CFTC approves final guidance regarding the listing of voluntary carbon credit derivative contracts and brings first fraud action in the voluntary carbon credit market
The final guidance applies to designated contract markets, which are the Commodity Futures Trading Commission’s (“CFTC”) regulated derivative exchanges (DCMs), and outlines factors for DCMs to consider when addressing certain Core Principle requirements in the Commodity Exchange Act (CEA) an CFTC regulations that are relevant to the listing for trading of voluntary carbon credit derivative contracts. The guidance also outlines factors for consideration when addressing certain requirements under the CFTC’s Part 40 Regulations that relate to the submission of new derivative contracts, and contract amendments to the CFTC.
Related: In a first action for fraud in the voluntary carbon credit market, the CFTC charged a former CEO of carbon credit project developer with fraud involving voluntary carbon credits. On October 2, 2024, the CFTC announced it had filed a complaint in the US District Court for the Southern District of New York against Kenneth Newcombe of California, the former CEO and majority shareholder of a Washington DC-based carbon credit project developer, charging fraud and false, misleading, or inaccurate reports relating to voluntary carbon credits. The CFTC also issued orders filing and settling charges against Washington, DC-based CQC Impact Investors LLC (CQC) and against Jason Steele, CQC’s former COO.
The HKMA and DFSA sign an MoU on sustainable finance
The Hong Kong Monetary Authority (HKMA) and Dubai Financial Services Authority (DFSA) have signed a memorandum of understanding (MoU) to further deepen their strategic partnership on sustainable finance.
In more detail: The HKMA noted in a statement that both authorities would engage in enhanced cross-border dialogue, deepen the exchange of information on recent trends, and conduct joint research and events to further drive progress in this area.
The MoU was signed at the inaugural Joint Climate Finance Conference hosted by the HKMA and DFSA; HKMA CEO Eddie Yue noted at the conference that the global nature of climate change means that a collaborative response is needed.
“Hong Kong and Dubai, as the sustainable finance hubs in Asia and the Middle East, and the key gateways between East and West, can and should do more together,” he said. “I look forward to many more fruitful collaborations between the HKMA and the DFSA.”
DFSA CEO Ian Johnston said the MoU represents a pivotal step in reinforcing the cooperation between Dubai and Hong Kong in climate finance. “Dubai is committed to leading the charge on environmental, social, and governance initiatives. Today’s signing is a testament to our shared ambition with Hong Kong to accelerate the transition towards a low-carbon economy.”
What’s next? The HKMA reiterated that it would continue to work with the DFSA to promote sustainable finance, including transition finance. “The enhanced partnership will support both regions in exploring opportunities to mobilise capital to support the green and sustainable growth of the wider economies.” Bloomberg NEF (BNEF) has also been announced as a knowledge partner in the initiative.
SGX RegCo to formally integrate ISSB into sustainability reporting regime
The Singapore Exchange Regulation (SGX RegCo) has announced that it will start incorporating the standards developed by the International Sustainability Standards Board (ISSB) into its reporting requirements for listed companies, beginning in FY 2025 on a phased-in basis.
Background: SGX RegCo recently consulted on proposals to enhance its sustainability reporting regime in light of international developments and finalization of the ISSB standards. Notably, the consultation outlined plans to apply mandatory climate-related reporting to all listed issuers, versus the previous requirement for only certain sectors to do so. Most respondents were supportive of SGX RegCo’s proposals, though challenges were highlighted, mainly for smaller issuers and requirements around Scope 3 emissions reporting.
Summary: Beginning from FY 2025, all listed issuers will have to make disclosures in line with the ISSB’s IFRS S1 General Requirements for Disclosure of Sustainability-related Information and IFRS S2 Climate-related Disclosures. However, the decision to mandate Scope 3 emissions (a requirement under IFRS S2) has been deferred to a later stage, in light of industry concerns around reporting methodologies. It is expected that larger issuers will have to report Scope 3 emissions from FY 2026, though formal notice has not yet been given.
