ESG round-up: EFRAG publishes working papers on ESRS sector standards

The latest developments in sustainable finance: Turkey introduces mandatory climate-related disclosures; KSSB to publish global sustainability disclosure rules draft in March.

EFRAG has published two working papers on European Sustainability Reporting Standards (ESRS) sector-specific standards SEC1 and SEC2. The first paper lists 40 ESRS standards categorised into 14 sector groups, covering topics including agriculture, financial institutions and mining. The second outlines the general approach to sector-specific ESRS, providing a general framework for sector classification and a comparison with Pillar 3 rules, the Global Reporting Initiative (GRI), and Sustainability Accounting Standards Board (SASB) sector classification systems.

Turkey’s public oversight, accounting and auditing standards authority (KGK) has introduced mandatory Turkish Sustainability Reporting Standards (TSRS) at the start of January. The standards – TSRS 1 and TSRS 2 – are based on the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2. Businesses that meet two of the required criteria for two consecutive reporting periods will have to report under the standards. The criteria include: total assets of TRY500 million ($16.6 million; €15.2 million); annual net sales revenue of TRY1 billion; or 250 or more employees. Businesses outside the scope can also report on a voluntary basis.

Staying with ISSB, the Korea Sustainability Standards Board (KSSB) is expected to publish an exposure draft based on global sustainability disclosure rules in March. The KSSB was established by Korean regulators last year to adapt the disclosure framework developed by the ISSB. It has been tasked with deciding whether companies should report to the Korea Exchange or a new statutory body and to set out the timeline for implementation, among other issues. Japan is also due to publish its local draft of ISSB rules in March.

The Australian Treasury has published draft legislation for climate-related financial disclosure, based on the Australian Accounting Standards Board’s ISSB-inspired draft reporting standards published in October. The Treasury has opened a consultation on the legislation, which closes on 9 February. As part of the draft legislation, it has also proposed an assurance framework where all climate-related disclosures would require reasonable assurance from year four of reporting onwards.

The Network for Greening the Financial System (NGFS) has appointed a new chair and vice-chair. Sabine Mauderer, a member of the executive board of the Deutsche Bundesbank, will take over as chair and Fundi Tshazibana, deputy governor of the South African Reserve Bank and CEO of the Prudential Authority, as vice-chair. Both appointments are for a two-year term. Mauderer was previously vice-chair of the network, and replaces Ravi Menon, managing director of the Monetary Authority of Singapore, who served as chair from 2022-24.

Dutch financial regulator AFM has named sustainability as one of its supervisory priorities for 2024. The regulator noted that issuers will be faced with challenges with incoming European reporting regulations, due to “inadequate” sustainability data, but stressed that it is pushing for a “speedy and orderly” transition.

S&P has warned that the costs of financing adaptation activities are rising, particularly in developing countries, because of “higher-for-longer interest rates and slower economic growth”. The issue was one of seven key sustainability trends for the year identified by the credit ratings agency. S&P also predicted that 2024 would be a “make-or-break” year for voluntary carbon markets following recent progress on new industry integrity guidelines, and that a planned global plastic ban could “trigger” a transition to a plastic circular economy.

The UK Financial Conduct Authority (FCA) has launched an industry-led working group for financial advisors, to focus on “building capacity” in sustainable finance across the sector. Daniel Godfrey and Julia Dreblow have been appointed as chair and vice-chair respectively. Godfrey sits on Legal & General’s independent governance committee and is also an adviser at ShareAction. Dreblow is founding director of SRI Services and was previously a director at UKSIF. The FCA will sit as an active observer of the group and has asked that it be ready to report in the second half of 2024 on how the advice sector can be supported in delivering good practice.

The Global Reporting Initiative (GRI) has introduced two new sector standards covering coal and agriculture, aquaculture and fishing. Both standards became effective for reporting at the start of January. The coal standard sets expectations for companies to disclose how they are addressing the transition to a low-carbon economy, while the agriculture standard looks at key material topics and disclosures for companies based on their impacts across economic, environmental and social dimensions. The GRI will publish a sector standard for mining in February, as well as a standard for textiles and apparel.

Female appointments to European financial services boardrooms fell by 7 percentage points year-on-year in 2023, according to EY’s annual boardroom monitor. The UK had the lowest proportion of female appointments at 33 percent, falling far behind other European countries such as France (64 percent), Germany (54 percent) and Italy (45 percent). The gender split of directors appointed in 2023 fell from 51 percent in 2022 to 44 percent in 2023. Meanwhile, 31 percent of firms still report less than 40 percent female board representation, with women holding the most senior board positions at just 29 percent of firms. The current gender split across all firms stands at 57 percent male and 43 percent female, versus 58 and 42 percent in 2022.

The largest Tokyo-listed companies will be required to disclose key information in English from March 2025, according to Nikkei. While the bourse has yet to make an official statement, the paper today reported that the requirement will apply to around 1,600 companies listed on the Tokyo Stock Exchange’s top-billed Prime market. Only around 40 percent of Prime-listed companies release their financial results in English, although almost all companies publish some documents in English. The exchange will officially revise its listing rules and confirm the scope of disclosures after discussions with an expert working group.

Barclays has established a new energy transition group to support its clients with their net-zero strategies. The new team will consist of industry sector specialists from within the UK group’s global natural resources, power, and sustainable and impact investment banking teams. It will be led by Mike Cormier, who has been at the helm of Barclays’ Americas energy business since 2021.

Fidelity International has reinforced its sustainability commitments for 2024 with four systematic themes: nature loss, climate change, strong and effective governance, and social disparities. The manager said it will continue to address nature-related issues through its engagement activities and will vote against companies in high-risk sectors that do not meet its minimum standards of deforestation-related practices and disclosure.

Fidelity said it will also seek regulatory engagement on climate-related matters, to encourage governments to close policy gaps to make green technologies cheaper. Finally, the manager said it will “intensify” its dialogue and express its position through voting and shareholder resolutions, continuing to focus on issues such as board effectiveness, corporate culture and behaviour, remuneration and shareholders’ rights and transparency.