Policy Digest: February 2025

As press headlines declare a moratorium on ESG, this month’s Policy Digest zooms in on recent developments across the globe signalling otherwise.

The International Foundation for Reporting Standards (IFRS) Foundation has laid out a “climate first” approach to sustainability reporting, to support gradual coverage of broader sustainability topics across global jurisdictions adopting the International Sustainability Standards Board (ISSB) standards. In global banking regulation, the Financial Stability Board (FSB) is exploring the application of standardised metrics to gauge climate-related risks in the financial system.

The EU is undergoing a period of uncertainty as legislators debate the ‘bureaucracy’ of the sustainable finance regulatory regime comprising of the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy. The EU’s Omnibus Package could mark a watering down of the Corporate Sustainability Reporting Directive (CSRD) or yield results such as enhanced interoperability and practical guidance on the use of complex concepts embedded in key reporting frameworks.

Amid these debates, the European Financial Reporting Advisory Group (EFRAG) has launched a consultation on the applicability of the European Sustainability Reporting Standards (ESRS) for non-EU groups, inviting feedback from stakeholders until Q1 2025. Complementing the Commission’s efforts, the EU Platform on Sustainable Finance has proposed ‘simplification’ of the EU Taxonomy to enhance its usability and the European Financial Reporting Advisory Group (EFRAG) has provided a mapping of cross-cutting requirements between ESRS and EMAS–to help reduce the reporting burden. Finally, the European Banking Authority (EBA) has released guidelines on the integration and assessment of ESG risks which will start to apply from 2026.

Across the Atlantic, 24 US states have pledged commitment to the Paris Agreement, despite President Trump’s swift and decisive withdrawal from the realm of climate diplomacy. New York has joined California in introducing corporate climate reporting rules for large businesses operating and doing business in the state.

In the Middle East region, Jordan is embedding sustainability reporting as part of listing requirements. ISSB adoption is also underway across the Asia-Pacific region with Australia recently adopting and mandatorily applying the standards, Pakistan gearing up for ISSB-aligned reporting from 2025, and Indonesia adapting the ISSB standards with transition reliefs. In China, the Shanghai Stock Exchange released new guidelines to bolster ESG reporting for listed companies.

Despite perceived setbacks, sustainability reporting remains the need of the hour. Follow this space for up-to-date information on global ESG regulation, including real-time tracking of the EU’s Omnibus Proposal and ISSB adoption.

INTERNATIONAL

IFRS publishes education material on S2 disclosures

The IFRS Foundation has published education material to help preparers of ISSB-aligned sustainability statements understand which IFRS S1 requirements are applicable, when a company discloses only climate-related risks and opportunities as per IFRS S2. This reflects the “climate-first” approach to disclose information exclusively pertaining to climate-related risks and opportunities, which is allowed by the ISSB standards. The IFRS S1 transition relief allows companies to temporarily limit sustainability disclosures to S2 climate topics while preparing for broader S1 sustainability reporting to support compliance with the ISSB standards in the first reporting year. IFRS S1 and S2 provide globally comparable sustainability disclosures, becoming mandatory when adopted by regulators, therefore applicability and enforcement may vary. However, companies can also voluntarily apply these disclosure standards, particularly for climate-related reporting, with guidance available for compliance. Read more

EUROPE

Navigating the EU Omnibus Proposal

The EU Commission is debating the applicability, scope and enforcement of key planks in the EU’s sustainable finance package including the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy as well as corporate reporting laws– the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). In a recently released Compass, the EU has asserted that the region’s competitiveness is not at odds with sustainability objectives that it has historically championed through the Green Deal. Speculation prevails on whether these regulations will remain intact or, in fact, be watered down With many companies already complying with the CSRD and other disclosure obligations, sweeping changes could be disruptive and multiply the compliance burden. Instead, companies are calling for enhanced guidance and other resources in the toolkit that could facilitate streamlined reporting as the Omnibus originally intended. Read more

Proposed changes brought to the table include but are not limited to the following*:

EU Taxonomy: Clarifying scope and applicability of Taxonomy reporting requirements (including the Green Asset Ratio) for large companies and SMEs.
CSRD/ CSDDD: Converting double materiality under CSRD to single, financial materiality, reducing CSRD scope– only applicable to large, publicly listed companies with over 1000 employees, thereby aligning with CSDDD, postponing CSRD obligations for SMEs by 2 years, defining “mid caps” to clarify thresholds and applicable frameworks (ESRS vs. ESRS for VSMEs).

*this does not represent final reforms or concrete progress towards modifications to the sustainable finance regulatory framework.

