) enhance the transparency, reliability, and comparability of ESG ratings; (ii) address concerns over inconsistencies and potential conflicts of interest due to ownership structure, controlling interests, or activities of the ESG ratings provider; and (iii) boost investor confidence.

The ESG Ratings Regulation requires EU-based ratings providers to be authorized and supervised by the European Securities and Markets Authority. Non-EU ESG ratings providers must meet equivalence criteria or obtain endorsements to operate in the EU. The European Securities and Markets Authority is designated as the enforcement authority and may impose fines and “periodic penalty payments” to entities found in breach.

The ESG Ratings Regulation will enter into force 20 days after its publication in the Official Journal and will apply 18 months later. It is directly applicable in all Member States.

Links:

Press Release

ESG Ratings Regulation


UK: Government Opens Consultation on UK Green Taxonomy

On November 14, 2024, the UK Treasury opened a consultation to determine whether the creation of a UK green taxonomy would be a useful tool for enhancing sustainable finance opportunities (the “Consultation”).

The Consultation seeks to gather feedback in two main areas:

• Taxonomy use cases, including on whether the taxonomy would help mobilize capital to support the climate transition and prevent greenwashing. The government is seeking views on how a taxonomy would be “distinctly valuable” in supporting these goals, the specific use cases for the taxonomy, and how the success of the taxonomy could be meaningfully evaluated. Examples of use cases include informing business finance decisions, supporting investor stewardship and engagement, and application to investment fund and portfolio product disclosures.

• Design challenges, namely regarding which areas would benefit from interoperability with other taxonomies, what environmental objectives should be prioritized, how the “do no significant harm” principle should be incorporated into the taxonomy, and other design issues, including the frequency of updates and oversight mechanisms. The government also has requested insights into lessons learned and any best practices from taxonomies in other jurisdictions.

The Consultation is open until February 6, 2025.

Link:

Green Taxonomy Consultation


Global: IAASB Releases New International Sustainability Reporting Assurance Standard

On November 12, 2024, the International Auditing and Assurance Standards Board (“IAASB”) published the International Standard on Sustainability Assurance 5000 (“ISSA 5000”), the first comprehensive international standard focused on sustainability assurance, namely the independent validation of companies’ sustainability information.

ISSA 5000 is addressed to assurance practitioners in the context of increased demand on companies to make sustainability disclosures and the growing need to ensure that those disclosures are accurate. The standard applies to all sustainability assurance engagements and to all types of sustainability information. Given this broad scope, ISSA 5000 supports the assurance of sustainability information prepared using different reporting frameworks, including the EU Corporate Sustainability Reporting Directive.

Unless agreed otherwise, ISSA 5000 will apply to assurance engagements for reporting periods beginning on or after December 15, 2026, although the IAASB notes that earlier or later application of the ISSA 5000 is permitted.

Links:

IAASB

IFAC Press Release


UK: Government Publishes Voluntary Carbon Market Principles

On November 15, 2024, the UK Government published a set of principles that aim to ensure the quality and integrity of carbon and nature credits available on the UK market and the accuracy of related claims about the credits’ environmental impact.

The principles provide that:

• the credits should be used to complement “ambitious action within value chains” to further climate and environmental goals;

• suppliers should ensure that the credits meet “high integrity criteria,” including that the credits are subject to “conservative baselines,” are not double counted, and have been independently verified;

• credit users should disclose material financial information regarding the use of credits in their sustainability reporting;

• credit users that make transition planning disclosures should use best practice guidance;

• credit users should make accurate claims regarding the use of credits “including by using appropriate and accurate terminology”; and

• credit users should cooperate with other market actors to support standardization, transparency and interoperability of the credits, reduce the costs, and improve access to the voluntary carbon market.

Link:
Voluntary Carbon Market Principles

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