ESG Regulations, Laws, and Reporting Requirements in 2023 - Last Updated: January 27, 2023
In recent years, a growing number of ESG (environmental, social, and governance) laws and regulations have been passed around the world to create better consistency, transparency, and quality among corporate ESG disclosure, sustainable investment, and ESG practices and financial products.
The European Union (EU) has some of the world's most advanced ESG regulations of any economic region. Under the banner of a 'European Green New Deal', Europe is implementing a sweeping set of measures designed to fight climate change, support sustainable innovation, and make Europe the first climate-neutral continent by 2050.
However, beyond just Europe, many other governments and countries have passed (or proposed) new ESG regulations in recent years, including including Australia, Canada, Chile, Colombia, India, Singapore, the United States, and the United Kingdom.
While an exhaustive list and overview of global, country-by-country ESG regulations simply isn't possible due to the number of different laws and a constantly evolving ESG regulatory landscape, this page summarizes many of the top international ESG regulations and policies that matter most for global investors and companies in 2023.
Australia: Key ESG Regulations
Australia plans to require specific company-level disclosures from large Australian business and financial entities within their annual financial reporting related to carbon footprint, greenhouse gas (GHG) emissions, and climate risk
In January 2023, the Australian government released a consultation paper on the development of a climate risk disclosure framework for Australian companies and financial institutions, with plans to introduce mandatory sustainability and ESG reporting requirements for large Australian entities in the next few years. The paper describes implementing these new rules using a 'phased' approach, beginning as soon as 2024.
Under Australia's proposed climate reporting standards, ESG disclosures will be mandatory for large, listed businesses (listed entities covered by the Corporations Act 2001), and financial institutions. Australia's treasury is also considering whether or not large large private businesses should also be required to disclose.
Read more about Australia's ESG and climate regulations here
Canada: Key ESG Regulations
Canada's Canadian Securities Administrators (CSA) plans to start requiring ESG reporting and climate disclosures from large Canadian banks, insurance companies, and federally regulated financial institutions in 2024. Canadian listed companies also need to comply with certain ESG-related provisions, such as gender diversity disclosure related to board composition
Beginning in 2021, the CSA has proposed climate-related disclosure requirements for financial institutions based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, as well as other ESG-related provisions for large and listed entities.
From 2024 onward, eligible banks, insurance companies, and federally regulated financial institutions will need to provide ESG disclosures on their climate-related risks, including:
- Governance: an issuer’s board’s oversight of and management’s role in assessing and managing climate-related risks and opportunities
- Strategy: disclosure on the short-, medium- and long-term climate-related risks and opportunities the issuer has identified and the impact on its business, strategy and financial planning, where such information is material. As a modification from the TCFD recommendations, the proposed disclosure would not include the requirement to disclose “scenario analysis”, which is an issuer’s description of the resilience of its strategy within different climate-related scenarios, including a 2°C or lower scenario
- Risk management: how an issuer identifies, assesses and manages climate-related risks and how these processes are integrated into its overall risk management
- Metrics and targets: the ESG metrics and targets used by an issuer to assess and manage climate-related risks and opportunities where the information is material, including Scope 1, 2, and 3 greenhouse gas emissions
For more on ESG in Canada, please read our guide to Canadian ESG reporting standards, frameworks, and requirements here.
