ISS ESG Releases Latest Global Regulatory Update Report

NEW YORK (September 21, 2023) – ISS ESG, the sustainable investment arm of Institutional Shareholder Services, today released the latest report in its Thought Leadership Collection series, 2023 Global Regulatory Update: Recent Developments and Key Themes in ESG-Related Regulations Globally. The timely new report is released as policymakers across the globe have introduced, or are contemplating, extensive new regulatory requirements in this space. These requirements seek to define terms such as ‘ESG’ or ‘sustainable investment’; enhance transparency on the part of investment managers and financial institutions as to the ESG risks and opportunities to which they may be exposed; and ensure corporate issuers furnish additional information for investors to assess material ESG risks and opportunities.

“Evolving global regulatory initiatives present a complex, challenging landscape for financial market participants to navigate,” said Bonnie Saynay, Global Head of ESG Research at ISS ESG. “In this latest report, ISS ESG’s regulatory experts, climate specialists and global research team distill sustainable investment regulatory developments to date from across the globe into key themes and identify some of the practical implementation challenges.”

Key takeaways from ISS ESG’s 2023 Global Regulatory Update report include:

• Sustainability Disclosures Standards: The Comparability of the ISSB Global Baseline with the ESRS Regional Requirements. Two major sustainability reporting standards were finalized in 2023: the latest update to the European Commission’s European Sustainability Reporting Standards and the Sustainability Disclosure Standards of the International Sustainability Standards Board. Although the two standards are interoperable to an extent, differences in areas such as the definition of materiality or the application of material assessment could considerably reduce their comparability across companies. 
• Raising the Bar, but at What Cost?: Comparability of ESG Fund Regulatory Requirements Remains Elusive. Some regulators are seeking, through investment product disclosures, naming rules, and classifications, to elicit more meaningful disclosure and support retail investors in navigating the growing market of sustainable investment products. However, naming, labelling, and reporting regimes still leave room for interpretation on which investment products qualify as sustainable. A review of current and proposed regulations in the European Union, the United Kingdom, the United States, Canada, Australia, Hong Kong, Singapore, and Japan indicates that navigating the emerging regimes will remain a challenge for the foreseeable future. 
• Breaking New Regulatory Ground: Due Diligence Obligations in Corporate Supply Chains. Regulation to promote corporate due diligence on human rights and environmental impacts has become more ambitious in its goals, scope, and enforcement. In some markets, policymakers are pursuing such regulation as a way to supplement existing disclosure-based regimes. The EU Corporate Sustainability Due Diligence Directive, currently in negotiations, will apply to companies based within and outside the EU, for example. The U.S. Securities and Exchange Commission is monitoring discrepancies between companies’ public sustainability disclosures and those in their SEC filings, while the U.S. Congress is contemplating corporate due diligence obligations related to supply chains and human rights. 
• U.K. Regulation: Second-Mover Advantage in Sustainable Finance? The U.K. is pursuing a different regulatory path from the EU, which may involve less expansive sustainability-related corporate reporting. A U.K. taxonomy framework currently under development may similarly be more flexible for companies reporting against it than the EU taxonomy. Meanwhile, the U.K. is one of the first major capital markets to base its sustainability disclosure standards on those of the International Sustainability Standards Board.
• Setting Standards in the Sustainable Bond Market: From Guidelines to Regulation, on the Shoulders of Giant Principles? The sustainable bond market reportedly has exceeded $4 trillion in issuances since the late 2000s and continues to be one of the main instruments to mobilize funds for environmental and social objectives. The International Capital Market Association (ICMA) principles for labelled debt instruments have influenced bond market regulation in China, India, and Japan, while the EU is adopting more stringent requirements not specified by the ICMA.
  

To download a copy of the full report, please click here.

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About ISS ESG

ISS ESG solutions enable investors to develop and integrate sustainable investing policies and practices, engage on sustainable investment issues, and monitor portfolio company practices through screening solutions. ISS ESG also provides climate data, analytics, and advisory services to help financial market participants understand, measure, and act on climate-related risks across all asset classes. In addition, ESG solutions cover corporate and country ESG research and ratings enabling ISS ESG clients to identify material social and environmental risks and opportunities. For more information, please visit us at: www.iss-esg.com

Media Contact:
Sarah Ball, Executive Director, Communications
+44-203-192-5728
sarah.ball@issgovernance.com