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Understanding ESG Regulations and Standards Globally

Understanding ESG Regulations and Standards Globally

Understanding ESG Regulations and Standards Globally

With 2,400 ESG regulations worldwide, it’s clear that sustainability reporting is becoming a critical part of corporate compliance. In the realm of Environmental, Social, and Governance (ESG) reporting, navigating the complex landscape of regulations and standards can be daunting for businesses.  Our AI platform can help you understand the key regulations, standards, and frameworks that impact your company.


While there are currently efforts underway to harmonize global ESG reporting standards, there are no global regulations on sustainability or ESG.  Companies need to understand the ESG Regulations in the jurisdictions where they do business and whether such regulations apply given the size and nature of their business.

Here are some of the most important regulations regarding ESG and/or sustainability, by jurisdiction:

European Union (EU) Regulations – Current


  • Corporate Sustainability Reporting Directive (CSRD): Replacing the Non-Financial Reporting Directive (NFRD), the CSRD broadens the scope of companies required to comply with sustainability reporting, based on company size and financial thresholds, with a phased in approach:

    • Starting in financial year 2024 (and reporting in 2025): Compliance is mandated for organizations (or 'entities') already mandated to comply with the NFRD. This includes all organizations listed in an EU-regulated market with 500 or more employees.

    • Starting in financial year 2025 (reporting in 2026): Compliance is mandated for large listed undertakings (see above) not already mandated to comply with the NFRD.

    • Starting in financial year 2026 (reporting in 2027): Compliance is mandated for small and medium-sized undertakings (also called small and medium sized entities, or SMEs)—companies listed on an EU-regulated market that meet at least two or three of the following criteria:

      • at least EUR 4 (5*) million in total assets.

      • at least EUR 8 (10*) million in net turnover.

      • at least 50 employees average throughout the year.

    • Starting in the financial year 2028 (reporting 2029): Compliance is mandated for third-country undertakings.


Improvability AI has report-writing capabilities and templates that can help you with your CSRD reporting.  Get in touch for details!

  • Sustainable Finance Disclosure Regulation (SFDR): Mandates disclosure of sustainability risks by EU investment management firms and advisors.  Created to reorientate capital towards more sustainable businesses and increase transparency on sustainability among financial institutions and market participants.  Applies to all EU investment management firms and advisors, including asset managers, banks, insurance companies, investment firms, venture capital firms, and pension funds, as well as all non-EU firms that target the EU market through the Alternative Investment Fund Managers (AIFM) Directive.


  • Eco-design for Sustainable Products Regulation (ESPR): Focuses on sustainable product design across various industries.  While the list of industries has yet to be finalised, the EC has already highlighted eight priority industries: electronics, vehicles, textiles, plastics, construction and buildings, furniture, and chemicals.  The EC is aiming to have the definitive list of products by industry by 2030.


  • EU Deforestation Regulation (EUDR): Addresses deforestation concerns by regulating commodities linked to forest degradation.  This regulation is designed to address the problem of deforestation driven by the expansion of agricultural lang for producing commodities (raw materials like cattle, cocoa, coffee, oil palm, soya, and wood) and their derivative products (like chocolate, leather, tires, or furniture).  Under this law, operators, traders, and other businesses dealing with these commodities in the EU market must verify the source of their product and ensure that they are not linked to forest degradation, deforestation, or violate any environmental or social protection laws in the producing countries.


  • Directive on the Protection of the Environment: Criminalizes serious environmental damage with severe penalties for individuals and companies.  The new list of environmental crimes includes illegal timber trade, ship recycling and pollution, introduction and spread of invasive alien species, ozone destruction and depletion of water resources are all identified as environmental activities in the new directive.  The directive is already in force at the EU level but will be ratified and passed into national laws by 2026.


EU Regulations – Pending


  • Corporate Sustainability Due Diligence Directive (CSDDD): Aims to establish a corporate due diligence standard on sustainability issues for all businesses operating in the EU.  The proposed regulation would include not only include reporting on the direct actions of the company, but also their subsidiaries and supply chain as well, and could expose companies to the liabilities of their suppliers.  This legislation is currently stalled due to Member State concerns over the potential costs and risks to their local businesses.


United Kingdom (UK) Regulations – Current


  • Streamlined Energy and Carbon Reporting (SECR): Requires large UK companies to disclose energy use, carbon footprint, and GHG emissions.


