ESG Corner- December 2024

31, December 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. Looking Back at COP29

The COP29 climate summit in Baku, Azerbaijan, concluded with a contentious agreement on climate finance, reflecting deep divisions among the nearly 200 participating countries. The deal includes a commitment from wealthy nations to triple climate funding for developing countries, aiming to provide at least USD 300 billion annually by 2035. It also seeks to mobilize USD 1.3 trillion annually through private financing. This funding is intended to help vulnerable nations tackle the escalating impacts of climate change. Rich nations, constrained by domestic fiscal pressures, struggled to meet poorer countries’ demands, arguing that the pledged amounts fall short of the trillions needed for climate adaptation and mitigation. In a compromise, developed countries increased their financial commitments to USD 50 billion more than the prior pledged number. Still, they avoided directly addressing the phaseout of fossil fuels due to opposition from oil- exporting nations.

2. EU Approves New ESG Ratings Regulation

The European Union (EU) has introduced new regulations to enhance the transparency, consistency, and reliability of ESG ratings. This initiative has been approved by the Council of the European Union. It is designed to build investor trust in sustainable investment products by standardizing ESG rating practices and improving their comparability. Under the new directive, ESG rating providers within the EU must be authorized and supervised by the European Securities and Markets Authority (ESMA), facing transparency requirements around their methodologies and data sources and being required to disclose potential conflicts of interest. Additionally, the new directives aim to uniformly apply the rating standards by harmonizing the requirements and methodology, thereby achieving comparability and consistency.

3. The EU Commission’s Commitment to Cleantech Projects

The European Commission, under the Innovation Fund, has announced a commitment of EUR 4.6 billion to fund 41 clean technology projects across the EU through funds raised by the EU Emissions Trading System (EU ETS). This initiative is part of efforts to accelerate the transition to a net-zero economy and enhance industrial competitiveness in clean energy industries. Selected projects span diverse sectors, including renewable energy, carbon capture and storage, hydrogen production, and sustainable manufacturing.

Uniqus’ POV

These recent developments demonstrate various aspects of climate and sustainability policy, investments, and negotiation in action. However, the results aren’t always perfect, as persistent geopolitical and industrial barriers continue to stymie progress. For example, parties at COP29 nearly failed to reach a deal on climate finance, only coming together during the final weekend to agree upon a contentious figure of USD 300 billion pledged annually by 2035 by developed nations. Even then, while this deal represents progress, it falls short of the trillions demanded by vulnerable nations, and many nations were ultimately unhappy with the final results. Efforts to phase out fossil fuels were also derailed by opposition from oil-exporting countries, illustrating deep divisions. However, the mixed reactions to the agreement reveal lingering doubts about whether the outcomes sufficiently can address the climate crisis. Similarly, global environmental concerns were also a focus at INC-5 in South Korea, where negotiators struggled to finalize a treaty on plastic pollution and ultimately failed. The continuation of negotiations in 2025 will be critical for addressing these challenges.

US

1. The Importance of CSRD Compliance for US Companies

The European Union’s Corporate Sustainability Reporting Directive (CSRD) is driving action to create higher transparency in sustainability reporting globally. Although this is an EU directive, it will affect many US companies, as the CSRD applies to companies conducting business in or operating within the EU. Earlier this year, the EU has endorsed a proposal to extend the adoption deadline for the CSRD’s sector-specific sustainability disclosures and reporting standards for non-EU companies by two years. They did not amend the timelines for reporting on CSRD and the ESRSs themselves.

2. President Bidens Investment in Clean Tech Grants

President Biden has announced over USD 100 billion in clean technology grants from the Inflation Reduction Act as part of a broader strategy to bolster the U.S. clean energy sector and address climate change through Executive Order (E.O.) 14057 and the Federal Sustainability Plan. These funds are allocated to various projects, including renewable energy development, electric vehicle infrastructure, and advanced manufacturing technologies. The announcement includes funding for 67 projects at Federal facilities across 28 U.S. states and six international locations, intended to save costs, reduce emissions and environmental footprints, and deliver other substantial benefits.

Uniqus’ POV

The EU CSRD and Biden’s clean tech grants highlight the urgency of transitioning to sustainable practices across corporate and public sectors in the US. The EU CSRD’s emphasis on transparency and non-financial metrics aligns with the global movement toward accountability, necessitating that U.S. companies operating globally adapt to evolving expectations in international markets. Concurrently, the U.S. government’s clean energy investments showcase a proactive approach to decarbonizing infrastructure, addressing resource challenges, and positioning the country as a leader in climate innovation.

