ESG Corner- November 2024

30, November 2024

IN THE NEWS

This section focuses on key developments globally, in the US, India, and the Middle East. It dissects the most recent news and analyzes its potential to influence regional landscapes, businesses, and consumers. Uniqus provides insights into how these developments may shape current market dynamics and set the stage for future opportunities and challenges.

Global

1. IPSASB’s Releases Draf t Climate- Related Disclosures Standard for Public Sector

The International Public Sector Accounting Standards Board (IPSASB), supported by the World Bank, recently released a groundbreaking draft standard for climate-related disclosures for the public sector. The proposed Sustainability Reporting Standard (SRS ED 1) builds on the International Sustainability Standards Board (ISSB) global baseline and aligns with other global standards to ensure transparent and consistent reporting. The standard focuses on reporting requirements for climate-related risks and opportunities relevant to a public sector constituent’s own operation, as well as climate-related public policy programs and outcomes.

2. ESMA’s 2024 Corporate Reporting Priorities

The European Securities and Markets Authority (ESMA) released its 2024 European Common Enforcement Priorities (ECEP) Statement, which highlights guidelines for 2024 corporate reporting priorities. The three primary focus areas are as follows:

Double materiality
Sustainability reporting under the CSRD
Compliance with the EU Taxonomy

3. SBTi Enhancements in Response to High Demand for Target Validation

The Science Based Targets Initiative (SBTi) has launched a new website to streamline the validation process for businesses and financial institutions setting science-based targets. This platform introduces a Validation Portal that aims to make it easier for companies to set and validate emissions reduction targets that are aligned with the Paris Agreement. The website offers resources and guidance to help businesses navigate the target validation process and ensure their targets are science-based and impactful.

4. TNFD Draft Guidance on Nature Transition Planning at COP16

At this year’s COP16 Green Zone held in Colombia, the Taskforce on Nature-related Financial Disclosures (TNFD) announced the release of its discussion paper on draft guidance on nature transition planning. The guidance aims to assist companies and financial institutions in developing and disclosing their plans for transitioning their operations to prioritize nature in line with TNFD recommendations. The TNFD emphasizes the importance of aligning with the Kunming-Montreal Global Biodiversity Framework (GBF) to address biodiversity loss by 2030. The draft guidance outlines key elements of a nature transition plan, including foundations, implementation strategy, governance, metrics and targets, and engagement strategy.

COP29 Baku Concluded in November with Contentious Agreements

On 22 November 2024, COP29 concluded in Baku, Azerbaijan, after intense and heated negotiations among party delegations. The main divide was between developed and developing countries, which led to differing perspectives on various issues. Uniqus covered the events of COP29 and will provide a follow-up post-COP report with our in-depth takeaways. Here is a glimpse of our observations and analysis of the events that unfolded at COP29:

Baku Finance Goal – A New Commitment to Climate Finance
Progress on Article 6 of the Paris Agreements
Operationalization of Loss and Damage Fund
Key pledges to reduce carbon emissions

Uniqus’ POV

The evolving ESG landscape underscores the critical need for consistent, transparent, and actionable disclosures. Streamlining and enhancing reporting processes while providing organizations with clear, practical guidance on reporting topics and procedures has become increasingly essential. The IPSASB’s recent draft standards for climate-related disclosures mark a transformative milestone for public sector accountability. They build on existing global standards to ensure continuity and comparability across sectors. This move reinforces the public sector’s pivotal role in global sustainability efforts and sets a precedent for rigorous and consistent reporting practices.

US

1. ESG Data Gaps and ISSB Reporting Challenges

As climate risks and evolving regulations impact global markets, the need for robust ESG data continues to grow. At the recent Bloomberg Sustainable Finance Forum, attendees identified data coverage and quality obstacles, which present challenges for companies adhering to the International Sustainability Standards Board (ISSB) and other disclosure requirements. Europe’s Corporate Sustainability Reporting Directive (CSRD) imposes its own requirements, creating complexity for asset managers and companies navigating overlapping frameworks. Materiality also remains central to investor decision-making, with financial and environmental considerations needing independent auditor assessments.