European Union (EU): Key ESG Regulations
Major 2023 EU Sustainability Reporting Laws and Regulations
The EU has introduced over a dozen different ESG regulations in recent years, including the Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSRD), and other key ESG-related regulations
Unlike most other countries and economic regions, Europe has enacted and proposed a host of different ESG regulations across nearly all sectors of the EU economy. Top EU ESG regulations include:
- Sustainable Finance Disclosure Regulation (SFDR) - Regulates investment management sustainability reporting in the EU
- Corporate Sustainability Reporting Directive (CSRD) - Regulates corporate sustainability reporting in the EU
- EU Taxonomy for Sustainable Activities - A common classification system for sustainable economic activities, projects, and investments
- German Supply Chain Due Diligence Law (LkSG) and Corporate Sustainability Due Diligence Directive (CSDDD) - Regulates corporate supply chain due diligence and reporting
Other EU Sustainability Laws and Regulations to Track in 2023
- EU ecodesign for sustainable products - Updates to the EU's existing Ecodesign Directive to establish a framework to ecodesign requirements for specific products and product groups to significantly improve their circularity, energy performance and overall environmental sustainability
- EU green claims initiative - A set of measures to clarify environmental labels on products and penalize greenwashing
- EU regulation on deforestation-free products - Sets mandatory due diligence rules for companies which place specific commodities on the EU market that are associated with deforestation and forest degradation, including soy, beef, palm oil, wood, cocoa, coffee, and some derived products, like leather, chocolate, and furniture. Its purpose is to ensure that only deforestation-free and legal products (according to the laws of the country of origin) are allowed on the EU market
- Proposal for a revision of EU legislation on packaging and packaging Waste - Another pending EU legal revision to promote reusable packaging options, get rid of unnecessary packaging, limit overpackaging, and provide clear labels to support correct recycling will require all EU packaging to be fully recyclable by 2030
- The EU "Women on Boards" Directive will require large, listed EU companies to have at least 40% of their non-executive director positions held by women by June 2026. Members States are able to elect to lower the target to 33% if they apply the threshold across both executive and non-executive positions.
All of these EU laws and regulations have important implications for companies and investors, particularly the major four (SFRD, CSRD, EU Taxonomy, and CSDDD).
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India: Key ESG Regulations
Currently, the top 1,000 listed companies in India are required to publish a Business Responsibility Report (BRR) as a part of their annual corporate reporting. BRR reports detail a company's actions and metrics related to Environmental, Social and Governance (ESG), in a new Business Responsibility and Sustainability Report (BRSR) format specified by the Securities and Exchange Board of India (SEBI). Other listed companies may submit the BRR or BSRS voluntarily
Over the past decade, India has gradually evolved its corporate ESG reporting regulations into last year's introduction of the Business Responsibility and Sustainability Report (BRSR) report. The BSRS is a new Indian ESG report standard that builds on the Business Responsibility Report (BRR) format originally mandated in 2012.
BSRS reports are now mandatory for the top 1,000 listed companies in India by market capitalisation from FY2022–23.
The BSRS report is designed around nine principles outlined by SEBI, developed to align with the United Nations Sustainable Development Goals (SDGs):
- Principle 1: Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent and accountable
- Principle 2: Businesses should provide goods and services in a manner that is sustainable and safe
- Principle 3: Businesses should respect and promote the well-being of all employees, including those in their value chains
- Principle 4: Businesses should respect the interests of and be responsive to all its stakeholders
- Principle 5: Businesses should respect and promote human rights
- Principle 6: Businesses should respect and make efforts to protect and restore the environment
- Principle 7: Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent
- Principle 8: Businesses should promote inclusive growth and equitable development
- Principle 9: Businesses should engage with and provide value to their consumers in a responsible manner
BSRS ESG reports are divided into three sections:
- General disclosures: The section contains details of the listed entity; products and services; operations; employees; holding, subsidiary and associate companies (including joint ventures); corporate social responsibility (CSR); and transparency and disclosure compliances
- Management and process disclosures: This section requires information related to a company's policy and management processes; governance; leadership and oversight
- Principle performance disclosures: This section requires companies to report on ESG KPIs in alignment with the nine outlined BSRS principles. KPIs are grouped into two categories: (1) essential indicators (mandatory to report) and (2) leadership indicators (voluntary to report)
Examples of BSRS KPIs include energy usage, GHG emissions, water consumption and withdrawal, employee well-being, worker health and safety, human rights protections, and anti-corruption and bribery controls.
