Coming regulations with far-reaching implications include the US Securities and Exchange Commission’s much-discussed climate-change disclosure mandate, a possible expansion of China’s carbon-trading system, and Europe’s new green investment typologies. Here are five key questions for 2022.
How will the SEC handle a packed regulatory agenda?
The SEC is expected to publish various ESG-related proposals, including climate-disclosure rules, earlier this year. On that front, important decisions include whether companies will have to report Scope 3 greenhouse-gas emissions, whether smaller firms will face less-stringent requirements, and how the rules will be enforced by a new enforcement task force set up by the SEC. Will be polished, said Brian McGannon, director of policy and programs at the sustainable-investment trade group US SIF.
Changes to fund-marketing rules are also included on the SEC’s agenda. Chairman Gary Gensler said in October that the SEC should consider allowing fund managers to claim that their funds were “green” or “sustainable.” Workforce diversity is another focus, with proposals for human-capital management and boardroom diversity on the SEC’s slate.
Adding to the pressures of midterm elections, Biden brings the prospect of a Republican-controlled Congress in opposition to the administration’s regulatory agenda. “I think it may be a factor in why they want to do as much as possible this year,” Mr McGannon said.
Will China strengthen its emissions-trading system?
This year should signal whether China’s new carbon market has the potential to reduce emissions from the world’s second-largest economy. According to Yan Qin, principal carbon analyst at Refinitiv, the system allocates tradable emissions allowances to pollutants, but the initial allowances were not strict enough to create a strong incentive to cut pollution.
Beijing is expected to update the allocation plan earlier this year, and also expand the system to include other pollution areas, which currently only affect power generators, Ms Qin said. China’s state council, or cabinet, will also publish its version of the regulation, a move that would bring greater enforcement powers.
How China’s emissions-trading system develops will have a global impact. “If the ETS design is strengthened enough and allowance prices increase in the following years, the cost of carbon will be passed on to electricity prices and through industry products, making China-made products more expensive. Will go,” Ms. Qin said. She said China could influence how other economies set up carbon trading systems.
How will the EU energy scramble?
The European Union has proposed treating natural gas and nuclear power as environmentally sustainable energy sources under its “Green Taxonomy” investment rules. Some EU countries disagree with the plan, highlighting divisions over environment and energy policy. It has to be approved by the member- State Governments.
The final form of green classification will have far-reaching implications. This not only determines what types of asset investment managers can be included in green-branded funds, but will also shape how companies are affected by other sustainability-related EU regulations, such as those for companies. Green bond standard eco-friendly projects to raise funds, and ecolabel designations for more sustainable products.
“It’s this classification that really underlies all these other rules,” said Rebecca Vaughn, program manager for Influence Map, an environmental advocacy group.
How will ISSB work?
During the United Nations climate conference last year, several sustainability standards setters announced they would join forces, a move widely seen as a welcome step toward simplifying the array of different reporting frameworks.
Under the new setup, the new International Sustainability Standards Board will incorporate the Climate Disclosure Standards Board and the Values Reporting Foundation, which in turn put in place the Unified Reporting Framework and SASB standards. The ISSB plans to take public feedback on the two proposed disclosure standards earlier this year and issue the first set of rules in the second half of the year.
“I think a big question for us at the ISSB is how they plan to integrate all the organizations that they have consolidated,” said Mr McGannon of US SIF. In particular, he said it is unclear whether SASB’s sector-by-sector approach to assessing companies’ sustainability risks would align with other frameworks.
Can the United Nations Make Biodiversity the New Climate Change?
The first part of a separate UN summit took place virtually, before leaders convened for the COP26 climate summit in Glasgow last year. The COP15 summit, which is preparing a global plan for slowing and reversing damage to the natural world, will be held in person in Kunming, China, in April, when the framework is to be completed. Analysts at Jefferies Financial Group Inc predict that companies and investors will eventually need to consider their impact on biodiversity in a more systematic way, and the United Nations Conference will play a key role in accelerating that process by establishing a single framework for reporting. could.
“We see biodiversity becoming the ‘new climate change’ in 2022 and the COP15 United Nations Biodiversity Convention is a catalyst for this moment,” analysts wrote in a note last month.
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