  • Task Force on Climate-Related Financial Disclosures (TCFD) Framework: Mandatory reporting for large UK companies on climate-related financial risks.


UK Regulations – Pending


  • The UK government intends to mandate the UK Sustainability Disclosure Standards (SDS) based on the IFRS Sustainability Disclosure Standards (IFRS S1 & S2) as required disclosure for UK registered companies and limited liability partnerships (decision to be taken by the UK government) and UK listed companies (decision to be taken by the FCA, the Financial Conduct Authority).  The standards are expected to be published by July 2024.


United States of America (USA) – Current


  • The US Securities and Exchange Commission (SEC) recently passed a Climate Change Disclosure Rule that, when fully implemented, will require some 10,000 listed companies to disclose their direct greenhouse gas emissions.  It does not require companies to disclose their Scope 3 emissions.


  • The State of California has enacted the Climate Corporate Data Accountability Act (CCDAA).  Requires all US private and public companies that do business in California to disclose their Scope 1, Scope 2, and Scope 3 emissions, beginning in 2026.  California also passed Senate Bill 261, or the Climate-Related Financial Risk Act (CRFRA or SB261), which requires US entities that do business in California with total annual revenue of at least $500M to prepare and submit climate-related financial reports that cover climate-related financial risks consistent with recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD) framework.  


United States of America (USA) – Pending


  • The State of New York is in the process of passing the Climate Corporate Accountability Act similar to California's CCDAA.  It will require companies with over $1bn in turnover, operating within the state of New York to annually disclose their Scope 1, Scope 2, and Scope 3 emissions.


People’s Republic of China – Current 


  • In February 2024, China’s major stock markets, the Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE), Science and Technology Innovation Board (STAR Market), and the Beijing Stock Exchange (BSE), announced new sustainability reporting guidelines for listed companies, including a new requirement for hundreds of larger cap companies and companies dually-listed overseas, to begin mandatory disclosure on a broad range of ESG topics by 30 April 2026.  


Hong Kong SAR – Current 


  • HKEX ESG Reporting and Disclosure: Mandatory sustainability reporting for listed companies on the Hong Kong Stock Exchange (HKEX). Since 2016, large companies listing on the Main Board have been subject to mandatory sustainability reporting as set out in the “ESG Reporting Guide” (Appendix C2 of the Main Board Listing Rules). For small and medium size listed companies, on the HKEX-GEM, are subject to Appendix C2 of the GEM Listing Rules.  In 2020 and 2022, these requirements were updated to align with the Task Force on Climate-Related Financial Disclosure (TCFD) framework.  


  • SFC ESG Disclosure: Separate from HKEX, Hong Kong's SFC has also implemented ESG requirements for SFC-authorized unit trusts and mutual funds that incorporate ESG factors as their key investment focus and/or use ESG investment risks and opportunities as their primary investment objective or strategy.  


Singapore - Current

  • Singapore-Asia Taxonomy for Sustainable Finance: Provides guidance on classifying green activities across sectors, influencing future sustainability regulations.  Since 2021, and a series of public consultations, the SGX reporting requirements have been aligned with the Task Force on Climate-Related Financial Disclosure (TCFD) framework, in order to prepare companies for the emergence of global sustainability reporting standards expected from the International Sustainability Standards Board (ISSB).  In April 2023, the SGX published a Common Set of Core ESG Metrics for listed companies to use.


As you can see from the above regulations, many countries are making voluntary disclosure standards mandatory. It is likely that this trend will continue to increase. The leading voluntary standards for reporting include:


  1. GLOBAL STANDARDS


  • IFRS Sustainability Disclosure Standards

    • Overview: The IFRS Sustainability Disclosure Standards (IFRS S1 and S2) are designed to provide comparable sustainability information regardless of the accounting standards a company uses.

    • Applicability: These standards can be utilized by companies of any size, but they are generally favored by large private entities and publicly-listed companies.

    • Features: They aim to reduce duplicative and onerous reporting, allowing both small and large companies to apply them effectively.

    • As of late 2023, the SASB Standards, CDSB Framework and the TCFD Framework are all now managed by the International Financial Reporting Standards (IFRS) Foundation and it is expected that they will eventually be consolidated into the IFRS Sustainability Disclosure Standards (IFRS S1 & S2).