India

1. SEBI defers the ESG disclosure deadline under the BRSR framework by 1 year to FY2026

SEBI has introduced significant amendments to the Business Responsibility and Sustainability Reporting (BRSR) framework to simplify compliance and enhance transparency. These changes include deferring the ESG value chain disclosures timeline to FY 2025–26 and making such disclosures voluntary rather than mandatory under the earlier ‘comply-or-explain’ approach. To further ease compliance, SEBI has substituted “assurance” with “assessment or assurance,” giving companies more flexibility. A notable addition is introducing a leadership indicator requiring entities to report on Green Credits generated by the company and its value chain partners.

Uniqus’ POV

The latest amendments to SEBI’s BRSR framework mark a critical shift in India’s ESG reporting landscape. By deferring timelines and introducing voluntary reporting, SEBI has provided businesses with the much-needed breathing room to align their value chain processes and disclosures with global standards like CSRD and ISSB. However, companies that voluntarily adopt value chain disclosures stand to gain a competitive edge by demonstrating their commitment to sustainability and building stronger stakeholder trust. These changes highlight the importance of proactive collaboration with value chain partners, leveraging technology, and embedding ESG considerations into business strategies for long-term resilience and success.

2. India launches updated National Biodiversity Strategy and Action Plan (NBSAP) at COP16 to the Convention on Biological Diversity (CBD), in Colombia

India launched its updated National Biodiversity Strategy and Action Plan (NBSAP) at COP16 in Colombia, aligning with the Kunming-Montreal Global Biodiversity Framework (KMGBF). The updated strategy adopts a ‘Whole-of- Government’ and ‘Whole-of-Society’ approach, outlining 23 national biodiversity targets to halt biodiversity loss by 2030 and achieve harmony with nature by 2050. Prioritizing ecosystem restoration, species recovery, and community-driven conservation, it emphasizes the restoration of degraded ecosystems, wetland protection, and sustainable coastal and marine management. Developed through a broad consultative process involving multiple ministries, state organizations, and communities, the NBSAP underscores biodiversity mainstreaming, sectoral integration, and inter-agency collaboration. It is grounded in India’s robust governance framework under the Biological Diversity Act of 2002 and its 2023 amendments, reflecting the nation’s commitment to global biodiversity goals.

Uniqus’ POV

India’s updated NBSAP exemplifies a progressive approach to addressing biodiversity challenges while aligning with global targets under the Kunming-Montreal Framework. The strategy’s focus on ecosystem restoration, community- driven conservation, and biodiversity mainstreaming underscores a balanced vision of environmental sustainability and socio-economic development. India highlights the importance of collective action in biodiversity conservation by emphasizing inclusive governance and inter-agency collaboration. The NBSAP sets an ambitious roadmap for halting biodiversity loss and positions India as a global leader in sustainable environmental management, offering a replicable model for addressing biodiversity challenges worldwide.

Middle East

1. The Qatar Financial Centre Regulatory Authority (QFCRA) proposes amendments to sustainability reporting requirements to align with the ISSB standards

The QFCRA proposes to implement the corporate sustainability reporting framework through the adoption of a phased and proportionate approach that reflects the varying levels of entities’ readiness and capacity to implement the ISSB standards.

Uniqus’ POV

The Qatar Financial Centre Regulatory Authority (QFCRA) has published ‘Proposed Amendments to General Rules on Corporate Sustainability Reporting’, which propose to align the existing sustainability reporting requirements with IFRS S1 and IFRS S2. The aim of this amendment is to establish robust sustainability reporting and assurance, to foster trust, confidence, and transparency to stakeholders, especially investors. The adoption of a phased and proportionate approach is the right step as entities are at various stages of the sustainability journey, hence, will require time and resources to comply with this proposed amendment. Entities are encouraged to begin to take necessary steps in preparation for the amended regulation once it comes into effect.

IN-DEPTH ANALYSIS

Decarbonizing the Transportation Sector: Driving Towards a Sustainable Future

Global greenhouse gas (GHG) emissions in 2023 totaled 53 gigatonnes of CO2 equivalent (Gt CO2eq), excluding emissions from Land Use, Land Use Change, and Forestry. Global energy- related CO2 emissions in 2023 rose by a modest 0.1% compared to 2022, reaching 37.4 billion tonnes (Gt). This sector encompasses activities like transportation, electricity, heat generation, building operations, manufacturing, construction, fugitive emissions, and other fuel combustion processes. The global CO2 emissions from fossil fuels and industry have increased at ~1.6% Y-O-Y since 2000 and 2.4% Y-O-Y since 1900.

