In the final part of this whitepaper series, we discuss various environmental, social, and governance regulations from around the world. Each country has its own laws and legislation regarding measuring and reporting on various ESG topics. While these standards may follow similar reporting guidance and disclosures, factors such as who falls in scope and the data required for reporting will determine whether your company has to disclose under that standard or not. Many regulations are still in the early stages of development and therefore are not mandatory for all companies operating in that country. However, this will likely change with stricter adoption of such frameworks across the world to become a reporting requirement.
In order to keep up with the changes to ESG regulations in Europe and to encourage sustainable development, China has adopted its own standards and reporting requirements. These new regulations align with various other standards across the world, including the Global Reporting Initiative (GRI), international Sustainability Standards Board (ISSB), and the Task Force for Climate-related Financial Disclosures (TCFD). The Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE), and Beijing Stock Exchange (BSE) have announced self-regulatory guidelines which came into effect in May 2024 for the first reporting period to take place in April 2026 for the year 2025. Large companies listed on the Hong Kong stock exchange will also fall into scope for these disclosures.
The companies impacted are required to disclose sustainability-related information as well as address social responsibilities and corporate governance procedures. The guidelines will require a Double Materiality Assessment (DMA), similar to that expected in Europe for CSRD disclosures, in order to inform the company of all topics that may be financially material or impact material. The reporting disclosures focus on China-specific topics such as pollution and climate change, as well as risk management, rural development, strategy, and targets.
Conducting a DMA is not a small task and requires much time and focus in order to get thorough and well-informed results. However, it can be an extremely worthwhile project. Results can lead to a more thorough understanding of what ESG-related topics are most relevant to you and your business, and can show where further energy, money, and time should be placed. This also allows for more informed financial decisions and investment opportunities because ESG is another important aspect to consider. Because these new ESG Guidelines in China are based on many other standards and regulations that are already being enforced, it means that the work and data gathered for other standards can be used in these disclosures as well. This is great for companies who have numerous voluntary and mandatory standards that they have to align with as it prevents from a duplication of work and effort.
The Australian Accounting Standards Board (AASB) recently introduced the Australian Sustainability Reporting Standards (ASRS) which are based on the sustainability standards outlined by the International Sustainability Standards Board (ISSB). The ISSB standards create globally accepted guidelines for sustainability disclosures in order to meet the information needs of capital market stakeholders. In Australia, the adoption of these standards and the ASRS was finalised in September 2024 and demonstrate a ‘climate first’ approach in line with the ISSB and government commitments. The ASRSs focus on a mandatory disclosure standard covering climate-related disclosures (ASRS S1), and then a voluntary disclosure covering general requirements for disclosure of sustainability-related financial disclosures (ASRS S2). ASRS S1 allows for voluntary disclosures which may not be solely related to climate, and therefore these reports can also include other environmental topics such as biodiversity, water, waste, and energy usage.
The scope of who is required to report under these standards and when is dependent on revenue, gross assets, and number of fulltime employees. For example, if your revenue is ≥$500 AUD, your gross assets equate to ≥$1billion AUD, and you have 500 or more fulltime employees, then you will have to begin reporting inline with the ASRS by 1st January 2025. An annual sustainability report will have to be prepared to demonstrate compliance with the standards. Other thresholds then have later reporting deadlines, and some companies may not have to publish a full sustainability report, but instead create a statement to show compliance.
Limited or reasonable assurance for reporting data will be mandatory for some disclosures. For example, the requirement of limited assurance for Scope 1 and 2 disclosures, as well as for the governance and strategy aspects of the report has been proposed to come into effect from the 1st January 2025 deadline. This will then change to reasonable assurance for Scope 1 and 2 disclosures in the second year of reporting (from 1st January 2026 deadline onwards). Reasonable assurance will then be mandatory for all reporting data disclosures from the fourth year of reporting.
The new requirements in India aim to connect the financial results of a business with its ESG performance. The disclosures were made mandatory a few years ago, and are applicable to the top 1,000 (by market capitalisation) listed companies in India. The standard is laid out in a questionnaire, which includes 140 questions with 98 being mandatory and 42 being voluntary to answer. The reporting follows three kinds of disclosures, general disclosures that cover basic company information, management and process disclosures to provide evidence that the company is adhering to the necessary policies and procedures, and then principle-wise performance disclosures that focus on quantitative data relating to nine key categories. A sustainability report is necessary to show the responses to each question and the data included to support the answers.
The principle-wise questions are grouped into nine key categories:
Similar to the new ESG Guidelines adopted in China, the Indian Business Responsibility and Sustainability Report has been adapted from other voluntary and mandatory reporting frameworks. This means that the data required can be used in various other reporting methods.
In March 2024, the SEC adopted the final version of the Climate Related Disclosure rules relating to the risks and impacts of climate-related topics. Disclosures can be included within a companies financial reporting documents, such as a 20-F, instead of having a separate sustainability or ESG report. Some of the disclosures also overlap with other frameworks, notably the Task Force for Climate-Related Financial Disclosures (TCFD). Both domestic registrants and foreign private issuers have to report on a number of climate-related issues. Reporting is to begin in 2026 based on 2025 data, with later deadlines for smaller companies and certain Greenhouse Gas (GHG) emission disclosures.
Physical or transitional climate risks need to be included in the actual or potential material impacts. These can either be short- or long-term risks. The difference between the US Climate Related Disclosures and the materiality reporting necessary for the CSRD in Europe is that the supply chain does not need to be considered in the US, unless the risk is material to the business’ operations or financial condition. An understanding of how management is assessing and managing these risks is also an important aspect of reporting, with specific reporting requirements relating to the relevant expertise of management in identifying and mitigating such risks. Processes also need to be outlined, detailing how the business identifies these risks and the transition plans in place to manage such material topics. This can include targets and specific goals that the business has adopted.
Scope 1 and 2 GHG emissions must be disclosed if these topics are found to be material. Emission disclosures will likely always be material, whether that is Scope 1, 2 or 3. Within these disclosures, the methodology and protocol used to determine emissions factors and output must be declared. This can be based on the Greenhouse Gas Protocol standards or another acceptable framework. Limited assurance is required for both Scope 1 and 2 GHG emissions data. It is also important to note that Scope 3 disclosures are not mandatory at this time, although this may be subject to change in the future.
Climate-related financial statements can be added as a footnote to the financial documents. Separate disclosures need to be outlined for the impact of severe weather events or other natural conditions which may have led to costs, charges, or losses.
California has long been at the forefront of the ESG reporting standards. The Californian regulations only apply to companies that are ‘doing business’ in the state of California, and do not impact other states in the US. In September 224, there were some amendments made to pre-existing legislation relating to climate and ESG disclosures. This includes the Climate Corporate Data Accountability Act that relates to Scope 1, 2 and 3 GHG emission disclosures, the Greenhouse Gases Climate-related Financial Risk disclosures, and the Voluntary Carbon Market Disclosures Act. Each regulation has its own reporting requirements and deadlines which need to be complied with based on the scope of the reporting entities.
Financial institutions such as banks and insurance companies are required to disclose climate-related data inline with the TCFD framework starting in 2024. This can impact a significant number of companies and could be expanded to include other institutions as well.
Both domestic and foreign companies may be required to report on certain ESG-related data under some of these new regulations. It will come down to the scope of the reporting entities and the material topics they have identified. Similar standards and regulations will be rolling out across the world within the next few years, so it is vital that companies are kept up to date with any new requirements, or amendments to existing legislation. This will allow for preparation time to ensure all necessary disclosures are complied with and the data gathered is accurate.
