Key news in this edition:
- Anti-greenwashing guidance from the UK competition regulator.
- EU Commission proposes delay for landmark anti-deforestation law.
- Taskforce on Inequality and Social-Related Financial Disclosures (TISFD) launched.
editorial
In the last month we have seen the launch of the new Taskforce on Inequality and Social-related Financial Disclosures (TISFD), reflecting the growing corporate priority to address social issues, as well as environmental issues which have historically been more dominant in ESG. By providing guidance on reporting labour and human rights performance, the TISFD will empower companies to improve transparency and attract socially-conscious investors. Similarly, the IFRS Foundation's new guide encourages organisations to adopt the International Sustainability Standards Board (ISSB) framework voluntarily, responding to rising investor demand for transparency in sustainability reporting. Meanwhile, on the regulatory front, the UK’s Competition and Markets Authority (CMA) is stepping up scrutiny on greenwashing, providing guidance to ensure accurate environmental claims in the fashion industry, with potential penalties for non-compliance. Other sectors can expect to face this level of scrutiny next. In a contrasting move, the European Commission's proposed delay of the Deforestation Regulation (EUDR) raises questions about commitment to environmental protections. Initially set for implementation in 2023, the extension to December 2025 provides companies more time for compliance but could undermine urgent climate action and won’t address some of the fundamental concerns businesses have with the regulation.
Taskforce on Inequality and Social-related Financial Disclosures (TISFD) launched
On 24 September, over 20 organisations from public, social, and private sectors – including the ILO, UNDP, World Business Council for Sustainable Development, and OECD – launched the Taskforce on Inequality and Social-related Financial Disclosures (TISFD). The initiative’s aim is to develop recommendations and guidance for businesses and financial institutions through which they would be better able to understand and report on impacts, dependencies, risks, and opportunities related to people.
TISFD will encourage the incorporation of considerations of social factors and inequalities into decision-making processes of businesses. Similar to the frameworks created by the Taskforce on Nature-related Financial Disclosures (TNFD) and the Taskforce on Climate-related Financial Disclosures (TCFD), helping corporations to report on nature and climate-related risks and opportunities, TISFD will create a disclosure framework to guide reporting on human rights, labour rights, inequality and other social risks related to people.
To prepare for this launch, TISFD’s founding partners engaged with a broad range of stakeholders, including businesses, financial institutions, civil society, and international organisations to better understand the needs of market actors, aiming to deliver recommendations with the ultimate goal of incentivising practices that create fairer and stronger societies and economies.
So what?
The launch of the TISFD is not before time, given the growing prominence of social issues on business agendas. By providing a clear framework for reporting on social factors such as human rights, labour rights, and inequality, TISFD will equip companies with the tools they need to manage social risks and opportunities more effectively, strengthen their compliance and transparency and provide a competitive edge in attracting socially-conscious investors.
Nevertheless, we are still some way off the TISFD coming into force. The first version of the framework will start to be developed late next year, with the first public version released by the end of 2026. Recommendations in voluntary and mandatory standards will be released within three years of the launch of the framework. Until the TISFD is fully developed, businesses will need to continue focusing on their own approach to social risks.
[Contributor: Elif Korca]
EU Commission proposes delay for landmark anti-deforestation law
On 2 October, the European Commission announced a proposal to delay the enforcement of the landmark EU Deforestation Regulation (EUDR) by a year, pushing the implementation date to 30 December 2025.
The EUDR, which was initially adopted by EU regulators in 2023, seeks to ban the import and export of commodities linked to deforestation, namely cattle, cocoa, coffee, palm oil, rubber, soya and wood. Additionally, companies would be required to produce due diligence statements, digitally tracing their supply chains to prove that all relevant products comply with the requirements of the EUDR and any applicable legislation in their country of origin. Although the EUDR has been hailed as a groundbreaking step towards preventing forest degradation and protecting the human rights of indigenous people, several countries have criticised the law as being protectionist and potentially exclusionary towards small-scale farmers. Critics of the EUDR have also raised concerns that the law would impact millions of farms globally and intermediaries whose data and compliance is not readily available and verifiable.
If the extension is approved by the European Parliament and Council, the EUDR would become applicable on 30 December 2025 for large companies and 30 June 2026 for micro and small enterprises. The Commission anticipates that the extension would allow industry more time to prepare for the law and ultimately ensure effective implementation. The Commission has also released additional guidance documents to provide companies more clarity on the application of the law and will publish the methodology to be used to benchmark countries as low, standard or high risk where deforestation is more prevalent.
Numerous environmental groups say the delay casts serious doubts on the Commission's commitment to achieving climate action goals and ending harmful trade practices. The Commission will continue holding dialogues with stakeholders, particularly the most impacted countries.
So what?
The proposed delay of the EU Deforestation Regulation (EUDR) will give companies more time to prepare for its stringent supply chain screening requirements, including digital traceability for commodities linked to deforestation, and hopefully improve the chances of proper implementation. The extension provides an opportunity for businesses to conduct a thorough review of their suppliers and adapt their wider strategies and practices to comply with the regulation. However, there is no indication from the EU that it will be making any changes or concessions to the EUDR from those sectors and countries who say the requirements will be too onerous. We may yet see the same challenges and problems emerging one year later.
[Contributor: Boitumelo Mogale]
Ecuador pursues debt-for-nature swap to protect the Amazon and manage debt costs
In early September, international business media reported that Ecuador, supported by Goldman Sachs Group and Bank of America, is preparing another debt-for-nature swap deal in order to better manage its debt financing costs while committing to protect part of the Amazon rainforest. Such agreements enable countries to allocate financial resources toward building climate resilience and protecting nature, while still addressing other development priorities without risking a fiscal crisis.