Key Strategies for Decarbonizing Transportation Sector

Policy Interventions: Eliminating or phasing out fossil fuel subsidies is crucial for aligning market forces with low-carbon mobility options. For example, phasing out subsidies in Germany increased investments in renewable energy projects.
Infrastructure Development: Investing in and expanding rail networks is essential for decarbonizing both passenger and freight transport. Examples include high-speed rail projects in Saudi Arabia and Turkey, as well as initiatives to increase freight rail transport in Brazil and India, including India’s target of full rail electrification by 2024. Implementing policies like France’s ban on short domestic flights that can be replaced by rail can significantly reduce aviation emissions.
Technological Advancements: The electrification of vehicles, including cars, buses, and two- wheelers, is crucial in reducing emissions. Examples include private companies supporting EV adoption through charging networks and India’s target of complete electrification of its two- and three-wheeler fleet by 2030.
Integrating Electrification with Sustainable Mobility: Integrating electrification with strategies that promote public transport, cycling, and walking is essential to reduce overall energy demand in the transport sector.
Linking Electrification with Renewables: Support measures for electrification and power-to-X technologies must be closely linked to ambitious renewable energy targets. This integration will ensure that the decarbonization benefits from EVs and alternative fuels are not undermined by carbon-intensive electricity generation.
Grid Emission Factors and the Energy Transition: The progress of the energy transition in the power sector can be tracked through grid emission factors, which indicate the carbon intensity of electricity generation. While many countries have seen improvements in grid emission factors, the pace of this transition is insufficient to meet global climate goals.

IN CONVERSATION WITH ESG PIONEERS

1. What are your reflections from this year, i.e., 2024?

2024 has been a year of mixed progress for ESG globally. Several countries have moved steadfastly on their path to requiring companies to focus on issues like climate change and address environmental concerns in a resolute manner. Adoption of global baseline standards such as IFRS S1/S2 is also gathering momentum with countries such as Canada, Qatar, Australia, Singapore and the like expressing their intent to adopt these standards. The adoption of CSRD for companies operating in the EU is also imminent.

2. What is your outlook for ESG as we enter 2025?

In 2025, we will have to watch the developments in the US on ESG front. I firmly believe adaptability of ESG regulations and disclosures will be key for companies navigating the uncertainty of new playing fields. I would like countries to focus on interoperability of ESG disclosure and reporting standards in 2025. That will go a long way to ensure rationalization of disclosures, setting up a global baseline and moderate the cost of compliance for organizations.

3. What would be your advice to businesses as they prepare for the future?

Businesses must adopt a global mindset while staying cognizant of regional regulatory nuances. US companies should focus on bolstering their ESG data capabilities, aligning with international standards to remain competitive. In India, businesses must proactively embrace the government’s ESG directives, viewing them as opportunities to innovate and lead rather than compliance. With its robust regulatory push, the Middle East will reward organizations that align their strategies with long- term sustainability goals and take bold steps in decarbonization and technology adoption. Additionally, EU frameworks like the CBAM (Carbon Border Adjustment Mechanism) and CSDDD (the Corporate Sustainability Due Diligence Directive) will impact non- EU businesses with a presence in the EU. We have covered them in some detail in our previous newsletters. Hard-to-abate sectors will face significant challenges. Companies must prioritize resilience by embedding ESG into their operational models and leveraging technology to navigate complexities effectively.

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

In recent weeks, significant developments have unfolded regarding the European Union’s Corporate Sustainability Reporting Directive (CSRD), a key regulatory framework to enhance corporate transparency in sustainability. These updates have far-reaching implications for EU-based organizations and international companies with regional operations.

Member States’ Progress on CSRD Transposition:

As of December 2024, the adoption of the CSRD into national legislation remains inconsistent across EU Member States. The European Commission has launched infringement proceedings against 17 countries that have yet to fully implement the directive, highlighting the pressing need for compliance. This fragmented approach challenges businesses operating in multiple jurisdictions, facing varying regulatory requirements and implementation timelines.

Implications for U.S. Companies:

The CSRD’s broad scope extends to approximately 3,000 U.S. companies with substantial operations in the EU. The timeline for non EU companies having busiensses in the EU is fast approaching and companies should start their preparation forthwith. The directive’s detailed and rigorous reporting obligations require robust Environmental, Social, and Governance (ESG) frameworks, yet a recent survey reveals many U.S. executives may overestimate their readiness. Proactive action is crucial to address these complex requirements effectively.

Adjustments to Size Thresholds in the Accounting Directive:

The European Commission has proposed amendments to the Accounting Directive, raising financial size thresholds by around 25% to reflect inflation. This adjustment would narrow the CSRD’s applicability, potentially exempting smaller companies previously required to report. The changes are expected to take effect for financial years beginning on or after January 1, 2024, although Member States may choose to adopt the new thresholds sooner. These updates highlight a growing global trend toward increased corporate transparency and accountability in sustainability reporting. Companies across all regions should closely monitor these regulatory changes, evaluate their relevance, and take proactive steps to ensure compliance with the evolving ESG landscape.

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