Global Sustainability: Standards Development Paving Way for Regulation

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5/1/2023

Global SustainabilityBy Johnathan Josephs, MSL, AEM Regulatory Affairs Manager — 

The ever-changing global regulatory landscape has adopted Environmental, Social, Governance (ESG) risk assessments and materiality assessments of varying scopes. Everything from critical minerals to diversity equity and inclusion (DEI) are under a microscope, as governments push to legislate requirements for publicly traded firms and small-medium size entities (SMEs).  

Simultaneously, AEM and its member companies are slowly taking on a leadership role on a variety of these issues, becoming a global leader in sustainability, and a guide for the off-road industry. This pro-active engagement in the standard-setting process is key as voluntary standards are often the framework for future regulations. 

Today, Europe has forged ahead of other jurisdictions by adopting a legislative proposal for a Corporate Sustainability Reporting Directive (CSRD). The primary requirement is for companies within its scope to report using a double materiality perspective, in compliance with European Sustainability Reporting Standards (ESRS), adopted by the European Commission through future delegated acts. 

Double materiality is a concept that provides criteria for the determination of whether a sustainability or ESG matter must be included in a company's report. The precise disclosure requirements are under development for the European Commission by the European Financial Reporting Advisory Group (EFRAG), a non-profit advisory group, which released an initial draft of the first set of standards in late-November 2022 for consideration by the Commission.   

The timeline for reporting requirements is as follows 

Sustainability

Source: European Commission’s European Financial Reporting Advisory Group (“EFRAG”). https://www.efrag.org/lab6# 

The European Commission will now consult EU bodies and Member States on the draft standards, before adopting the final standards in June 2023, to be rolled out under the Taxonomy Climate reporting rules in 2024.  

Simultaneously, the International Sustainability Standards Board’s (ISSB) first Standards are on track to be published by the end of Q2 2023. These standards will cover “S1 - General Disclosures” and “S2 - General Requirements for Disclosure of Sustainability-related Financial Information.” The International Financial Reporting Standards (IFRS) Foundation Conference 2023 in London will be the first opportunity to hear from the ISSB about the standards and their role in a global common language for sustainability disclosures aimed at capital markets.  

United States regulators are gearing up to follow the European lead. The Securities and Exchange Commission’s regulatory agenda indicates that final ESG rules are set to be published in April and October of 2023. Moreover, the U.S. Environmental Protection Agency (EPA) is set to rollout requirements in line with critical parts of President Joe Biden’s climate agenda. Requirements for financial disclosure could be of low compliance concern when the EPA implements further regulations on hazardous waste and environmental damage.  

We are reaching a convergence of global regulations, where most jurisdictions are beginning to adopt the same policies on ESG and sustainability. Standards groups like the ISSB, the World Resources Institute (WRI), World Business Council for Sustainable Development (WBCSD), and Task Force on Climate-Related Financial Disclosures (TCFD) have and are continuing to set the tone for these regulations across various industries and up/down the supply chain.  

Therefore, in addition to the International Organization for Standardization (ISO), AEM members should take this opportunity to participate in the development of industry sustainability standards. 

Please reach out to AEM Regulatory Affairs Manager Johnathan Josephs at jjosephs@aem.org to learn more and join the AEM Sustainability Council to stay involved.

For more perspectives from AEM member companies, subscribe to the AEM Industry Advisor. 

 

AEM Blog, Safety & Product Leadership, Sustainability

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