Top 10 ESG Markers - November 2024

The month of November covers the 2024 State of the news from the biodiversity COP16, EU Parliament weakening deforestation regulations, but tightening reins on ESG raters, Brazil leading in sustainability reporting in South America, ASIC seeking guidance on sustainability reporting guidance, Australian Government releasing guidance on the intersection of ESG and AI, key sustainability developments in APAC, climate’s impact on children globally, Storm Bert bringing ?flooding chaos to the UK and outcomes from climate COP 29.

Again, if I happen to miss some key markers in a particular month. Just drop me some comments, and I will pick them up next month!?

*‘ESG Markers’ – like biomarkers that tell us how healthy our body may be, ESG Markers showing us the big movements in the field of ESG in Oceania and globally.?

So, here are my Top 10 for November 2024, again in no particular order.

COP16: Mixed results in the fight to save biodiversity

The 16th Conference of the Parties to the Convention on Biological Diversity (COP16), held in Cali, Colombia, aimed to accelerate the implementation of the Kunming-Montreal Global Biodiversity Framework (GBF). While the summit made some progress, significant challenges remain in the global effort to halt biodiversity loss.

A key concern is the lack of concrete action plans. Only 44 out of 196 countries have submitted updated national biodiversity strategies and action plans (NBSAPs), and many of the 119 countries that set national targets failed to provide detailed implementation plans.

Financing remains a major hurdle. Negotiations on a new fund to mobilize $200 billion annually for biodiversity conservation were stalled, delaying progress until the next COP. However, seven countries pledged an additional $163 million to the interim GBF fund.

Despite these setbacks, there were some positive outcomes from COP16. The International Advisory Panel on Biodiversity Credits published a framework for high-integrity biodiversity markets, which could help drive sustainable finance and conservation efforts. Additionally, parties agreed on a multilateral mechanism to share the benefits of digital sequence information on genetic resources more equitably.

The recognition of the rights and traditional knowledge of Indigenous Peoples and Local Communities is another important step forward. The establishment of a new permanent subsidiary body will enhance their engagement in future decision-making processes.

While COP16 made some progress, it is clear that much more needs to be done to address the biodiversity crisis. Urgent action is required to implement the GBF and ensure the long-term health of our planet.

EU Parliament weakens deforestation regulation

The European Parliament has voted to delay the implementation of the EU Deforestation Regulation (EUDR) by one year. This move, aimed at easing the burden on businesses, has raised concerns about the impact on global deforestation efforts.

Originally scheduled to take effect at the end of 2024, the EUDR will now require medium and large companies to comply by December 30, 2025, while micro and small enterprises will have until June 30, 2026. This delay has been met with mixed reactions, with some arguing that it undermines the urgency of addressing deforestation.

Furthermore, the Parliament has proposed a new "no risk" category for countries with stable or increasing forest cover. This classification could potentially exclude certain regions from the EUDR's scope, further weakening the regulation's impact.

Critics argue that these changes could dilute the EUDR's original objectives and create confusion for businesses. The delay and the introduction of the "no risk" category may hinder the EU's efforts to combat deforestation and promote sustainable supply chains.

EU tightens the reins on ESG rating providers

The European Union has taken a significant step to enhance the transparency and integrity of Environmental, Social, and Governance (ESG) ratings. A new regulation, adopted by the European Council on November 19th, aims to ensure that ESG ratings are reliable, consistent, and free from conflicts of interest.

Key provisions of the regulation include:

• Authorisation and Supervision: EU-based ESG rating providers will be subject to authorisation and supervision by the European Securities and Markets Authority (ESMA).
• Transparency Requirements: These providers must adhere to strict transparency standards, disclosing their methodologies and data sources.
• Third-Party Endorsement: Non-EU ESG rating providers seeking to operate within the EU will need to obtain endorsement from an EU-authorised provider or meet specific quantitative criteria.
• Conflict of Interest Prevention: The regulation emphasises the importance of separating business activities to mitigate potential conflicts of interest.

This new regulation is expected to improve the quality and reliability of ESG ratings, fostering greater trust in the sustainability market. By imposing stricter standards, the EU aims to ensure that ESG ratings are accurate, comparable, and aligned with the bloc's ambitious sustainability goals.

Brazil leads the way in sustainability disclosure in South America

Brazil has taken a significant step forward in sustainability reporting by becoming the first country to fully adopt the International Sustainability Standards Board (ISSB) standards. The country's Securities and Exchange Commission (CVM) has issued three resolutions to implement these standards, making sustainability disclosure mandatory for publicly-held companies.

The CVM's decision to adopt the ISSB standards aligns Brazil with global best practices in sustainability reporting. By doing so, the country aims to enhance transparency, accountability, and investor confidence. The new regulations will require companies to disclose information on a range of sustainability issues, including climate change, social impact, and governance.

This move by Brazil sets a strong precedent for other countries and demonstrates the increasing importance of sustainability in the global financial landscape. As more countries adopt similar regulations, it will become easier for investors to compare the sustainability performance of companies across different jurisdictions.

ASIC seeks input on new sustainability reporting guidance

The Australian Securities and Investments Commission (ASIC) has released a draft guidance document to assist entities in complying with the new sustainability reporting requirements. These mandatory requirements, phased in over three years, will affect a range of reporting entities, starting with the first cohort in 2025.

ASIC's proposed guidance aims to clarify various aspects of the new regime, including:

• Timing and Scope: When and how entities should prepare sustainability reports.
• Content and Disclosure: Specific requirements for content, forward-looking statements, labeling, and cross-referencing.
• Legal and Regulatory Interactions: How sustainability reporting aligns with other existing regulations.
• ASIC's Role: ASIC's enforcement and relief powers related to sustainability reporting.

