A Guide for Companies and Market Participants
Regulation is increasingly shaping how the corporate world and the financial sector must integrate environmental, social, and governance (ESG) considerations into business practices. Knowing that sustainability and ESG topics will continue to be front and center in 2024, Part 2 of this series highlights a few anticipated changes to regulatory frameworks in the United States (US) and Asia-Pacific (APAC) markets as well as broader international trends.
Part 1 of this series focuses on the European Union, the United Kingdom, and Switzerland.
The US ESG regulatory landscape in 2024
When it comes to sustainable finance regulation, the US is less far along its journey compared to other regions. However, there is a noticeable shift in how federal and state regulators are approaching ESG topics. Some evidence of changes on the horizon include the following:
The Securities and Exchange Commission (SEC) will publish a climate-disclosure rule
A rule proposed by the SEC would amend Regulation S-K to require issuers to disclose a range of climate-related risks and greenhouse gas (GHG) emission data. (Regulation S-K details reporting requirements for SEC filings under the US Securities Act and the Exchange Act.)
Q2 2024: Some media sources indicate the SEC is planning to finalize the climate disclosure rules by April 2024.
Certain companies operating in California will start preparing to report their GHG emissions and climate-related financial risks
In October 2023 the state of California passed two bills that mandate reporting from companies that meet specific thresholds:
SB 253 (Climate Corporate Data Accountability Act) requires the annual disclosure of scope 1, 2, and 3 GHG emissions.
SB 261 (Climate-Related Financial Risk Act) requires biennial reporting of climate-related financial risk in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures.
2024–2026: The first disclosures under these acts will be published for the first time in 2026 (covering the 2025 fiscal year), but we expect companies will start preparing in 2024.
The SEC’s fund naming rules will be finalized and implemented
To prevent misleading claims, the SEC amended the Investment Company Act’s “Fund Names Rule” in 2023. Among other changes, the amendment requires investment companies and funds to invest at least 80 percent of their assets in the investments suggested by the fund or company’s name.
2026–2027: The amendment has varying compliance deadlines for different fund groups based on their net assets. Fund groups holding net assets of USD 1 billion or more have 24 months to comply with the new Names Rule, while fund groups with net assets under USD 1 billion have 30 months to comply.
SEC Enhanced Disclosures for Investment Advisers and Investment Companies About ESG Investment Practices
SEC proposed a rule to Enhance Disclosures by Certain Investment Advisers and Investment Companies About ESG Investment Practices in 2022.
The rule proposes three types of ESG investment funds:
- Integration Funds
- ESG-Focused Funds
- Impact Funds
TBD 2024: We expect this rule to be finalized in 2024, possibly following the Climate-disclosure rule mentioned above.
ESG regulation will surge in the APAC region
The Asia-Pacific region is witnessing an acceleration in ESG regulation, driven by a pressing demand for increased transparency and more stringent definitions for sustainable investment products throughout the region.
Australia’s sustainable finance sector is rapidly expanding, with many initiatives underway to further sustainable finance in Australia.
Singapore, a leader among APAC countries
The Singapore-Asia (Green and Transition) Taxonomy will start to be applied
The taxonomy was finalized in December 2023. It is notably the world’s first multi-sector transition taxonomy, and it includes a framework for phasing out coal-fired power.
2024: Financial and non-financial companies will start to apply the new taxonomy.
Monetary Authority of Singapore’s transition planning recommendations for financial institutions are expected to be finalized
Published as drafts for consultation in October 2023, these guidelines for banks, asset managers, and insurers explain how to develop and present credible net-zero transition plans.
2024: Final versions should be published in 2024.
Australia will see more attention on sustainable finance
A sustainable finance strategy will be decided and implemented
A draft sustainable finance strategy published in November 2023 by the Australian government aims to mobilize the private and public investment needed to finance companies’ transition to lower-carbon and more sustainable operations.
2024 onward: Once finalized, the strategy’s measures will be implemented over time; however, a detailed timeline has not been communicated.
A sustainable finance taxonomy could be developed
Noted as one of the government’s top priorities, the sustainable finance taxonomy project will develop definitions for sustainable economic activities that can be used to “credibly and transparently define sustainable investments.”
2024 onward: The Australian Sustainable Finance Institute will continue its work on this project.
International trends and collaborations
For businesses with a global footprint, it is essential to understand how the international community is tackling global problems — this insight can inform how a company navigates diverse, even divergent, ESG requirements of the countries they operate in.
Because the effects of climate change and nature loss transcend political borders, global collaboration is needed to achieve a low-carbon economy and protect biodiversity. Organizations like the International Sustainability Standards Board (ISSB), the Taskforce on Nature-Related Financial Disclosures (TNFD), and the Glasgow Financial Alliance for Net Zero (GFANZ), to name just a few, have set their sights on reflecting new developments in science, policy, scenarios, and methodologies within their respective standards and supporting resources.
Trends and outlook to 2024
As we look toward 2024 and beyond, businesses worldwide will continue to grapple with an ESG regulatory landscape that is evolving rapidly. Regulation may force companies to quickly adapt and be a source of risk, but it is also worth noting that evolving sustainable finance regulation can also present opportunities to businesses that can shape and embrace the changing landscape. With access to high-quality data and analytics tools, businesses can ensure that they remain up-to-date and can offer their clients the sustainable products they demand.