  • Sustainability Accounting Standards Board (SASB) Standards

    • Overview: The SASB Standards are tailored to help companies disclose relevant sustainability information to investors across 77 industry-specific sets of recommended disclosures.

    • Focus: These standards emphasize sustainability-related risks and opportunities that can impact an entity's cash flows, access to finance, and cost of capital over different timeframes.

    • Transition: Following the merger of SASB into the ISSB, these standards will eventually transition into the IFRS Sustainability Disclosure Standards. In the interim, the ISSB is committed to maintaining, enhancing, and evolving the SASB Standards.


  • Climate Disclosure Standards Board (CDSB) Framework for Reporting

    • Overview: The CDSB is a reporting standard for including environmental and climate change information into mainstream corporate reports such as Annual Reports or Form 10-Ks (in the USA). It was developed to help companies implement and deliver on the TCFD Recommendations.

    • Applicability: These standards are used by hundreds of companies in 10 different industry sectors across 32 countries.  

    • Transition: Following the merger of CDSB into the ISSB in 2022, these standards will eventually transition into the IFRS Sustainability Disclosure Standards.


  • Taskforce on Climate-related Financial Disclosures (TCFD) Framework

    • Overview: A set of recommendations to improve and increase the reporting of climate-related financial information and reporting, as well as guidance on implementation of the framework.  

    • Transition: As of October 2023, the TCFD Framework will converge into the IFRS Standards produced by the International Sustainability Standards Board (ISSB).


  • Global Reporting Initiative (GRI)

    • Overview: The GRI (Global Reporting Initiative) is a globally recognized independent organization that assists businesses in acknowledging and reporting their impacts responsibly, using a common set of disclosures.  Established in 1997, the GRI is one of the most widely used sustainability reporting standards, used by more than 10,000 organizations in over 100 countries, according to the GRI website.  There are forty GRI Standards across various industry sectors and topics.


  1. THEMATIC STANDARDS


  • Science Based Targets Initiative (SBTi)

    • Overview: The Science Based Targets initiative (SBTi) is a collaboration between the CDP (previously known as the Carbon Disclosure Project), the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) that began in 2015.  Since then, more than 1,000 companies have joined the voluntary disclosure initiative to set a science-based climate target for their company, commonly referred to as a (Corporate) Net Zero Target.


  • GHG Protocol

    • Overview: The Global Greenhouse Gas (GHG) Protocol was created in 1998 as a partnership between World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) to establish a comprehensive global standardized framework to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions

  • CDP

    • Overview: The CDP (formerly the Carbon Disclosure Project) is an international non-profit organisation which has developed a global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts.  In this respect, it is broader and more multi-stakeholder in nature than other standards, which tend to be corporation and investor focused.


  • Taskforce for Nature Related Financial Disclosures (TNFD) Recommendations (TNFD Recommendations)

    • Overview: The TNFD Recommendations and Additional Guidance are designed to “help organisations to report and act on evolving nature-related issues with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.”  


  • Workforce Disclosure Initiative

    • Overview: The Workforce Disclosure Initiative (WDI) was created to improve corporate transparency and accountability on workforce issues and to provide companies and investors with comprehensive and comparable data.  


  1. REGIONAL STANDARDS


  • European Sustainability Reporting Standards (ESRS)

    • Overview: The ESRS is the reporting standard for sustainability within the EU. The ESRS standards are an integral part of the CSRD (Corporate Sustainability Reporting Directive of the European Parliament and the European Council), meaning that it is mandatory for certain companies to make annual disclosures according to these standards.

  • UK Sustainability Disclosure Standards (SDS)

    • Overview: The UK Sustainability Disclosure Standards (SDS) will set out the required disclosures on sustainability-related risks and opportunities that face the reporting company.  They are expected to be published by July 2024 and will likely take effect January 1, 2025.


The sustainability reporting landscape continues to evolve as stakeholders’ views on sustainability, transparency and accountability shift and change over time.  The Improvability AI platform is regularly updated with the latest regulations, frameworks and standards, so that you can always be kept up to date with the most relevant reporting requirements. 

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© 2024 Improvability AI. All rights reserved.

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© 2024 Improvability AI. All rights reserved.