Singapore: Key ESG Regulations
In Singapore, the Monetary Authority of Singapore (MAS) is implementing a "Green Finance Action Plan" in accordance with Singapore's UN 2030 net zero target. This includes environmental risk management (ERM) guidelines for banks, asset managers and insurers, a "Green Taxonomy" and green loan framework, and disclosure requirements for ESG funds
On 28 January 2021, the Monetary Authority of Singapore (MAS) and MAS-led Green Finance Industry Taskforce (GFIT) issued a proposed taxonomy for Singapore-based financial institutions to identify activities that can be considered sustainable or transitioning towards sustainability, called the “Green Taxonomy”, similar in many respects to the EU's taxonomy.
In 2022, GFIT released a second Green Taxonomy consultation paper which outlines standards for economic activities in three industries: energy, transport, and real estate. Singapore is prioritizing these three sectors due to their high environmental intensity and impact in Singapore. This second consultation paper also outlines Singapore's climate mitigation objectives: (1) climate change adaptation, (2) protection of healthy ecosystems and biodiversity, (3) promotion of resource resilience and circular economy, and (4) pollution prevention and control.
Entering 2023, GFIT plans to respond to public and market commentary, further refine its Green Taxonomy standards, and release its criteria and thresholds for five additional economic sectors. Our current expectation is that Signapore will formally enact the Green Taxonomy by the end of 2023.
Beyond the Green Taxonomy, Singapore also requires all ESG investment funds to submit annual disclosure on their investment focus; strategies; criteria and metrics used in selecting investments; asset allocation; and the risks associated with their ESG strategies. ESG and "sustainable" funds must also allocate at least two‑thirds of their net assets under management to ESG and sustainable investments, consistent with their stated strategy.
The MAS is also developing "Project Greenprint", a blockchain-based system for standardizing and storing ESG data, using a common ESG disclosure framework. MAS has also issued guidance that it will be introducing mandatory ESG disclosure requirements for financial institutions, based on the IFRS' International Sustainability Standards Board (ISSB) sustainability reporting standards currently under development.
Switzerland: Key ESG Regulations
Starting with business year 2023, Swiss "companies of public interest" are required to complete annual ESG reporting on climate, social, labor and human rights, and corporate governance matters under article 964a et seqq. of the Swiss Code of Obligations (CO)
In 2023, the Swiss Federal Council adopted new legislation on non-financial ESG reporting under the Swiss Code of Obligations (CO). This includes an Ordinance on Climate Disclosures, aligned with the TCFD framework, where eligible Swiss companies must disclose their GHG emissions, quantitative CO2 targets, and develop a climate transition plan comparable with Switzerland's national climate goals.
Swiss ESG reporting requirements apply to entities which meet any of the following criteria:
- Publicly listed on a stock exchange
- Require a license, recognition, authorization or registration from the Swiss Financial Market Supervisory Authority FINMA (such as banks or insurers)
- Have issued bonds outstanding
And (i) have an annual average of at least 500 full-time employees and (ii) exceed at least one of the following two thresholds: balance sheet total of CHF 20 million or revenues of CHF 40 million in two consecutive business years. Companies meeting these requirements are only exempt if they are controlled by another eligible entity, or are required to prepare an equivalent report under a foreign law, such as the EU CSRD.
Swiss climate disclosures must be published in an entity's report on non-financial matters in accordance with Articles 964a–964c of the CO. If a company does not make disclosures on climate issues in accordance with the Swiss Code of Obligations, it must either demonstrate that it complies in other ways with the climate disclosure obligations, or declare it does not "follow any climate concept" and justify its decision.
Beyond mandatory climate disclosures, Swiss companies must also report on significant ESG risks to their business, how their company's principlal business activities related to ESG matters under the double materiality principle, and the KPIs used to measure their ESG progress and performance. Similar to UK regulations, Swiss entities may use a "comply and explain" approach, excluding certain ESG disclosures and instead explaining why the information has been excluded. In addition to the non-financial reporting obligations, all Swiss companies must also comply with supply chain due diligence requirements related to conflict materials and preventing child labor.