EU Taxonomy Simplification Report expected to bolster framework’s usability

The EU Platform on Sustainable Finance has published a final report to improve the usability of the Taxonomy framework for financial and non-financial users alike. The report aims to address primary challenges associated with Taxonomy reporting including data access and interoperability with other regulations. Following two years of market study, pilot projects, and outreach to stakeholders, including investors, credit institutions and SMEs, the Platform has made the following recommendations for simplification:

An estimated one third reduction in reporting burden by making Opex KPI disclosure voluntary with the exception for R&D and introducing materiality thresholds for reporting Capex, Opex and Turnover (specifically for financial companies) to align with financial reporting processes as much as possible. Finally, limiting the number of data points to be disclosed, ensuring these are financially material.

A simplified Green Asset Ratio (GAR) calculation to encourage green and transition lending. simplifying retail exposure reporting, focusing on substantial contribution, allowing for estimates and proxies for reporting and calculation, providing safe harbours in conjunction to protect banks against greenwashing claims and ensuring the materiality principle applies to combined KPIs, excluding business segments not consolidated under the Accounting Directive.

A practical DNSH criteria approach including a lighter compliance assessment, scheduled usability-focused reviews, and a temporary “comply or explain” method for Turnover KPI assessments.

Facilitating SME access to sustainable finance by providing a lighter touch approach for banks and investors’ exposures to unlisted SMEs and simplified approach to the Taxonomy for listed SMEs. Read more

EFRAG publishes report detailing synergies between ESRS and EMAS

In a report, the European Financial Reporting Advisory Group (EFRAG) has identified the key overlaps between the CSRD’s reporting framework– the European Sustainability Reporting Standards (ESRS) and the Eco-Management Audit Scheme (EMAS). While EMAS broadly covers environmental reporting, EFRAG has highlighted that an EMAS registered entity subject to the ESRS could in turn make use of the environmental statement covering the entire undertaking by making use of the incorporation by reference in ESRS 1. Additional requirements relating to employee or stakeholder involvement could also be cross-cutting for ESRS social disclosures. The EMAS framework’s requirements for establishing and reporting on an environmental management system align closely with the ESRS reporting areas, as both emphasise governance, strategy, and management, metrics and targets, enabling EMAS environmental policies, objectives and performance indicators to be effectively integrated into ESRRS reporting Both frameworks also require stakeholder engagement and emphasise impact materiality. EFRAG’s report on ESRS-EMAS synergies includes a mapping table with a comprehensive overview of various reporting interlinkages. Read more

ESRS for non-EU groups consultation open until Q1 2025

Under the CSRD, non-EU companies with over EUR 150 million a year generated in the EU and a branch with over EUR 40 million or large, listed subsidiary will have to report on sustainability issues and impact starting in 2028 at the group level. Accordingly, EFRAG has launched a discovery phase for the adoption of these standards as a delegated act by 2026 with results from the Exposure Draft to be consolidated and reported to the Commission by end 2025. Read more

EBA issues Final Guidelines on the management of ESG risks

On January 8, 2025, the EBA published final Guidelines setting minimum standards and reference methodologies for identifying and measuring ESG risks across short, medium, and long-term horizons. Institutions must conduct regular materiality assessments using exposure, portfolio, sector-based, portfolio alignment, and scenario-based methodologies. The Guidelines emphasise the impact of ESG risk drivers—physical and transition risks—on institutions’ risk profiles and solvency, equating ESG risks to traditional financial risks. Consequently, institutions must integrate ESG risks into risk appetite, internal controls, and ICAAP. As ESG risks contribute to financial risks like credit, market, operational, reputational, and liquidity risks, the EBA mandates their inclusion in regulatory risk management frameworks and mitigation over at least 10 years. The Guidelines establish a robust ESG risk management approach, enhancing internal processes through an internal reporting framework with backward- and forward-looking ESG metrics, as well as strategies, policies, and risk management processes for transition planning. The Capital Requirements Directive (CRD) mandates ESG risk disclosures, including transition plans, which must align with the EBA Guidelines. These will apply to banks from January 2026 and non-complex institutions from January 2027. Read more

NORTH AMERICA

New York Senate introduces Climate Disclosure Law

President Donald Trump promptly delivered on his promise of exiting the Paris Agreement as part of a flurry of Executive Orders signed during his first week in office. While the President has declared open season on several ESG-related policies and initiatives, including DEI, states such as New York are doubling down on ESG. On January 27, 2025, the New York State Senate introduced Senate Bill 3456, also known as the Climate Corporate Data Accountability Act, which would require any business operating and doing business in New York with revenues exceeding $1 billion to annually disclose Scope 1, 2 and 3 emissions using the GHG protocol. Scope 1 and 2 data would be required by 2027, with value chain emissions reporting due in 2028. New York is one of the few states following California’s lead, setting a precedent for patchwork state-level policymaking, as federal regulations such as the SEC Climate Rule stall or are rolled back. Read more

