Other Notable Developments

Pact for the Future: On September 22, the United Nations adopted a Pact for the Future, an international agreement covering issues relating to peace and security, sustainable development and digital cooperation. The non-binding agreement sets out 56 concrete actions for immediate and long-term measures for governments “transforming global governance”.

U.S.: CFTC Approves Voluntary Carbon Credit Guidance

On September 20, 2024, the U.S. Commodity Futures Trading Commission (“CFTC”) approved final guidance regarding the listing for trading of voluntary carbon credit derivative contracts.

The guidance sets out relevant factors for CFTC-regulated designated contract markets (“DCMs”) to consider in order to comply with statutory obligations under the Commodity Exchange Act (“CEA”) and associated CFTC regulations. The guidance also covers factors related to the CFTC’s Part 40 Regulations, which concern the submission of new derivative contracts and contract amendments to the CFTC.

The guidance specifically focuses on DCM listings for trading of voluntary carbon credits (“VCCs”), namely commodities geared towards supporting greenhouse gas emission reduction efforts. In particular, the guidance focuses principally on the listing of physically settled VCC derivative contracts and provides that:

• DCMs must only list derivative contracts that are not readily susceptible to manipulation. The CFTC notes that, while standardization and accountability mechanisms for VCCs are still developing, DCMs should determine a VCC’s integrity by reference to, at a minimum, quality standards, delivery points and facilities, and inspection provisions;

• DCMs must monitor derivative contracts’ terms and conditions to ensure, among other things, that the underlying VCC conforms to the latest certification standards applicable to that VCC; and

• DCMs must satisfy the product submission requirements under Part 40 Regulations and CEA section 5c(c). The guidance highlights three requirements in this sense: (i) contract submissions to the CFTC must include a section on “explanation and analysis” of the contract and its compliance with regulations; (ii) such explanation and analysis must be accompanied by documentation (or a summary thereof and appropriate citations) relied upon to establish such compliance; and (iii) if requested, the DCM must provide additional evidence of compliance.

The CFTC notes that the guidance does not establish new obligations for DCMs, but rather it is a statement of the CFTC’s views regarding factors that may be relevant in its evaluation of DCM compliance and allows for flexibility in application to various situations. This is because the CFTC recognizes that VCC derivatives are a relatively new and evolving class of products. The CFTC believes that the guidance will likely assist DCMs listing VCC derivative contracts in their efforts to comply with the CEA’s “Core Principles,” and applicable CFTC rules and regulations.

Links:
CFTC Press Release
Final Guidance (Pre-Print Version)

EU: Standards Body Targeting Q2 2025 for Transition Plan Guidance Release

Earlier this year, the European Financial Reporting Advisory Group (“EFRAG”) announced that it will release guidance for disclosing transition plans.

The guidance is intended to support companies in developing their transition plan disclosures under the European Sustainability Reporting Standards (“ESRS,” adopted in July 2023). Such disclosures concern companies’ transition plans for climate mitigation in order to reach the Paris Agreement’s goals of limiting global warming to 1.5 °C and achieving climate neutrality by 2050. EFRAG’s forthcoming guidance is intended to clarify aspects of the ESRS standards and promote transparency.

Various groups promulgating transition plan disclosure regimes, including under the EU’s CSRD and CSDDD, are collaborating in developing the guidance. It will also reflect EFRAG’s consultations with an advisory group comprising representatives from EU bodies such as the European Commission and the European Banking Authority. Prior to the release of the guidance for public comment, the EFRAG Sustainability Reporting Board will hold public discussions on the guidelines in a Sustainability Reporting Technical Expert Group meeting.

The draft guidance is expected to be released in January 2025 for a one-month period of public comment and feedback. EFRAG’s final guidance will then be published in Q2 of 2025.

Links:
Article
Press Release

Global: IAASB Approves Landmark Sustainability Audit Standards

On September 20, 2024, the International Auditing and Assurance Standards Board (“IAASB”) approved the International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements (“IAASB 5000”), the first set of rules for audits of corporate sustainability statements. This follows a proposal issued for public consultation in August 2023.

The new standard is modelled after existing guidance for vetting the accuracy of companies’ financial statements but also include sustainability-specific requirements, such as making sure companies that issue such reports have sufficient on-staff expertise in topics like greenhouse gas emissions and human rights. The standard will replace ISAE 3000 (Revised) as the global framework for providing assurance of sustainability standards. IAASB 5000 will not be mandatory; policymakers, standard setters, and regulators in each jurisdiction will make decisions about when the standard is required and whether additional requirements are needed.

IAASB expects to share final language before the end of the month and formally publish the standard by the end of the year, with a range of guidance and application materials to be published in January 2025.

Link:
IAASB

Global: International Financial Reporting Standards Foundation Publishes Guide for Companies

On September 25, 2024, at New York Climate Week, the International Financial Reporting Standards (IFRS) Foundation published a guide to support companies that are preparing to voluntarily apply the International Sustainability Standard Board’s (ISSB) Standards. The guide also aims to support companies in communicating their sustainability progress to investors.

In particular, the guide (i) highlights applicable compliance transition reliefs allowing companies to take a phased-in approach to the requirements and (ii) explains the proportionality mechanisms built into the ISSB standards that allow companies to tailor compliance in accordance with their capabilities and particular circumstances.

ISSB Standards provide a global sustainability metric for companies that sets a global baseline for public disclosures by ensuring that the information disclosed is comparable and consistent. Investors have called on companies globally to voluntarily apply these standards in their disclosures, particularly in jurisdictions without similar regulatory requirements.

Link:
IFRS

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