Under Swiss regulations, non-financial ESG reports must be approved by the governing body responsible for approving the entity's annual financial report, souch as the company's shareholders' assembly or, in other cases, its board of directors. Reports must be published electronically and remain publicly accessible for at least ten years. Presently, no audit or assurance is required for an entity's non-financial ESG reporting.
The United States: Key US ESG Regulations
The United States is also in the process of transitioning ESG disclosure from voluntary, market-led reporting to a regulatory-driven scheme, principally led by the SEC's upcoming Climate Disclosure Requirements, as well as a variety of evolving state laws and standards
In March 2022, the US SEC (Securities and Exchange Commission) announced a plan called "The Enhancement and Standardization of Climate-Related Disclosures for Investors" to introduce mandatory climate diclosures for certain reporting organizations as a new legal ESG (environmental social governance) standard. These proposed SEC rules will make US corporate ESG reporting more common, consistent, and standardized like financial accounting and reporting, similar to other markets like the EU.
The SEC ruling, to be released in April 2023, is expected to require large filers to disclose material information about their climate risks, risk management approach, corporate ESG governance, and GHG emissions.
Read more about SEC's ESG and Climate Disclosure Rules here.
Even beyond the SEC, the United States is starting to lay the groundwork for a broader ecosystem of ESG-related laws and regulations - both at the federal and state level. This includes:
Federal and National
- The Inflaction Reduction Act: While not explicitly an "ESG" regulation, the act is a landmark initiative to invest in domestic climate resilience and energy production, particularly renewable energy. The law, as passed, will raise $738 billion and authorize $391 billion in spending on energy and climate change, the largest investment into addressing climate change in US history
- The Uyghur Forced Labor Prevention Act: This 2022 law prohibits imports into the United States of products, goods, and materials that are produced using forced labor in the Xinjiang region of China
- US Department of Labor Ruling on ESG Investment Factors: This ruling amends and clarifies the Employee Retirement Income Security Act of 1974 (ERISA)'s fiduciary duties related to the selection of plan investments that incorporate ESG goals and strategies. This ruling, which begins to take effect February 1, 2023, recognizes that ESG factors may be relevant to the risk-return analysis of potential US Department of Labor (DOL) investments, which could allow more ESG investment from US retirement funds and plans
- The Federal Supplier Climate Risks and Resilience Rule: A proposed rule to amend the Federal Acquisition Regulation to require federal government contractors who receive over $7.5 million in federal contract obligations in the prior federal fiscal year to disclose their GHG emissions and climate-related financial risks and set science-based emissions reduction targets
- NASDAQ board diversity reporting: In 2021, the SEC approved a NASDAQ provision that requires NASDAQ-listed companies to have, or explain why they do not have, at least two diverse board directors. The rules also require reporting on overall board composition, demographics, and diversity. The rule remains in effect, but is currently the target of litigation seeking to overturn it
At the state level, dozens of states have enacted requirements to enhance diversity on corporate boards, address climate change, and incentivize corporate climate, ESG, and sustainability investment and prioritization.
State
- California's Climate Corporate Accountability Act (SB260): The California Climate Corporate Accountability Act (Senate Bill 260 or CCAA) is a proposed state climate reporting standard that requires large companies doing business in California to report and verify their corporate greenhouse gas emissions (GHG). The California Climate Corporate Accountability Act was not passed into law before the end of the 2022 legislative session on August 31 by one vote, however, we expect it to come up for another vote in the 2023 legislation session, with a high likelihood of passing
- California's Plastic Pollution & Reduction Law (SB 54): In 2022, California Governor Gavin Newsom signed a law into effect that impacts any business that uses or sells single-use plastic. If it achieves its goals, the Plastic Pollution Prevention and Packaging Producer Responsibility Act (SB 54) could help eliminate approximately 23 million tons of single-use plastics throughout the next 10 years. It’s considered the most comprehensive and ambitious plastic reduction law in the United States to date
- New York's Climate Leadership and Community Protection Act (Climate Act or CLCPA): On December 19, 2022, New York State's Climate Action Council (Council) approved a New York State Climate Action Council Scoping Plan to fund and implement the CLCPA. The Plan outlines actions needed for New York to achieve 70% renewable energy by 2030; 100% zero-emission electricity by 2040; a 40% reduction in statewide greenhouse gas emissions from 1990 levels by 2030, an 85% reduction from 1990 levels by 2050; and net-zero emissions by 2050. The plan also identifies a variety of regulatory and legal changes, market mechanisms, and technologies essential to achieving these directives, including a tax on large-scale corporate pollution
However, on the other side of the political divide, certain states like Florida and Texas have adopted new prohibitions on state agencies and pension funds from doing business with investment entities like BlackRock who use ESG factors in their capital allocation decisions.