Timing: SGX RegCo has outlined the following key implementation dates:
- For FY 2025: Mandatory climate reporting under IFRS S2 kicks-in, excluding Scope 3 emissions requirements for the time being. Other components of a sustainability report to be disclosed on a ‘comply or explain’ basis.
- For FY 2026: Primary components of a sustainability report to be disclosed on a mandatory basis. It is expected that large issuers will also be required to report against Scope 3 emissions at this stage and thus the content of their climate reporting would be fully aligned with IFRS S2.
Malaysia finalizes its National Sustainability Reporting Framework
The Securities Commission of Malaysia has published its National Sustainability Reporting Framework (NSRF), officially requiring companies to report against the standards developed by the International Sustainability Standards Board (ISSB).
Summary: The objective of the NSRF is to enhance transparency and accountability around how companies are managing sustainability risks and opportunities, as well as contribute to Malaysia’s broader sustainability commitments. The NSRF formally integrates the ISSB’s IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures; it also contains additional assurance requirements for sustainability reporting.
Scope: The NSRF will impact the majority of businesses operating in Malaysia. Specifically, the following market segments are impacted:
- Main Market listed issuers on Bursa Malaysia;
- ACE Market listed issuers on Bursa Malaysia; and
- Non-listed companies (NLCos), provided they meet the prescribed revenue threshold of consolidated group revenue of RM2 billion and above for two consecutive financial years preceding the current financial year. Large NLCos already reporting using ISSB-aligned standards or equivalent standards such as the European Sustainability Reporting Standards (ESRS) may leverage such disclosures for the purpose of the NSRF requirements.
Timing: The NSRF largely maintains the original transitional reliefs provided under the ISSB framework, with minor adjustments made to reflect the preparedness of local companies. The following implementation timeline has been outlined:
- Annual reporting periods beginning on or after 1 January 2025: Main Market listed issuers with market capitalization (excl. treasury shares) of RM 2 billion and above as of 31 December 2024;
- Annual reporting periods beginning on or after 1 January 2026: Remaining Main Market listed issuers;
- Annual reporting periods beginning on or after 1 January 2027: ACE Market listed issuers and large NLCos.
IFRS Foundation issues guide on voluntary adoption of ISSB
The IFRS Foundation has published a guide aimed at supporting entities that voluntarily apply the standards developed by the International Sustainability Standards Board (ISSB).
Background: The ISSB finalised its standards (IFRS S1 and S2) in summer 2023, setting out a global baseline for climate and general sustainability disclosures. Since then, over 20 jurisdictions have announced they will implement either IFRS S1 or S2 (or both) in its local rulebooks.
In summary: The voluntary application guide is meant to help companies report against the ISSB standards in advance of or in the absence of jurisdictional regulation. It does not change the content of the requirements in IFRS S1 and S2, nor does it override any jurisdictional rules and guidance.
The guide takes into account that companies may be at different stages of the climate and sustainability reporting journey, and outlines the proportionality mechanisms and transition reliefs available under the IFRS S1 and S2 requirements. It also highlights how other voluntary frameworks and standards, such as SASB and TCFD, can be used as a starting point for applying the ISSB standards.
SEC charges advisory firm WisdomTree with failing to adhere to its own investment criteria for ESG-marketed funds
The U.S. Securities and Exchange Commission (“SEC”) charged New York-based investment adviser WisdomTree Asset Management Inc. with making misstatements and for compliance failures relating to the execution of an investment strategy that was marketed as incorporating environmental, social, and governance (ESG) factors. WisdomTree agreed to a cease-and-desist order and censure and to pay a $4 million civil penalty to resolve the matter.
The details: According to the SEC’s order, WisdomTree represented in prospectuses for three ESG-marketed exchange-traded funds, and to the board of trustees overseeing the funds, that the funds would not invest in companies involved in certain products or activities, including fossil fuels and tobacco. However, the ESG-marketed funds invested in companies that were involved in fossil fuels and tobacco, including in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products. According to the SEC’s order, WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities. The SEC’s order further finds that WisdomTree did not have any policies and procedures over the screening process to exclude such companies.