Global regulators chart ESG path for companies to follow in 2024

Positive developments in the global ESG space will continue in 2024 as regulators provide more detailed frameworks aimed at helping companies transition to net-zero, with increased adoption of ESG regulation in most major markets predicted according to new analysis from Neuberger Berman.

The New York-based investment management firm detailed in its recent Building Momentum: 2024 Outlook for ESG Regulation report some of the “burgeoning” regulatory developments that took place over 2023, which should be a prelude to further action in the year to come.

Governments collectively came to an awareness that net-zero cannot be achieved without “robust policy and regulatory frameworks”, according to the report, with this awareness bolstered by increased investor demand for ESG-related strategies and investment products. The European Union, “typically at the forefront of these efforts”, continued to push its landmark 2018 Sustainable Finance Action Plan (SFAP), while ESG data programs across the globe improved markedly.

Regionally, dispersion in ESG policy and regulation persists, despite improvements across the board.

Canada and Latin America continue to push the Americas forward on ESG. While the U.S. Inflation Reduction Act is driving clean energy via a range of tax incentives there, further development is hampered by pushback and political wrangling.

“The politization of ESG in the U.S. has led to delays in the publication of ESG fund disclosure and climate-related disclosure rules by the Securities and Exchange Commission,” the report states. “The ESG backlash persists, and the elections in November 2024 will lead to increased commentary, pressures and the potential introduction of anti-ESG bills.”

The EU remains a global ESG leader through its SFAP, yet progress in the UK has been “slower than expected” as green policy remains in development. APAC is “moving quickly” on sustainability-related reporting, the report notes, while Australia has “finally” published its much-awaited Sustainable
Finance Strategy for stakeholder consultation, including a framework labelling regime for sustainable funds.

In the year ahead, Neuberger Berman believes there will be “continued adoption” of ESG regulation, with sustainable finance frameworks that will test stakeholders across the value chain.

ESG disclosure rules should become more clarified across all regions, while sustainability reporting requirements for companies in the US and parts of Asia will also become set. Globally, rules and standards on ESG ratings providers should become more consistent, and in the EU a rule for the naming of ESG funds will also be ratified.

The most significant development, however, should be the increasing role of regulators in helping companies in their transition to net-zero.

“In addition, a trend we see as positive and that is likely to continue is the increasing regulatory efforts to consider the role of sustainable finance in supporting transitioning companies in their journeys to net zero,” the report states.

“This is reflected in the work that some jurisdictions are doing to provide frameworks for credible transition planning (e.g., the U.K. and Singapore), the development of sectoral pathways for companies (e.g., the EU), and the adoption of transition taxonomies (e.g., the Singapore-Asia Taxonomy).”