United Kingdom: Key UK ESG Regulations
The United Kingdom requires specific company-level disclosures from large UK entities within their annual financial reporting, energy use, carbon footprint, and greenhouse gas (GHG) emissions. Moreover, the UK is currently developing a broader and more comprehensive set of climate, ESG, and sustainability regulations for companies, investment entities, and government agencies
Alongside the EU, the UK is currently one of the most dynamic ESG regulatory jurisdictions in 2023. At this time, major 2023 UK ESG regulations include:
- Streamlined Energy and Carbon Reporting (SECR) - Requires large UK companies to disclose their energy use, carbon footprint, and greenhouse gas (GHG) emissions in their annual financial reporting
- Financial Conduct Authority TCFD Reporting (FCA CRFD) - The UK Financial Conduct Authority (FCA) requires companies with UK-listed shares or deposit receipts, as well as FCA-regulated asset managers and asset owners to complete mandatory annual Task Force for Climate-Related Financial Disclosure (TCFD)-aligned climate disclosure reporting
- Department for Business, Energy, and Industrial Strategy Climate-Related Financial Disclosure (BEIS CFRD) - The UK Department for Business, Energy, and Industrial Strategy (BEIS) requires UK-registered companies (public or private) with over 500+ employees or £500M+ in annual revenue to also complete annual sustainability and climate-related disclosure reporting, based around TCFD
- Sustainability Disclosure Requirements (SDR) - A package of measures aimed at reducing greenwashing and unifying UK sustainability reporting. This includes sustainable investment labels, disclosure requirements, and restrictions on the use of sustainability-related terms in product naming and marketing
- Energy Savings Opportunity Scheme (ESOS) - A mandatory energy assessment scheme for organisations in the UK that meet the qualification criteria which must be carried out every 4 years. These assessments are audits of energy used by their buildings, industrial processes, and transport to identify cost-effective energy saving measures
Learn more about current UK ESG and sustainability laws and regulations
The Growing Role and Importance of ESG Regulations
Until recently, in many countries and jurisdictions, ESG and sustainability reporting have been voluntary, market-led responses. Now, the rise in global ESG regulations is leading to increased compliance exposure, obligations, and risks for international companies, particularly ones conducting significant business in Europe.
However, despite the challenges many of these new regulations are creating for unprepared and underinvested companies, ESG laws and regulations serve many important functions:
- Ensuring good corporate and ESG governance: Governance laws and regulations help make sure companies and organizations operate transparently and ethically, with a focus on long-term value creation. They also help to protect investors and other stakeholders from fraud and other forms of misconduct
- Environmental protection: Environmental laws and regulations help to protect the natural resources and ecosystems that support life on earth and mitigate all the social and economic harms of climate change. Reducing pollution, conserving biodiversity, and addressing climate risks are all long-term net positives for economic prosperity and shareholder value creation
- Upholding and protecting human rights: ESG social laws and regulations help ensure that all members of society have access to basic human needs and rights, such as housing, healthcare, education, and fair wages. They also help promote diversity, equity, and inclusion in the workplace, which have been proven to be ROI-positive for stronger ESG performers
- Creating level competitive playing fields and promoting positive industry collaboration: ESG laws and regulations help make sure all companies and organizations are held to the same standards, instead of environmental and social harms merely being shifted to less-regulated markets. Moreover, as law-makers are recognizing the importance of sector-specific sustainability collaboration, we expect to see anti-trust regulations reduced in ESG-related areas where cross-company cooperation can unlock new value
- Promoting sustainable product innovation and business transformation: Data and studies consistently show that strong ESG performers have a lower cost of capital, lower market volatility, and better category sales growth in many consumer segments compared to poor ESG performers. ESG implementation and integration present an opportunity for organizations to become more operationally efficient, improve resource usage (and re-use), and ultimately develop a stronger, more resilient, and more diverse company culture and value chain
Overall, ESG regulations play an important role in sustainable economic development, protecting the environment and human rights, and ensuring all companies operate in a responsible and ethical manner with sound risk controls. All in, it's hard to argue those developments don't convey significant economic and social benefit.