2. What the 2024 Election Means for ESG

The results of the US Presidential election may significantly impact the state of ESG in the United States and, more broadly, include a potential rollback of the long-awaited SEC climate disclosure rules. That said, global ESG reporting obligations remain unaffected by US political shifts. Europe’s Corporate Sustainability Reporting Directive (CSRD), which enforces sustainability disclosures across various metrics, will impact around 50,000 companies worldwide— including many US-based firms. This directive requires large corporations to disclose carbon emissions and other sustainability-related data.

Uniqus’ POV

As the ESG reporting landscape evolves, questions about disclosed information’s validity, accuracy, and quality persist. This challenge presents an opportunity for stronger collaboration between finance, audit, and sustainability teams. Auditor assessments can play a crucial role in ensuring the reliability of ESG data, building trust among financial stakeholders, and aligning ESG disclosures with broader corporate reporting requirements.

India

1. Progress in BRSR Disclosures by Indian Companies, but Key Gaps Persist

According to the latest BRSR report, released by the CFA Institute, CFA Society India, and the NSE, Indian companies show progress in sustainability disclosures, but gaps remain. In FY23, over 96% of companies reported energy usage, achieving a 13% reduction in energy consumption per revenue unit from FY22. While 94% disclosed Scope 1 and 2 emissions, under 40% reported Scope 3 emissions. Most companies have adopted sustainable sourcing strategies, but over half did not disclose R&D investments or capital expenditures on ESG-improving technologies.

Uniqus’ POV

The report shows that while Indian companies are making strides in disclosing sustainability data, key areas like Scope 3 emissions, R&D, and investments in green technologies remain underreported. This gap suggests that many businesses still treat ESG as a compliance task rather than an opportunity for innovation and growth. By fully embracing these disclosures, especially Scope 3 emissions, companies can get a clearer view of their entire environmental impact and take more meaningful action. Investing in green technology and R&D also adds long-term value, helping businesses stay resilient and competitive as the market shifts towards sustainable practices. As India’s ESG landscape grows, companies that commit to transparent and comprehensive reporting will be better positioned to meet global standards, attract investors, and lead in a more sustainable economy.

2. SEBI Forms New ESG Committee and Proposes Changes for Rating Framework

SEBI has formed a 21-member committee to tackle ESG issues in the securities market, chaired by Mr. Navneet Munot, Chairman of AMFI. The committee aims to develop the ESG ecosystem and examine global ESG developments. In tandem, SEBI has proposed changes to ease the regulatory environment for ESG rating providers (ERPs). These include allowing ERPs to rate unlisted securities and shifting from current regulations restricting them to only listed entities. SEBI has also proposed that entities not involved in regulated activities need not seek SEBI registration. Additionally, ERPs must clarify the regulatory authority under which they operate when rating non-SEBI entities.

Uniqus’ POV

SEBI’s new committee and regulatory proposals signify a significant step toward aligning India’s financial market with global ESG standards. Expanding the scope of ESG ratings to unlisted entities opens the door for a more comprehensive evaluation of corporate sustainability efforts, which could encourage wider adoption of ESG practices. However, these changes also introduce the challenge of ensuring that the quality and transparency of ESG ratings are maintained, particularly as ERPs begin to assess a broader range of issuers. Striking the right balance between expanding ESG ratings and safeguarding market integrity will be critical as SEBI rolls out these reforms.

3. India saw the steepest surge in greenhouse emission in 2023: UNEP Report

India saw the steepest increase in greenhouse gas (GHG) emissions in FY23, rising by 6.1%, as reported in the UNEP Emissions Gap Report 2024. This increase surpasses China’s 5.2%, while the EU and the US reduced emissions by 7.5% and 1.4%, respectively. India’s emissions totaled 4,140 million metric tons of CO2 equivalent, lower than China’s 16,000 MtCO2e and the US’s 5,970 MtCO2e. The report stresses the urgent need for global emissions reductions to meet the 1.5°C temperature goal of the Paris Agreement. UNEP outlines that up to 31 gigatons of CO2 equivalent could be cut by 2030, primarily through renewable energy, energy efficiency, and forest conservation. Achieving this will require increased global cooperation and technological advancements, especially in emerging economies like India and China.

