Sustainability Regulation timeline - What's coming next?

Although the UK government has recently pushed out the deadlines for some of its green initiatives, if we take a look at the pace of sustainability regulatory change since the Paris Agreement in 2015 it is clear that the force for change and a move to a more sustainable future is not going away.

Take a look at our summary of the key regulatory changes over the past 8 years.

The Paris Agreement is an international and legally binding treaty focused on climate change. The initiative was adopted by multiple parties at the UN Climate Change Conference, located in Paris, on 12^th December 2015. Following this date, it was entered into circulation in full force on 4^th November 2016. The main goal was to combat the climate change crisis by limiting the global average temperature to well below 2°C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels as an aspirational target.

The Agreement’s long-term goal ultimately aims to swiftly increase global greenhouse gas emissions and then rapidly decrease them to achieve net-zero status in terms of emissions. This all being done by the latter half of the 21^st century.

In summary, The Paris Agreement was a key change regarding global efforts to combat climate change, uniting almost all nations.

The Streamlined Energy and Carbon Reporting regulation was brought in by the United Kingdom in late 2018/early 2019. This regulation was described as ‘building on existing reporting mechanisms for energy and carbon emissions’. It ultimately requires certain sized organisations to report annual energy consumption and carbon emissions.

SECR applies to large UK-incorporated companies, large unregistered companies and some public sector organisations of specific financial criteria.

The main objectives and goals for the implementation of SECR were to increase transparency regarding energy and carbon emissions, promote energy efficiency and be able to give stakeholders a clear view and insight into an organisation's environmental efforts and performance.

On 12^th June 2019, The UK government laid the draft of the ‘Climate Change Act 2008 (2050 Target Amendment) Order 2019 to amend the original Act by introducing a target to become net zero by reducing all greenhouse gas emissions in the UK by 2050. Net zero means balancing out the amount of greenhouse gases emitted with the amount removed from the atmosphere. This, in effect, reduces its net emissions to zero. The official order came into force on 27^th June 2019.

In order to achieve net zero emissions by the year 2050 there is a requirement for a wide range of policies/measures to be put in place. For example:

• The transition to renewable energy sources.
• Improving energy efficiency.
• Promoting sustainable transportation.
• Reducing emissions from sectors, such as agriculture and industry.

The legislation has shown a massive step from the UK in its efforts towards addressing climate change by strengthening its long-term emissions reduction commitment.

In September 2021, The UK had been actively working on the introduction of ‘Greening Finance’ as a part of its government's efforts to support sustainability efforts and ultimately address climate change further. It was published as a document titled – ‘Greening Finance: A Roadmap to Sustainable Investing’ and set out the leaders of the country’s long-term ambition of making financial systems ‘green’. Aligning alongside the UK’s net zero commitment.

The 3 phases of the initiative were:

• Informing - Ensuring decision-useful information on sustainability is available to financial market decision-makers.
• Acting - Mainstreaming this information into business and financial decisions.
• Shifting - Financial flows across the economy shift to align with a net-zero and nature-positive economy.

The Task Force for Climate-Related Financial Disclosures (TCFD) introduced core climate disclosure elements in 2017, which were mandatory for large UK entities with premium listings in 2022. The TCFD framework covers four key areas:

• Governance: Boards must oversee climate impacts on the business.
• Strategy: Boards must know how climate challenges and opportunities affect business strategy and finances. Whether this be the short, medium or long term. This should also include scenario planning.
• Risk Management: Boards must include climate change risks in the initial risk profile. Understanding their significance and potential mitigation measures.

Metrics and Targets: Must start developing key performance indicators for measuring climate change's impact. Tracking progress is also essential.

The International Sustainability Standards Board (ISSB) issued in June of this year its ‘inaugural standards’. These are standards and guidelines which have been established for a particular purpose or industry. These standards have encouraged a new era of sustainability-related disclosures in capital markets worldwide.

A global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects. The standards are designed so that companies provide sustainability-related information alongside financial statements. The Standards have been developed to be used in conjunction with any accounting requirements.

Emmanuel Faber, Chair of ISSB, said:

“Today represents the outcome of more than 18 months of intense work to deliver an inaugural set of sustainability disclosure standards for the global capital markets. The ISSB Standards have been designed to help companies tell their sustainability story in a robust, comparable, and verifiable manner. We have consulted closely with the market to ensure the Standards are proportionate and will result in disclosures that are relevant for investment decision-making.

We know that better information leads to better economic decisions. Today’s publication is just the starting point as we consult on our future priorities, beyond climate.”

The TNFD recommendations can help companies communicate nature-related risks and opportunities to investors and other stakeholders.

Consistent with the ISSB’s approach of building upon the work of market-led initiatives grounded in current best practices and thinking, the ISSB will look to the TNFD recommendation, where it relates to meeting the information needs of investors, in its future work.

The ISSB has just concluded a public consultation on its future priorities, during which it sought feedback on potential research projects including whether to prioritise a project on biodiversity, ecosystems, and ecosystem services. The ISSB is currently analysing the responses with a view to agreeing on its future two-year work plan in the first half of 2024. Furthermore, the ISSB is currently working on educational materials for disclosing the nature and social aspects of climate-related risks and opportunities.

In the past there have been years of calm in the sustainability space however we are now seeing yearly change which also brings a broadening of the regulation to cover all areas of sustainability and not just those relating to Carbon. With increased interest in B Corp certification and businesses signing up to the Better Business Act, might we see regulatory changes in the social and community space next?