The pace of climate and sustainability rulemaking will continue into 2023, Reuters reported.
Building on 2022’s being “the busiest ever” for such rulemaking, policymakers hope to step up regulatory efforts against obfuscating or fraudulent corporate behavior.
The European Union (EU) is making rules to ensure that it meets its climate targets as it attempts to curtail global warming. Its sustainability rules for asset managers, the Sustainable Finance Disclosure Regulation (SFDR), aims to "prevent greenwashing and to increase transparency around sustainability claims made by financial market participants." The EU defines greenwashing as “companies giving a false impression of their environmental impact or benefits.”
The Canadian parliament is considering a bill to increase transparency in supply chains—called the Modern Slavery Act— and the United Kingdom is moving to regulate the raters of companies’ environmental, social and governance (ESG) reporting.
Such steps are being taken to ensure accurate reporting, now that investors are pouring trillions of dollars into companies and funds touting their ESG credentials, Reuters reported. In past years, bad practices were hard to punish, but regulators are now taking enforcement actions against them: Last year, the Securities and Exchange Commission (SEC) fined Goldman Sachs Asset Management and BNY Mellon Investment Adviser over ESG failures, and German asset manager DWS’s offices were raided and its CEO forced to step down after allegations that it misled investors about its ESG investments.
Activist investors are also questioning companies’ ESG credentials and leveraging their investments to bring about change in companies’ behavior.
In addition to the International Sustainability Standards Board (ISSB)’s proposed climate-related disclosures, the EU is expected to issue new guidance early next year on classifying sustainable activities and investments to inform investors.
Yet Reuters noted that achieving a global baseline for the ESG-related information that companies need to share with investors will likely happen only incrementally, since there is no agreed-upon classification system for sustainable investments.