Regulatory landscape in other jurisdictions

The National Code of Corporate Code of Governance of Mauritius is being reviewed to integrate more Social and Environment dimensions and to develop a National ESG Framework

The small island developing state (SID) has been responsive to the concept of sustainability since the time of the Earth Summit in 1992. The setting up of a Department of Environment and a Ministry of Environment represented early commitments to the recognition that measures were imperative to tackle pollution and other externalities that may be associated with economic development. The current Ministry handles the multiple responsibilities of Environment, Solid Waste Management and Climate Change.

The country has signed and ratified multiple Protocols and Agreements over the years. The Environment Protection Act is supplemented by a wide panoply of other legislations including the Native Terrestrial Biodiversity and National Parks Act; the Climate Change Act; the Fisheries and Marine Resources Act.

At the level of businesses, a general movement towards sustainable development was perceptible initially through pollution mitigation and community investment. All companies are required to allocate 2% of their profit after tax to Corporate Social Responsibility initiatives. The adoption of sustainability frameworks such as the Global Reporting Initiative and/or International Integrated Reporting Council by a significant number of the Top 100 Companies is now a common practice. The sustainability index of the Stock Exchange of Mauritius (SEMSI) comprises 17 constituents which have all been assessed against ESG criteria prior to their inclusion in the index.

Bank of Mauritius Guidelines

In line with international changes in standards and frameworks, the central bank, the Bank of Mauritius, released in 2021 ‘The Guideline on Climate-related and Environmental Financial Risk Management’. The Comply or Explain Guideline requires banks to identify, assess and manage material C&E financial risks. This implies that the current Risk Management Framework needs to be enhanced to integrate C&E risks.  Similar to the Taskforce on Climate-Related Financial Disclosure (TCFD) framework or even IFRS S1 and S2, banks are expected to adopt relevant Governance structures and develop strategies that will enable them to manage the impact of C&E risks on their operations and on their portfolios.

Other initiatives expected encompass scenario analysis and stress testing. These tasks are quite challenging for the island and the more so in the wake of a recent report on the most material climatic risks.

The central bank has also issued a ‘Guide for the issue of sustainable bonds’ and ‘Guidelines for Corporate and Green Bonds in Mauritius’. 

National Environmental, Social and Corporate Framework

The country is moreover currently preparing a National Environmental, Social and Corporate Framework that will undoubtedly accelerate the implementation of measures for greener renewable energy consumption, the reduction of the carbon footprint, green finance. It can be noted that the Code of Corporate Governance already contains provisions for companies to report with integrity over the financial, environmental, social and governance position, performance and outlook in its annual reports.

The current review of the Code will reinforce ESG and aim at positioning the country as an ESG investment hub for channelling funds towards green projects in Africa. The outcome of the Review will include the following:

• An analysis of the pertinent issues in E, S and G which are material for Mauritius
• A new Code to deliver on material ESG risks and opportunities
• Principles to embed ESG in risk management and investment strategy
• A roadmap for building competent teams and creating meaningful engagements with stakeholders
• A guide to leverage on data in achieving goals set and communicating with stakeholders on commitments made
• Guidance on best practices for sustainability reporting and the suitability of different reporting frameworks for different ESG goals
• Recommendations on the applicability of the new Code for different industry players

Colombia has been taking steps in this area with the issuance of regulations that seek that companies begin to play a more active role in their contribution to the fulfillment of sustainable development objectives, especially in environmental aspects, including climate change. Among other regulations there is Law 2232 of 2022 that prohibits single-use plastics, Law 2173 of 2021 that establishes that all medium and large companies duly registered in Colombia must develop a tree planting programme in certain areas established by the same law, Law 1901 of 2018 and its Regulatory Decree 2046 of 2019, through which the possibility is created for companies to acquire the status of Collective Interest Benefit companies, aimed at combining their commercial activity with concrete actions that contribute to the care of the environment, contribute to the social equity of the country and generate welfare for their workers.

Likewise, the Green Taxonomy of Colombia (https://www.taxonomiaverde.gov.co), defined a classification system for economic activities and assets with contributions to the achievement of environmental objectives, including climate change mitigation, climate change adoption, circular economy, water and soil management, among others. 

The landscape of ESG regulation in Brazil is still very slow with no mandatory disclosures yet, even for listed companies. 

With the approval of IFRS S1 and S2 and the recent implementation of CBPS (the ‘Brazilian ISSB’), we hope to have these standards translated into Portuguese next year (but adoption will occur a year later probably).

Apart from that, we have voluntary disclosures for some companies (listed ones or with sustainability background) and we expect that subsidiaries in Brazil start to be more aware of international regulation such as CSRD/ESRS. 

The Hong Kong Stock Exchange has issued a consultation paper in April 2023 on proposals to require listed companies to make mandatory climate-related disclosures in their annual ESG reports and at the same time proposed to rename it as “ESG Reporting Code”. Currently, climate-related disclosures are only required on a “comply or explain” basis. 

