SustainabilityConnect Newsletter March 2024

Japan Introduces Climate Transition Bond to Support Sustainability Goals.

The Japanese government recently announced the successful issuance of its inaugural Climate Transition Bond, raising JPY800 billion (USD$5.3 billion). This initiative is part of a broader effort to secure JPY20 trillion (USD$133 billion) over the next decade, aiming to propel the nation toward a carbon-neutral future by 2050. The focus is on decarbonizing sectors that are traditionally challenging to adapt, aligning with Japan's ambitious goal to reduce greenhouse gas emissions by 46% by 2030.

To achieve these targets, Japan plans to increase its renewable energy share to 36%-38% by 2030, up from less than 20%. An estimated JPY150 trillion (USD 1 trillion) in investments is required over the next decade, with the transition bond proceeds allocated to projects that reduce emissions, enhance industrial competitiveness, and support economic growth, particularly in hard-to-abate sectors.

The investments will follow the government's 'GX (Green Transformation) Promotion Strategy', focusing on renewable energy, energy efficiency, clean fuel introduction, and infrastructure improvements.

Updapt Views: By mobilizing substantial financial resources towards decarbonizing hard-to-abate sectors and enhancing renewable energy use, Japan sets a global example in integrating financial strategies with ambitious climate change mitigation goals.

China's Stock Exchanges Set New ESG Reporting Standards for Listed Companies.

China's major stock exchanges, including the Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE), and Beijing Stock Exchange (BSE), have introduced new guidelines for sustainability reporting for listed companies. This important step requires select larger and dual-listed companies to start sharing detailed information on various ESG matters by 2026. This initiative aligns China with other countries that are also updating their sustainability reporting standards, such as the EU, the U.S., Australia, Brazil, Singapore, and the UK.

The new rules focus on four main areas: governance, strategy, impact, risk, and opportunity management, along with specific goals and indicators. This comprehensive approach aims to give investors and stakeholders a clearer picture of how companies are addressing and managing sustainability challenges. Topics covered include climate change, biodiversity, energy use, supply chain security, and anti-corruption efforts, among others. The guidelines also emphasize the importance of reporting on indirect greenhouse gas emissions, which can often be challenging to track.

Over 450 large companies are entitled to these mandatory reporting requirements, representing about half of the market's value. While the BSE encourages smaller companies to adopt these practices voluntarily, the primary focus is on larger entities. This step towards more transparent sustainability reporting reflects China's commitment to responsible business practices and environmental stewardship.

Updapt Views: China's stock exchanges mandating sustainability reporting marks a pivotal move towards aligning with global ESG standards, enhancing investor confidence, and promoting responsible corporate behavior. Companies must now undertake a strategic approach to comply, involving understanding guidelines, assessing capabilities, and developing a robust reporting framework. This initiative not only fosters transparency but also drives operational efficiency and long-term sustainable growth.

Singapore Implements Mandatory Climate Reporting in Pursuit of a Sustainable Future Commencing in 2025.

Singapore is gearing up for a significant shift towards environmental transparency, setting the stage for mandatory climate reporting starting in 2025. This policy mandates that both listed and significant non-listed companies begin disclosing their climate impacts, adhering to the standards set by the International Sustainability Standards Board (ISSB) .

The implementation strategy is methodical and phased. Initially, listed companies will step into the action in 2025, paving the way for their large non-listed counterparts, which are defined by their considerable revenue and asset base, to follow suit in 2027. This staggered approach ensures a smooth transition for businesses towards full compliance with the new regulations.

The reporting framework is comprehensive, covering direct emissions (Scope 1 and 2) in the initial phase, before expanding to encompass value chain emissions (Scope 3) by 2026 for listed companies, with non-listed companies following a similar but slightly delayed timeline. This gradual expansion underscores the government's intent to foster a deep-rooted understanding and management of environmental impact across all business operations.