ISSB state-of-adoption

Since the ISSB standards were first issued in 2023, many jurisdictions are adopting or integrating these standards into their legal or regulatory frameworks. A key focus for regulators is achieving comparability across entities and jurisdictions, which is crucial for attracting foreign capital and managing cross-border activities. Adopting ISSB Standards helps reduce regulatory fragmentation and provides a passporting mechanism to align various reporting regimes, aiding companies and investors. ESG Book’s ISSB Adoption Tracker is a living document that monitors the regulatory implementation, adoption and use of the International Sustainability Standards Board (ISSB) standards – IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 for Climate-related Disclosures – across global jurisdictions. These are the most recent updates:

MIDDLE EAST & AFRICA

Jordan: The Amman Stock Exchange (ASE) has published a regulatory framework requiring large, listed companies to provide ISSB-aligned climate-related disclosures from 2026. Companies listed on the ASE20 Index will be required to report climate information in line with IFRS S2 and the climate elements of IFRS S1 in their annual reports published on or after 1 January 2027. Failure to comply may result in an alert, followed by a warning. Once escalated, the penalty for non-compliance includes a fine of 250–5000 Jordanian dinars. The scope and applicability of Jordan’s ISSB-aligned disclosure regime may expand in the future. The ASE has released practical guidance for first time prepares of climate reports to enable companies facing challenges in navigating sustainability reporting. Read more

ASIA-PACIFIC

Australia: Australia has adopted ISSB-aligned climate reporting requirements positioning the country as a global leader in mandatory sustainability reporting. The disclosure regime will be implemented in phases, with first reporters (Group 1 entities) reporting on financial years commencing on or after January 1, 2025. Separately, Australia has also approved new climate and sustainability assurance requirements. Australia’s financial reporting system is undergoing significant changes to enhance flexibility and responsiveness to the emerging sustainability reporting landscape, with the government proposing to reform supervisory and oversight regulatory bodies. The Australian Treasury has proposed consolidating the Financial Reporting Council (FRC), Australian Accounting Standards Board (AASB), and the Auditing and Assurance Standards Board (AUASB) into one statutory body. The new body aims to streamline the standard-setting process and further alignment initiatives to promote institutional accountability while attracting international capital. Read more

Pakistan: The Securities and Exchange Commission of Pakistan (SECP has notified the adoption of the IFRS Sustainability Disclosure Standards through phased implementation, under the advisement of the Institute of Chartered Accountants of Pakistan (ICAP). The first phase of annual reporting will commence from July 1, 2025, followed by a second and third phase from July 2026 and July 2027 respectively. Further, the standards will also be applicable on unlisted-licensed-public interest companies in the third phase, i.e. starting from the year 2027. Assurance standards on sustainability reporting may apply from the second year of reporting, as specified. Read more

Indonesia: The IICA’s Sustainability Standards Board (DSK) has ratified exposure drafts for ISSB-aligned standards PSPK 1 and PSPK 2, open for public consultation from January 20 to March 31. PSPK 1, based on S1, covers general sustainability disclosures, while PSPK 2, based on S2, focuses on climate-related reporting. Proposed changes to ISSB transitional reliefs include: (1) requiring Indonesian companies to publish sustainability disclosures with financial statements once PSPK 1 is effective, (2) extending the climate-only reporting option to three years (vs. ISSB’s one year), and (3) allowing exclusion of comparative non-climate data in the fourth year. Read more

Shanghai Stock Exchange Issues New ESG Disclosure Guidelines for Listed Companies

The Shanghai Stock Exchange has released updated guidance to help listed companies comply with Chinese ESG disclosure standards, which align with international frameworks. The guidance promotes consistency, transparency, and improved corporate reporting, with full implementation targeted by 2030. The two sets of Guidelines include the ‘Self-Regulatory Guidelines for Listed Companies No.4’ which applies broadly to all listed companies on the Shanghai Stock Exchange and the ‘Self-Discipline Supervision Guide No. 13– Science and Technology Innovation Board (STAR Market)- which specifically applies to companies listed on the Science and Technology Innovation Board.

Other news & resources

UNEP FI publishes Human Rights Toolkit for financial institutions. Read more
TNFD releases additional sector-specific guidance on marine transportation and water utilities.
ESMA publishes ESEF Taxonomy. Read more
ISSA 5000: Sustainability Assurance Engagements Implementation Guide now available. Read more