The planned swap will involve refinancing a portion of Ecuador’s existing debt by issuing a new bond at better terms. Part of the savings from the deal will be allocated to nature conservation efforts, particularly safeguarding the Amazon. Multilateral lenders like the Inter-American Development Bank are expected to provide guarantees on the new bond, making it more attractive for private investors and keeping Ecuador’s borrowing costs low.
This transaction follows a broader trend of using debt-for-climate swaps as a tool for tackling both financial and environmental challenges. In May 2023, Ecuador had already secured a similar deal with Credit Suisse (now part of UBS Group), which is expected to save the country around USD 1 billion. The savings from that agreement will be used to protect the Galápagos marine reserve. Other countries who have signed such deals include Costa Rica, the Philippines, Belize, Barbados and the Seychelles.
so what?
Initiatives like these are gaining traction as countries face growing financial pressures due to global economic shocks like the COVID-19 pandemic, rising interest rates, and climate-related disasters. Debt-for-climate swaps offer an innovative solution by simultaneously addressing economic instability and advancing global conservation goals. However, they do require more scrutiny to make sure effective governance is in place, local communities are involved in the consultation process and that the root causes of deforestation are also being addressed.
[Contributor: Anna Tonioli]
Anti-greenwashing guidance from the UK competition regulator
In September 2024, the Competition and Markets Authority (CMA), a UK regulator, issued a guide for the fashion industry to ensure the claims companies make about their products are accurate, clear, and complete. In parallel with the publication of the new guidance, the CMA reportedly sent advisory letters to 17 fashion retailers where it highlighted ‘areas of concern’ in the brands’ public environmental claims. The guidance will reportedly help fashion companies follow the CMA’s Green Claims Code, which outlines how businesses need to comply with consumer law when making environmental claims about their goods.
In 2022, following the publication of the Green Claims Code, the CMA launched an investigation into the environmental claims made within the fashion industry, and in 2023 three UK-based companies were subsequently accused of “possible greenwashing” by the regulator.
Under the Digital Markets, Competition and Consumers Act, which will come into force in April 2025, if a company fails to follow consumer laws and regulations – including with their green claims - the CMA will have the authority to apply financial penalties of up to 10 percent of a company’s global annual turnover. This has the potential to create large-scale ramifications for businesses operating in the UK who have previously neglected to fully understand or comply with their environmental claims.
so what?
The issuance of this guidance and the surrounding focus on regulatory issues in the fashion industry highlight the ongoing scrutiny around green claims in the fashion industry. The threat of financial penalties, which could run into millions of pounds, along with the reputational damage from an increasingly eco-conscious market and potential civil action from consumers will see significant tightening up of what fashion firms are prepared to claim on their green credentials. It is expected that this focus on anti-greenwashing guidance will also result in the fashion industry pushing for more transparency in their supply chains in order that they can make their green claims with good conscience.
[Contributor: Haddie Hamal]
Australian Federal Court fines Vanguard USD 12.9 million for greenwashing
On 25 September 2024, the Australian Federal Court imposed a record fine of AUD 12.9 million (USD 8.89 million) on the local office of The Vanguard Group Inc. (Vanguard), a US-headquartered investment firm, for misleading ESG claims regarding one of Vanguard’s sustainable funds. The case was brought before the court by the Australian Securities and Investments Commission (ASIC), the Australian financial industry regulator, which alleged that in marketing the Vanguard Ethically Conscious Global Aggregate Bond Index Fund (‘Ethically Conscious Fund’), Vanguard misled investors claiming that bond issuers were screened to exclude those with significant business activities in certain industries, such as fossil fuels. This was ASIC’s second major greenwashing civil penalty award, following the Federal Court’s August 2024 imposition of an AUD 11.3 million (USD 7.37 million) fine against Mercer Superannuation (Australia) Limited (Mercer), another Australian asset management firm, for similar offences.
These fines are indicative of a recent push by ASIC to address greenwashing misconduct by Australian financial services and investment firms. In a recent report, ASIC stated that it has made 47 regulatory interventions addressing this misconduct between 1 April 2023 and 30 June 2024. The significant size and the nature of both the Vanguard and Mercer fines demonstrates the importance with which the Australian regulator views greenwashing misconduct and this will likely be a sign of things to come for regulators in other parts of the world.
so what?
In its response to ASIC’s allegations, Vanguard admitted that as many as 74 percent of the securities included in the Ethically Conscious Fund were derived from issuers that were not researched or screened against ESG criteria. The increasing regulatory scrutiny of sustainable funds, alongside the associated resource-intensity of ESG screening, suggests that financial services and investment firms should not underestimate the importance of pre-transactional ESG due diligence, and the need to contract out this research to independent ESG experts.
[Contributor: Emma Shewell]
New guide for companies to apply ISSB standards voluntarily
On 25 September, the International Financial Reporting Standards (IFRS) Foundation published a comprehensive guide aimed at assisting organisations that choose to voluntarily adopt the International Sustainability Standards Board (ISSB) framework. This guide aims to serve as a useful resource for companies seeking to enhance their sustainability reporting in alignment with global best practices, and responds to increasing investor demands for transparent and comparable sustainability information.
The guide will support organisations as they transition to applying IFRS S1 and IFRS S2, and help them simplify the process of integrating sustainability reporting into existing financial reporting frameworks. It will also be beneficial for companies operating in jurisdictions without specific regulatory requirements for sustainability reporting, providing clear guidance on how to describe their application of ISSB standards.
So what?
As more companies recognise the significance of sustainability in their operations, the IFRS Foundation's initiative is timely and relevant. It encourages organisations to adopt reporting mechanisms and helps them address increasing demands for transparency regarding ESG issues from stakeholders.
[Contributor: Dominik Wilk]
