2022 ESG Reporting Rule Changes
Updated: Apr 18
The world is changing and so are the rules. Here are some upcoming rule changes in 2022 that will have a big impact on companies and investors.
The Securities Exchange Commission (SEC) is expected to publish various ESG-related proposals early this year, including climate-disclosure rules. In that process, important decisions will be made on whether companies will have to report Scope 3 greenhouse gas emissions which are indirect emissions that occur in a company’s value chain, whether smaller firms will face less-stringent requirements.
The new regulations from the SEC are designed to increase consistency and standardization in ESG disclosures. The SEC is also expected to publish rules to require fund managers to back up claims that their funds were “green” or “sustainable.” The agency has been focusing on workforce diversity as well, with rules regarding human-capital management coming soon followed by boardroom diversity details at some point this year!
The world’s second-largest economy has created a tradable emissions allowance system which gives businesses an economic incentive through pricing mechanisms like auctions at different price points according to their level of responsibility regarding environmental impacts.
China's new carbon trading market is expected to be expanded early in 2022, and may also include other sectors that are currently not included. The current plan only affects power generators but it could potentially create stronger incentives for pollution cuts by updating allocations or expanding the system across all industry categories
If China further strengthens its carbon trading market and increases the price of allowances, it will make products made in that country more costly for consumers.
The European Union
The European Union has proposed to treat natural gas and nuclear power as environmentally sustainable energy sources under its "green taxonomy" investing rules. Some EU countries disagree over the plan,
The final shape of the "green taxonomy" could have far-reaching implications for investment managers who want their funds categorized within this category. The rule will also impact companies' ability to raise money for environmentally-friendly projects by issuing green bonds.
The United Nations
The COP15 summit, which gathers leaders from around the world to slow and reverse the damage done on Earth's natural resources will reconvene in April. The focus is expected to be establishing a single framework for businesses to report their impact on biodiversity.
This can be expected to contribute to more robust ESG reporting practices.
The International Sustainability Standards Board, which was announced during the United Nations climate conference last year and incorporates several sustainability standard setters. This effort is expected to add to the consistency of ESG reporting with the first set of rules expected by early this year!
For more information see the Wall Street Journal