July 18, 2024

Regulatory Affairs Newsletter: July 2024

Sustainability in Focus

Introduction

As we navigate the mid-point of 2024, the regulatory landscape continues to evolve with significant momentum, reflecting global economic and political shifts. The global stage is abuzz with sustainability initiatives as Europe accelerates its regulatory efforts before the summer and election season. Across the Atlantic, the Biden administration mirrors this urgency, advancing green policies ahead of the November elections. This period of intense focus on sustainability, transparency and accountability brings substantial updates from both international and regional bodies.

EU Regulatory Landscape

Corporate Sustainability Due Diligence Directive (CS3D)

The Corporate Sustainability Due Diligence Directive was formally adopted on 24 May 2024. This directive aims to hold large companies accountable for their impacts on human rights and the environment throughout their global value chains. It mandates these companies to integrate due diligence into their operations, assess and mitigate adverse impacts, engage with stakeholders, and establish transparent grievance mechanisms. The directive seeks to ensure that companies act responsibly and sustainably, aligning their practices with international standards such as the Paris Agreement on climate change. Member States are to lay down the rules on penalties, but they must at least include pecuniary fines based on net worldwide turnover, public statements for non-compliance, emphasising the importance of ethical business conduct and contributing to a greener, socially just economy.

CS3D vs. CSRD

CS3D and the Corporate Sustainability Reporting Directive (CSRD) are distinct yet complementary measures aimed at enhancing corporate accountability and sustainability within the EU. While CS3D focuses on ensuring that large companies take responsibility for their impacts on people and the planet, CSRD mandates transparent reporting of sustainability information. Together, these directives form a comprehensive framework for companies to integrate sustainable practices into their operations and disclose pertinent ESG data. Large companies meeting specified criteria under CSRD must comply with both directives. Small and medium-sized enterprises (SMEs) listed on European markets are also included under CSRD, albeit with phased implementation timelines and certain opt-out provisions until 2028. Ultimately, CS3D and CSRD aim to promote sustainability, transparency and accountability across the EU business landscape.

Forced Labour Regulation

On 23 April, the European Parliament finalised its approval of a new regulation marking a significant step towards ensuring ethical standards across global supply chains. Set to take effect in mid-2027, this regulation bans the sale, import and export of goods produced with forced labour. It requires companies to conduct thorough human rights due diligence across their supply chains, applying to all products and sectors, including SMEs.

Global Developments

UN Environmental Protection Finance Initiative Resources

Recently, UNEPFI released reports which included climate risk briefs for seven sectors, notably metals and mining. These documents provide valuable insights into managing climate-related risks and are crucial for aligning with international sustainability standards.

The International Sustainability Standards Board (ISSB) Updates

Building on initiatives like CDSB, TCFD, the Value Reporting Foundation’s Integrated Reporting Framework, and industry-based SASB Standards, ISSB is embarking on new projects focusing on biodiversity, ecosystems and human capital. These initiatives aim to address investor needs for comprehensive information on these critical areas. The ISSB will release a summary of market feedback and a two-year work plan this month, setting the stage for future regulatory developments.

The ISSB also published the IFRS Sustainability Disclosure Taxonomy (ISSB Taxonomy), aligning it with the IFRS Accounting Taxonomy. This move aims to enhance the efficiency of sustainability-related financial disclosures, allowing for better comparison and analysis by investors.

UK Updates

The FCA has updated its consultation timetable in response to the UK government's timeline for endorsing the ISSB disclosure standards, anticipated in Q1 2025. Following this endorsement, the FCA will consult on transitioning from TCFD-based reporting to UK sustainability reporting standards. Concurrently, it will seek feedback on mandating disclosure of transition plans by listed companies, following the release of the Transition Plan Taskforce's framework in April 2024.

Additionally, the FCA has collaborated with the Office for National Statistics (ONS) to review diversity reporting criteria, particularly concerning the 'Other Ethnic Group' category. Proposals are underway to align this category with the ONS description, with anticipated changes to board diversity rules in Q3. These amendments, along with broader Listing Rule revisions, are expected to be implemented shortly thereafter.

China's Corporate Sustainability Disclosure Standard

China’s Ministry of Finance is developing Corporate Sustainability Disclosure Standards (CSDS), based on ISSB standards, with full implementation by 2030. These standards will become mandatory for all companies, reflecting China’s commitment to sustainability.

If you have any questions, please don't hesitate to reach out to LBMA's Compliance team at compliance@lbma.org.uk. Alternatively, you can schedule a call with us schedule a call with us via Calendly. We welcome your inquiries and look forward to supporting your compliance efforts.

Best Wishes,

Emmy Richardson
Senior Compliance Associate
LBMA

Disclaimer: This newsletter is for informational purposes only and does not constitute advice.