Uniqus’ POV

India’s sharp rise in emissions highlights the growing climate challenges faced by emerging economies. While its emissions are still lower than major economies, the trend calls for urgent action, particularly transitioning to cleaner energy. The UNEP report demonstrates that renewable energy and energy efficiency can significantly reduce emissions, but technological adoption in rapidly developing regions like India must accelerate and the current Nationally Determined Contributions (NDCs) must be enhanced. International cooperation, bold policies, and investments in renewable energy are essential for meeting climate targets and preventing severe impacts from rising global temperatures.

Middle East

1. Saudi Arabia’s Public Investment Fund (PIF) unveils USD 20 billion plan for green projects

The Public Investment Fund (PIF) of Saudi Arabia has identified a capital expenditure requirement of about USD 19.4 billion for its eligible green projects, with USD 5.2 billion already allocated as of June 2024. This commitment is part of PIF’s ongoing dedication to sustainable finance. In its recently published second Allocation and Impact Report, the PIF emphasized its involvement in key areas to ensure progress in sustainable finance. The PIF highlighted its focus on renewable energy and green initiatives. Thus far, funds allocated are directed toward developments meeting specific eligibility criteria designed to promote environmentally friendly initiatives.

Uniqus’ POV

As part of the global effort to combat climate change, the Kingdom of Saudi Arabia is committed to achieving its green agenda. Using 2019 as the base year, the goal is to reach net-zero carbon emissions by 2060 and reduce carbon emissions by 278 million tons annually by 2030. PIF is instrumental in supporting the Kingdom in achieving this green agenda, accelerating the diversification of the domestic economy, and unlocking new sustainable sectors. In response to the Kingdom’s climate commitment, PIF has already allocated USD 5.2 billion to eligible green projects as of June 2024. More progress is being made as PIF has earmarked a total investment of USD 19.4 billion for sustainable initiatives promoting environmental benefits.

2. Oman launches a campaign to curb plastic usage

In collaboration with Oman’s Environmental Authority, Muscat Municipality has launched a campaign to reduce plastic use and promote sustainable practices. This effort encourages residents and businesses to switch to reusable alternatives, targeting various plastic products, especially those made from ethylene polymers. A ban on plastic bags thinner than 50 micrometers began in July 2024. A second phase will start in January 2025 and include textile, clothing, and household goods stores. The final phase aims to eliminate plastic shopping bags entirely by January 2027. Through these regulations and community efforts, Oman is progressing toward a sustainable future.

Uniqus’ POV

Oman is taking significant steps to combat plastic waste, aligning with other GCC countries like the UAE through regulatory measures and initiatives. This effort aims to reduce plastic waste at its source and promote sustainable materials across industries. This decision is vital for protecting Oman’s environment and wildlife and aligns with Oman Vision 2040, which outlines the country’s sustainable development goals.

3. Renewables take center stage in Kuwait Fund’s environmental strategy

The Kuwait Fund for Arab Economic Development (KFAED), in collaboration with the United Nations Human Settlements Programme (UN-Habitat) and the State of Kuwait, has launched an environmental initiative to combat sand and dust storms, receiving a grant of 4 million Kuwaiti Dinars (about USD 12.8 million). This project aims to reduce the frequency of storms from southern Iraq that impact Kuwait and neighboring countries by addressing their root causes.

Uniqus’ POV

Climate change presents serious challenges globally, affecting the environment, food security, public health, and economic stability. One specific challenge for Kuwait and its neighbors is the occurrence of sand and dust storms. The Kuwait Fund aims to finance development projects that yield positive environmental outcomes, including an adaptation and resilience project to combat these storms. This initiative aligns with the United Nations’ 2030 goals and other national environmental efforts.

IN-DEPTH ANALYSIS

This section delves deep into significant ESG development, offering comprehensive insights and a nuanced perspective. We break down the critical facets of this development, analyzing its implications for businesses, investors, and regulators. Our in-depth analysis clarifies the potential impact on global markets and how this change may influence strategic decisions across sectors. Join us as we explore this development, shedding light on the opportunities and challenges in the evolving ESG landscape.

2024 CDP submission window closed in October – Uniqus takeaways

October marked the close of this year’s CDP disclosure cycle for corporate environmental submissions – with a scoring deadline of 9 October 2024 and the reporting window closing on 30 October 2024. The latest CDP disclosure cycle brought many significant changes to the reporting process, such as CDP’s questionnaire format, submission portal, and scoring methodology – although the revamped reporting process also challenged many companies. For example, respondents were confused about how to best gather and submit information against the novel questionnaire format and scoring methodology. CDP had also extended its scoring deadline multiple times, as respondents complained of frequent and last-minute technical issues with the submission portal.