Updapt Views: To prepare for Singapore's mandatory climate reporting in 2025, companies should first understand the ISSB standards and their specific reporting obligations. Assessing current data collection and reporting processes is crucial to identifying gaps and areas needing improvement. Early preparation will ensure a smooth transition.

EU Commits to Comprehensive Environmental Restoration by 2050.

The European Union has aimed to rehabilitate its natural environments, setting a goal to restore at least 20% of its land and sea areas by 2030, and extending the initiative to encompass all ecosystems requiring restoration by 2050. This legislative move is in direct response to the concerning state of over 80% of European habitats currently classified as being in poor condition. The law outlines progressive targets for EU countries to rejuvenate 30% of these habitats by 2030, escalating to 60% by 2040 and reaching 90% by 2050, underscoring a major push towards the EU's overarching climate and biodiversity objectives while also aiming to bolster food security.

Particular attention is given to agricultural ecosystems within the law, with detailed provisions for the restoration of peatlands and the enhancement of biodiversity. This includes the implementation of specific indicators to gauge improvements in agricultural landscapes, such as the grassland butterfly index and the stock of organic carbon in cropland mineral soils. An emergency brake mechanism is also integrated, allowing for the temporary suspension of targets under exceptional circumstances that could jeopardize essential food production for EU consumption, demonstrating a balanced approach to environmental restoration and agricultural needs.

Moreover, the legislation mandates significant actions beyond agriculture, demanding a positive trend in forest ecosystems and the planting of an additional three billion trees across the EU. It also sets forth objectives to restore at least 25,000 km of rivers to a free-flowing state and to prevent any net loss in urban green spaces and tree canopy cover. This multifaceted strategy not only signifies the EU's transition from conserving to actively restoring nature but also reflects a commitment to fulfilling international environmental obligations, with a clear acknowledgment of the scientific community's role and the youth's advocacy for a sustainable planet.

Updapt Views: The EU's nature restoration law marks a significant stride in ESG efforts, emphasizing environmental restoration, social well-being, and strong governance. It sets ambitious targets for ecosystem revival, promising substantial social benefits and fostering sustainable investment opportunities. This legislation underscores the EU's commitment to sustainability, resilience, and a balanced approach to environmental and economic challenges.

Malaysia Advances Towards Global Sustainability Practices with Proposed Adoption of ISSB Reporting Standards.

Malaysia's Securities Commission is moving forward with a proposal for the adoption of the International Sustainability Standards Board's (ISSB) guidelines for mandatory ESG reporting for its publicly listed and large companies. This initiative, guided by the Advisory Committee on Sustainability Reporting (ACSR), aims to integrate these international standards into Malaysia's own National Sustainability Reporting Framework (NSRF). This integration seeks to bolster the framework with added support for assurance processes and capacity building, marking a strategic move towards enhanced corporate transparency.

The push towards adopting the ISSB's guidelines is part of a broader, global trend toward standardized sustainability disclosures. This trend is driven by the increasing demand from investors, businesses, and regulatory bodies for clear and consistent reporting on how sustainability issues impact corporate performance. With the ISSB's standards rapidly gaining acceptance around the world, Malaysia's move to align with these guidelines is a critical step in maintaining its competitive edge in the global market.

The consultation process launched by Malaysia's Securities Commission is designed to solicit feedback on various aspects of implementing these standards, including their scope, timing, and the assurance process. This process is crucial for understanding the practicalities and challenges of adopting these standards within the Malaysian context. By aligning with global practices, Malaysia is not only committing to sustainability and transparency but also ensuring its economy remains closely integrated with international supply chains and practices.

Updapt Views: The Malaysian government's initiative to adopt ISSB sustainability reporting standards, along with establishing a phased implementation timeline, would give companies ample time to adapt. Additionally, providing templates and guidelines for reporting could help standardize submissions, making it easier for companies to meet the new requirements. Collaboration with industry associations to share best practices and insights could further streamline the process, ensuring a seamless transition for companies towards enhanced sustainability reporting.

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