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Blog Posts — September 6, 2023

Sustainability reporting regulation: midyear progress review by ISS ESG 

ESG disclosure was always set to be high on the agenda for investors in 2023, and developments so far confirm regulators and agencies are on track to push through some key legislative packages.  

In a midyear review report, ISS ESG, a leading provider of ESG data, analytics and insights, and a partner with STOXX in indexing solutions, recounts what’s happened this year in terms of ESG reporting regulation and what may unfold in the second half. According to the report’s authors, the general trend as signaled so far by policy proposals, updates and guidance is one of greater and more granular reporting obligations, whether for companies or investors. 

While the policy agenda is keeping in line with forecasts at the start of 2023, “policymakers are also taking the opportunity to assess implementation challenges and reporting burdens, with a focus on ‘right-sizing’ regulation,” Anna Warberg, Head of Stewardship & Engagement at ISS ESG; and Karina Karakulova, Director of Regulatory Affairs and Public Policy at parent company ISS, wrote.

From TNFD to EU Taxonomy

In May, the Taskforce on Nature-related Financial Disclosure (TNFD) released a final draft of its proposed framework, whose final version is now planned for September this year. The TNFD follows on the example of the Taskforce on Climate-related Financial Disclosure (TCFD) and aims to develop risk management and disclosure guidelines to report and act on evolving nature-related risks.

The standard-setting International Sustainability Standards Board (ISSB), which in May started a consultation on its next projects and priorities, is likely to rely on the TNFD’s framework, according to Warberg and Karakulova. 

The ISSB in June launched its first sustainability-related reporting standards, which the UK’s Financial Services Authority has said will help bring “complete, consistent, comparable and reliable corporate sustainability disclosures” across jurisdictions.

While the ISS ESG report covers global developments, the leading steps in ESG disclosure action continues to be in Europe. In June, the European Commission (EC) approved in principle a new set of EU Taxonomy Technical Screening Criteria for the four remaining environmental objectives of the six in the EU Taxonomy:

  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

The criteria identify which economic activities contribute to one of the objectives and, at the same time, cause no significant harm to any other. The Council of the European Union and the European Parliament (EP) have four months to object to the Technical Screening Criteria before the package becomes EU law. The EU’s executive arm also proposed new rules to strengthen the transparency, governance and independence of ESG ratings.

Separately, the EP in June adopted a position on the Corporate Sustainability Due Diligence Directive (CSDDD), launching discussions on the package between the EP, the EC and the Council of the EU. The CSDDD requires companies to explain their due diligence processes with regards to sustainability matters. It also sets out the conditions under which companies can be held accountable for adverse impacts to the environment and human rights, among other things. The tri-party negotiations will continue in 2023 and are likely to extend into 2024, Warberg and Karakulova wrote. 

In July, the EC adopted new European Sustainability Reporting Standards (ESRS), which provide more details on the Corporate Sustainability Reporting Directive (CSRD) from last year. ESRS requires companies to report on the “double materiality” environmental impact of their operations and value chain, and relieves them — for now — of mandatory disclosures on climate mitigation, biodiversity and water.[1]  

“Considering both ISSB’s potential for global reach and the companies covered under the CSRD, an expanding universe of reported metrics and information is likely to materialize soon for reporting periods beginning on or after Jan. 1, 2024,” the ISS ESG report read.  

What else to expect in the second half 

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, in July responded to an EC request by providing an assessment on the Shareholder Rights Directive (SRD). 

Another key topic for investors in coming months is a review of the Sustainable Finance Disclosure Regulation (SFDR). The European Supervisory Authorities in April proposed to expand and clarify the indicators that relate to principal adverse impacts (PAIs), and to amend the disclosure for product issuers. SFDR is one of the landmark frameworks steering sustainable investments, and Qontigo this year published a methodology guide for reporting the sustainable investments (SI) percentage of STOXX and DAX indices.

Elsewhere, ESMA is expected to issue in the third quarter final guidelines on funds’ names using ESG or sustainability-related terms.

“Change usually happens slowly in the regulatory world, but recent regulation related to ESG investing is accelerating the pace of change, even as regulators simultaneously advance new requirements and, in some cases, revisit existing regulation,” the ISS authors wrote.

ESG regulation is one of ten chapters that make up ISS ESG’s midyear report. Other topics include the journey to Net Zero, ESG investing in times of an economic slowdown, and the food industry’s impact on climate and biodiversity. 

Nature-related risks

Regulation is also increasingly focusing on the topics of biodiversity and human rights, following years when most of the attention was placed upon climate change. STOXX, in partnership with ISS ESG, this year unveiled the ISS STOXX® Biodiversity indices. The new suite aims to provide investors with a broad and holistic framework under which to consider the impact of portfolios on our ecosystems.

“Biodiversity is not only a risk but also an opportunity for companies and investors,” said Antonio Celeste, Director for Sustainability Product Management at STOXX. “At STOXX, we continuously monitor market developments in terms of sustainability data disclosure, and steady progress in this field is enabling solutions that can be integrated into investment portfolios.”

ESG rule-making continues to move at a fast pace in Europe and beyond, and the above list of legislative packages is not exhaustive. With more clarity and increased guidance on regulation, and improved data, the possibilities to integrate sustainability parameters in investment portfolios will grow, while “greenwashing” risks should decrease. The remainder of 2023, and indeed the next couple of years, promise to deliver much more on the ESG regulatory front.    

For questions and comments on the ISS ESG report, please write to To enquire about STOXX’s sustainability solutions, please reach out to

[1] For more on this, see Edie, “More than 50,000 companies to be impacted by new EU sustainability reporting rules.”