The proposed mandatory disclosures are based on the previous exposure draft of the climate-related disclosure standards issued by the International Sustainability Standards Board (ISSB). The proposed disclosure requirements are categorised under four core pillars: (i) governance, (ii) strategy, (iii) risk management, and (iv) metrics and targets.

The amendments to the Listing Rules are expected to come into effect on 1 January 2024 and will apply to ESG reports in respect of financial years commencing on or after that date. To give more time for the listed company to prepare for the disclosures, the Stock Exchange is proposing interim measures during the first two reporting years for certain aspects such as scope 3 emission, financial effects and some cross-industry metrics, with full compliance expected for financial years commencing on or after 1 January 2026.

Mandatory Climate-related Disclosure 

The Stock Exchange is proposing to amend Part B of Appendix 27 of the Listing Rules to expand the existing mandatory disclosure requirements (on governance structure, reporting principles and reporting boundary) to require climate-related disclosures. Issuers will need to disclose information on their exposure to, and management of, climate-related risks and opportunities with reference to the four pillars set out below. A new Part D of Appendix 27 sets out the detailed disclosure requirements:

• Governance – the governance process, controls and procedures the issuer uses to monitor and manage climate-related risks and opportunities. This requires disclosure of information such as the identification of board members responsible for the oversight of climate-related opportunities; how the board and its committees oversee target setting in respect of significant climate-related risks and opportunities; monitoring and review of such targets and reflecting ESG factors into remuneration policy.  
• Strategy – the issuer’s strategy for addressing significant climate-related risks and opportunities. An issuer is required to disclose, among other things, an assessment of any climate-related risks reasonably likely to have a material effect (in the short, medium or long term) on the issuer’s business model, strategy and cash flows, access to finance and cost of capital. The issuer is expected to describe its transition plans, including how it is responding to the climate-related risks/opportunities identified (for instance by changes to the issuer’s business model or strategy), information on its climate-related targets and its progress against these and the use of carbon credits, if any. Issuers are also expected to make climate resilience disclosures, including information that enables investors to understand the resilience of the issuer’s strategy and operations to climate-related changes, developments or uncertainties as well as the climate-related scenario analysis used to assess the effect of climate-related risks. The current and anticipated financial effects of the climate-related risks and opportunities also need to be disclosed. During the proposed two-year interim period following implementation, issuers will be able to include alternative disclosures where quantitative information or information on the anticipated financial effects is not available;
• Risk management – the process the issuer uses to identify, assess and manage climate-related risks and opportunities. This includes disclosure of how the issuer assesses the likelihood and effects associated with such risks and how it prioritises climate-related risks relative to other types of risks; and
• Metrics and targets – the metrics and targets the issuer uses to measure, monitor and manage significant climate-related risks and opportunities and how the issuer assesses performance. The requirements are set out under the following sub-categories:
  1. Greenhouse gas (GHG) emissions*, requiring disclosure of emissions data including scope 3 emission. Issuers also need to disclose additional information in relation to GHG emissions, including the standard under which GHG emissions have been measured. This can either be the GHG Protocol or the protocol that the issuer is required to use by local legislation for measuring GHG emissions;
  2. Transition risks*, requiring disclosure of the amount and percentage of assets or business activities vulnerable to transition risks;
  3. Physical risks*, requiring disclosure of the amount and percentage of assets or business activities vulnerable to physical risk;
  4. Climate-related opportunities*, requiring disclosure of the amount and percentage of assets or business activities aligned with climate-related opportunities;
  5. Capital deployment*,  requiring disclosure of the amount of capital expenditure, financing or investment deployed towards climate-related risks and opportunities; 
  6. Internal carbon prices, relevant for issuers who maintain an internal carbon price; 
  7. Remuneration, requiring a description of how climate-related considerations are factored into remuneration policy; and 
  8. Industry-based metrics, where issuers are encouraged to make industry-based disclosures in accordance with other international ESG reporting frameworks and standards.  

(* - alternative disclosures are available during the 2-year interim period) 

The Future of Climate Reporting: A Deeper Look at ISSB, HKEX Proposals – Regulation Asia

Corporate sustainability reporting has gained significant importance in recent years as organisations strive to demonstrate their commitment to Environmental, Social, and Governance (ESG) practices. In Europe, the introduction of the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) aims to enhance the consistency and quality of sustainability reporting among companies in European Union (EU) member states.

Indian companies with subsidiaries or business operations in the EU are now required to align their reporting practices with these international standards to remain competitive, attract investments, and address evolving stakeholder expectations.

To help Indian firms stay ahead of the sustainability reporting trends and understand how this paradigm shift can impact their operations, BDO in India has prepared a quick guide ‘Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) – implications for Indian businesses’.