Uniqus helped many clients report to the CDP this year, guiding them through these hurdles. Despite the obstacles reporting companies face during this year’s reporting cycle, Uniqus expects CDP’s changes to enhance the quality of environmental-related financial disclosures provided by businesses moving forward.

IN CONVERSATION WITH ESG PIONEERS

RP-Sanjiv Goenka Group (RPSG Group) is a diversified Indian conglomerate with a strong presence across various sectors, including power, entertainment, Chemicals, BPM, FMCG, retail, media publication, and sports. The group is committed to sustainable business practices and has been actively integrating ESG principles into its operations. With a focus on innovation, quality, and customer satisfaction, RPSG Group aims to create long-term value for its stakeholders while contributing to a sustainable future.

We interviewed Mr. Saket Sah, a seasoned ESG professional with around two and half decades of vast experience in Capital markets, Corporate finance, and ESG at prominent organizations like Citigroup and Aditya Birla Group & Grasim Industries Ltd. in his earlier roles. His current position as Head of Investor Relations and ESG at RPSG Group underscores his expertise in the field.

REGULATORY WATCH

Regulation around ESG continues to evolve rapidly. This section summarizes some of the latest regulatory developments across critical global markets, including the US, EU, UK, India, and the Middle East. Our analysis captures the nature of the legislative changes or updates and our high-level assessment of broader implications on business practices and compliance strategies.

CSRD UPDATES

The Corporate Sustainability Reporting Directive (CSRD) is shaping to be a transformative framework for sustainability disclosures in the EU, with several vital updates emerging in recent months. These updates focus on implementation guidance, FAQs to clarify the directive, and auditing guidelines. Here’s a detailed look at the latest developments:

EFRAG’s Draft Guidance on Transition Plans

The European Financial Reporting Advisory Group (EFRAG) has released a draft implementation guide to support companies in developing and reporting transition plans in accordance with the CSRD. Transition plans are critical for demonstrating how businesses aim to reduce their carbon footprint and align with the EU’s climate goals. The draft guidance outlines specific components businesses should include, such as baseline emissions data, target-setting methodologies, and timelines for achieving net-zero emissions.

European Commission’s FAQs on CSRD Implementation

The European Commission has published a detailed set of frequently asked questions (FAQs) addressing common concerns around CSRD implementation to ease the transition to the new reporting requirements. This document is precious for companies navigating the initial phases of compliance.

CEAOB’s Guidelines on Limited Assurance for Sustainability Reporting

The Committee of European Auditing Oversight Bodies (CEAOB) recently issued guidance to help auditors navigate the auditing requirements for sustainability reporting under the CSRD. These guidelines focus on limited assurance engagements, the initial standard for verifying sustainability reports during the transition phase. The guidance emphasizes a consistent approach to evaluating the accuracy and reliability of ESG data and provides a framework for assessing disclosures, methodologies, and compliance with CSRD standards. The guidelines are intended to build trust in the quality of sustainability information provided to investors and stakeholders.

UPDATES

The CSRD has seen several significant developments in the past month, impacting businesses’ sustainability reporting obligations. Key updates include:

1. European Commission’s FAQs on CSRD and SFDR Implementation: On November 13, 2024, the European Commission published 90 frequently asked questions (FAQs) to enhance stakeholders’ understanding and compliance with the CSRD and the Sustainable Finance Disclosure Regulation (SFDR). These FAQs aim to clarify reporting requirements and facilitate effective implementation.

2. SGS Launches Services for CSRD Compliance: On November 25, 2024, SGS introduced three services to support organizations in meeting CSRD compliance and enhancing Environmental, Social, and Governance (ESG) disclosures. These services include CSRD Pre-Assurance, ESG Disclosures & Sustainability Report Assurance, and ESG KPI Verification & Assurance, designed to ensure accurate and consistent sustainability reporting.

3. CSRD Implementation Delays for Certain Sectors: On November 7, 2024, the European Council and Parliament agreed to postpone the adoption deadlines for sector-specific European Sustainability Reporting Standards (ESRS) and standards for certain non-EU companies by two years. This extension allows companies additional time to adapt to the new reporting requirements.

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