The public consultation period for this draft guidance will close on December 19, 2024. ASIC encourages feedback from stakeholders to refine the guidance and ensure its effectiveness. Details can be found at 24-247MR ASIC seeks feedback on proposed guidance on sustainability reporting regime | ASIC

Australian Government releases AI and ESG guidance

The Australian Government has released new guidance to help businesses harness the power of AI while mitigating its potential risks. The guidance emphasizes the positive impact AI can have on ESG goals, such as improving resource efficiency and labor conditions. However, it also warns of potential risks like bias, privacy breaches, and job displacement.

To support businesses in their AI journey, the government has introduced the AI Impact Navigator. This tool helps organizations assess the environmental, social, and governance impact of their AI applications across five key dimensions. By using this tool, businesses can identify areas for improvement and make informed decisions about their AI initiatives.

The government's focus on responsible AI development and deployment aligns with its commitment to sustainable and ethical technology practices. By providing clear guidance and tools, the government aims to empower businesses to innovate responsibly and contribute to a more sustainable future.

Key developments in APAC

The Asia-Pacific region is experiencing a surge in sustainability initiatives, driven by a combination of regulatory pressures, consumer demand, and investor expectations.

EU's Impact on the Region

The EU's Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDD) are exerting significant influence on Asian businesses, particularly those with operations in or exporting to the EU. These directives impose stringent sustainability reporting and due diligence requirements, forcing companies to adopt more sustainable practices and transparent reporting.

Other key Developments in the Region

• Hong Kong: The region's financial hub is actively promoting sustainable finance. The Hong Kong Monetary Authority's Sustainable Finance Action Agenda aims to solidify Hong Kong's position as a leading sustainable finance center. Additionally, the voluntary code of conduct for ESG rating and data providers enhances the quality and transparency of ESG information in the market.
• China: China continues to prioritise green finance and climate change mitigation. The country's focus on clean energy, electric vehicles, and carbon markets is driving significant investment and innovation.
• Japan: Japan's Hydrogen Society Promotion Act demonstrates the country's commitment to hydrogen as a clean energy source. The government's support for hydrogen production, storage, and utilization is expected to accelerate the transition to a low-carbon economy.
• Malaysia: Malaysia is taking steps to strengthen its sustainability framework. The introduction of mandatory sustainability reporting requirements and the development of a climate change bill are significant milestones in the country's sustainability journey.
• Singapore: Singapore is emerging as a leading sustainable finance hub in Southeast Asia. The government's focus on decarbonisation, energy efficiency, and the protection of platform workers reflects its commitment to sustainable development.

COP29: A mixed bag of progress and disappointment

The recently concluded COP29 climate summit in Baku, Azerbaijan, fell short of expectations. Despite intense negotiations and high hopes, the outcome was largely underwhelming, marked by significant delays, political maneuvering, and a lack of substantive progress on key issues.

Key Takeaways from COP29:

• Insufficient Climate Finance: While a new target of US$300 billion per year by 2035 was agreed upon, many developing nations argue that this is far from sufficient to address the growing climate crisis.
• Weak Carbon Market Rules: The agreement on global carbon market rules, while a step forward, faces concerns about transparency and accountability.
• Limited Progress on Fossil Fuel Phase-out: Despite calls for a rapid phase-out of fossil fuels, there was little progress on this front, with significant resistance from major oil-producing nations.
• Geopolitical Tensions: The geopolitical landscape, including the return of a climate-sceptic administration in the US, added complexity to the negotiations.
• Host Nation Controversy: Azerbaijan's role as the host nation raised eyebrows due to its reliance on fossil fuels and its human rights record.

The overall outcome of COP29 was largely disappointing, with many observers criticising the lack of ambition and the dominance of vested interests. As the climate crisis intensifies, it is imperative for nations to work together to implement more ambitious climate action plans. The future of our planet hangs in the balance.

Storm Bert brings flooding chaos to the UK

Storm Bert has caused significant flooding across England and Wales, affecting over 500 homes and businesses. The Welsh government has pledged financial assistance to affected households and is seeking additional funds to address the long-term issue of coal tip safety. Concerns have been raised about the effectiveness of flood warning systems, with some residents claiming they were not alerted in time.

The increased frequency and intensity of extreme weather events, such as Storm Bert, are linked to climate change. Warmer temperatures lead to more moisture in the atmosphere, resulting in heavier rainfall and increased flood risk. As climate change continues to exacerbate weather patterns, it is crucial to invest in flood defences, improve warning systems, and adopt sustainable practices to mitigate the impacts of extreme weather events.

Climate crisis exacerbates suffering for millions of children

A recent report by Save the Children has unveiled the devastating impact of climate change on children worldwide. Over 300 million children, or roughly one in eight, have been significantly affected by ten major extreme weather events in 2024 alone.

These events, including severe droughts, floods, and heatwaves, have forced children to flee their homes, miss school, and face food insecurity. The report highlights the disproportionate impact of climate change on vulnerable children, particularly those living in low-income countries.

The UN's worst drought in 100 years in Southern Africa and the devastating floods in West and Central Africa are stark examples of how climate change is exacerbating existing vulnerabilities. Children in these regions are facing malnutrition, displacement, and disrupted education.

As the world grapples with the increasing frequency and intensity of climate-related disasters, it is crucial to prioritize the needs of children. By taking immediate action to mitigate climate change and invest in climate adaptation measures, we can protect the future of generations to come.

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The views expressed in this article are the views of the author, not Ernst & Young (EY). This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.