Global ESG rules are changing – what is the impact on Real Asset owners?

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Rebecca Jinks, Director, ESG & Sustainability at Taronga Ventures provides reflections on global ESG-related regulatory updates in 2024

There have been several recent ESG-related regulatory developments that Taronga Advisory felt were worth bringing to the attention of our partners and network. These changes will impact many global asset owners.

The European Union‘s Corporate Sustainability Due Diligence Directive (CSDDD), which applies to organisations operating in the EU has been diluted. In an unexpected result, The Council of the EU did not pass the proposed rules earlier this year due to Germany, Italy and France revoking their support. As a result, the scope of the rules have now been narrowed, with the turnover threshold increased from €150m to €450m and the minimum number of employees was doubled from 500 to 1,000. The revisions were approved at the end of April 2024 and will be implemented in a phased approach from 2027 to 2029.

Staying in the EU, The Council has formally adopted the revised directive on the energy performance of buildings. The revised directive, which aims for zero-emissions buildings by 2050, will require all new buildings from 2030 to be zero-emissions and introduces minimum energy performance standards.

Similarly, The EU has formally endorsed regulation to introduce a voluntary certification framework for carbon removals. This framework has been developed to boost the market’s ability to monitor and verify activities to counter greenwashing in the carbon removal and certification space.

Moving to the UK, an interesting opinion piece from the King’s Counsels has been released which suggests directors of UK companies should consider their nature-related risks as part of their duties to promote the success of the company and judicial responsibility. This may be of interest and relevance to any organisation operating in the Commonwealth.

Looking forward, The UK Financial Conduct Authority (FCA)’s anti-green-washing rule will apply to all FCA-authorised firms and come into force from 31 May 2024. Guidance can be found here.

In the US, the US Securities and Exchange Commission (SEC) has adopted rules requiring US-listed organisations to make climate-related disclosures. The current requirements have been watered down from the original position. For example, the new rules remove the requirement for companies to report on Scope 3 emissions. Note, implementation of the new framework has been delayed pending litigation of the new rules.

At a more local level, New York Local Law 97 came into effect on January 1 2024 and imposes greenhouse gas emission caps for properties over 25,000 sqft. A property owner of a building that exceeds its applicable emissions cap will be required to pay fines for noncompliance. From early 2025, decarbonisation plans for qualifying properties must be submitted to the council.

In Asia Pacific, the end of April saw The Stock Exchange of Hong Kong publish the findings of its consultation on the enhancement of local climate-related disclosures rules. The new rules will implement the global IFRS S2 standard and be effective for Hong Kong listed organisations from 1 January 2025.

Looking to Japan, authorities are mandating climate related disclosure standards, implicating close to 4,000 companies. This will align with the IFRS standards being adopted by other global markets, including Australia.

Finally, New Zealand also legislated IFRS S2 requirements for major local companies. Reporting organisations will be required to report on GHG emissions, climate governance and climate risk for their operations and value chain.

To learn more, or to discuss how you might respond to these changes, please reach out to Taronga Advisory at [email protected] or visit the Advisory web page.

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