A Few Helpful ESG Regulatory Reporting Recommendations and Observations
Your Next Steps With ESG Regulatory Compliance in 2023 & Beyond
As you can tell from the length of this brief alone, there are a lot of major new ESG laws going into effect in 2023, 2024, and future years. In fairness, all these regulations can feel very complex and daunting. However, from a positive perspective:
- Most of these laws are being phased in over several years
- Most governments recognize they are collectively at the forefront of a global economic sustainable transition, and regulators are looking to help companies successfully adopt and implement these changes
- There's plenty of time to implement the necessary measures, standards, process changes, and reporting capabilities to keep pace - particularly for organizations who are proactive and already investing in these areas (or starting soon)
- There are lots of existing market resources to help organizations and investors track, manage, and report around these changes more efficiently and effectively, including Brightest's software and services
For organizations in the early stages of their ESG regulatory compliance journey, we have a few general recommendations, additional reading, and suggested next steps:
Materiality assessment - The principle of Materiality is embedded in many of these new ESG regulations, particularly the concept of double materiality. Materiality essentially asks and attempts to answer a fundamental question: what are the most important (re: material) climate, ESG, and sustainability risks and considerations for a business or investment? If your organization hasn't already done so, a materiality assessment can help determine what your top ESG opportunities, risks, and priorities should be in relation to regulatory and investor ESG reporting. In turn, this can help clarify where to focus, what to prioritize, and what aspects of pending or forthcoming ESG regulations matter most to you.
Understand these ESG laws and regulations in depth - A full, in-depth breakdown of each ESG regulation is outside the scope of this piece, but it is critical that, if your organization meets specific compliance, disclosure, and/or due diligence criteria, you work with your leadership, directors, legal counsel, auditors, and other stakeholders to understand your organization's specific timeline and obligations under each law.
ESG data systems and process - While this might go without saying, in order to track ESG compliance and communicate your organization's mandatory climate and ESG disclosures, you need to be able to prepare them with high degrees of accuracy and transparency. Your materiality process can help guide you toward the main ESG themes you may need to focus on for disclosure. Where does that data and information exist today in your organization, and how will you access, collect, and aggregate it? Many organizations start their ESG reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies. If you're an organization with a medium-to-large or complex environmental footprint, you likely need dedicated sustainability reporting and data management software, like the kind we design here at Brightest to help organizations stay ESG compliant. Ongoing report archiving, version control, and governance are also important to think about, since you'll be reporting under one or several of these regulatory standards every year.
Further reading - Our free guides to starting an ESG reporting program, ESG data collection, and ESG reporting strategy provide additional, detailed guidance and insights on how to aproach ESG compliance and report performance. Or, if you're ready to up-level your ESG management and data maturity, please contact us for a free assement or demo of Brightest's intelligent, award-winning ESG software platform.
Disclaimer: the information provided in this overview is a best-effort attempt to summarize the key terms and provisions of ESG regulations in major economic and financial markets. It is not intended to be exhaustive or fully comprehensive. Despite our best efforts, it may contain errors or ommissions. Please consult your legal counsel and local regulatory institutions for the latest guidance and ESG regulatory requirements. If you have any suggestions on how to improve this piece for accuracy, or see a law or provision that is incorrect or out of date, please contact us here.
