Sustainable Finance Updates: ESMA, EFRAG, and Sebi Initiatives

ESMA Proposes Key Reforms to Strengthen EU Sustainable Finance Framework

The European Securities and Markets Authority (ESMA) has released an Opinion outlining recommendations to enhance the EU Sustainable Finance Regulatory Framework. While acknowledging the framework's current robustness, ESMA suggests several improvements to combat greenwashing and improve investment clarity.

Key proposals include:

1. Establishing the EU Taxonomy as the sole reference for sustainability assessments across all legislation.
2. Completing environmental taxonomies and developing a social taxonomy.
3. Defining transition investments to support related product creation.
4. Mandating basic sustainability disclosures for all financial products.
5. Introducing a product categorization system based on sustainability criteria.
6. Regulating ESG data products to ensure consistency and reliability.
7. Conducting consumer and industry testing before implementing new policies.

EFRAG Report Reveals Early Challenges in ESRS Implementation by Large EU Companies

EFRAG, in collaboration with Boston Consulting Group (BCG), has released a report on the early implementation of European Sustainability Reporting Standards (ESRS) among 28 large EU companies. The study, titled "State of Play as of Q2 2024 | Implementation of ESRS," highlights key challenges and emerging practices in ESG reporting.

Key findings include:

1. Double Materiality Assessment: 70% of companies are shifting to data-driven approaches, combining internal and external insights for ESG impact assessment.
2. Data Challenges: 80% of companies struggle with data retrieval and quality control for ESG metrics. While 95% use EFRAG's Implementation Guidance 3 for gap analysis, only 40% fully understand how to assess individual data point materiality.
3. Value Chain Complexity: 90% of companies are still refining their value chain mapping, with difficulties in reporting beyond Tier 1 business relationships.
4. Organizational Approach: 65% of companies use a single-function ownership model for ESG reporting, while 35% employ a joint leadership model. Cross-departmental collaboration is crucial.

Sebi Expands ESG and Credit Rating Activities to IFSCA Jurisdiction

The Securities and Exchange Board of India (Sebi) has announced a significant expansion of rating activities under the International Financial Services Centres Authority (IFSCA). This move allows both Credit Rating Agencies (CRAs) and ESG Rating Providers (ERPs) to operate within the IFSC-GIFT City in Gujarat.

Key points:

1. IFSCA has been added to the list of financial sector regulators overseeing rating activities.
2. CRAs and ERPs can now conduct credit and ESG rating activities, respectively, at IFSC-GIFT City.
3. ESG ratings performed by ERPs under IFSCA guidelines will fall under IFSCA's jurisdiction.
4. IFSCA will handle any issues arising from Sebi-registered CRAs and ERPs operating in the IFSC.
5. IFSCA will be responsible for managing complaints, enforcement actions, and information requests related to ERP services in the IFSC.
6. The new regulation is effective immediately.

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This newsletter was curated by Jeevan from Newtral. Reach out to him at [email protected] or on LinkedIn.