Q2 2025 Newsletter: Staying Relevant in Evolving Times
- Disha Veera
- Aug 20
- 6 min read
Q2 2025 witnessed a series of regulatory and policy developments, from a climate finance taxonomy in India to the first-time issue of green sovereign bonds by China. United Nations IMO introduced its first-ever global emission levy on the shipping industry and the SEC approved launch of a Green Stock Exchange in the US. In the parallel, there was also weakening or rationalisation of existing regulations such as the CBAM (Omnibus I) and the NZBA obligations. Despite net outflows from sustainability funds, markets showed resilience with outperformance of sustainability funds over market indices.
GLOBAL UPDATES
SHIPPING | First Global Emissions Levy to be imposed on the Shipping Sector:
The United Nations International Maritime Organization (IMO) issued mandatory emissions limits and GHG pricing for shipping companies of its 108 member countries, covering 97% of the world’s merchant shipping fleet by tonnage. The Framework, which is set to be finalised by October 2025, will mandate “well to wake” accounting of emissions and set greenhouse gas fuel intensity targets that will be narrowed over time.
While the decision has received a majority, the US has publicly disclosed its opposition to the framework. Parallelly, there are proposals to align EU ETS, that was extended to large ships (of 5,000 gross tonnage and above) in January 2024, to the IMO framework, because of its similarity in scope.
BANKING | Net Zero Banking Alliance (NZBA) softens its climate goals
Image Source: Regulation Asia Amid exits of high-profile banks like the JP Morgan, Wells Fargo, Bank of America, etc., NZBA voted to drop the requirement for its members to align lending and capital markets activities with the goal of limiting global warming to 1.5°C. Under the new guidance, members are now encouraged to meet the less stringent goal of limiting global warming to well below 2°C while striving for 1.5°C in line with the Paris Agreement.
After rapidly expanding from 43 banks at launch in 2021 to over 140 banks representing US$ 74 trillion in 2024, members of the group have come under significant pressure, particularly from Republican politicians in the U.S., who have been warning financial institutions including banks, insurers, asset owners and investors of potential legal violations from their participation in climate-focused alliances and of plans to exclude the companies from state business, as part of a broader anti-ESG political campaign.
REPORTING | ISSB releases amendments to IFRS S2
Image Source: TodayESG ISSB published an Exposure Draft proposing targeted amendments to IFRS S2 to ease application for companies. Amongst the proposed amendments, relief from disclosing Scope 3, Category 15 (Investments) emissions was a significant one. Other amendments include relief from the use of Global Industry Classification Standard (GICS), in some circumstances, relief from disclosing disaggregated financed emissions information, clarification on the jurisdictional relief to use a measurement method other than the Greenhouse Gas Protocol for measuring GHG emissions, and permission to use jurisdiction-required Global Warming Potential (GWP) values that are not from the latest Intergovernmental Panel on Climate Change (IPCC).
The amendments are likely to ease reporting and are not identified as diluting the scope of reporting. Public comments received on the draft are still under deliberation.
INTERNATIONAL TRADE | EU approves changes to the CBAM
The European Council and European Parliament reached a provisional agreement on the so called ‘Omnibus I’ to simplify the EU’s Carbon Border Adjustment Mechanism (CBAM) which applies a carbon levy on imports of defined goods. The agreement exempts importers which do not exceed a single mass-based threshold set at a level of 50 tonnes of imported goods per importer per year from any carbon levy.
The measure is expected, in most cases, to exempt SMEs and individuals, comprising ~90% of the importers, which import small or negligible quantities of goods covered by the CBAM regulation. The legislation will still cover over 99% of emissions from key carbon-intensive imports.
INDIA UPDATES
CARBON MARKET | MoEFCC notifies draft emission intensity targets for companies
The Ministry of Environment, Forest and Climate Change (MoEFCC) has notified draft sector-specific GHG Emission Intensity Targets under the Carbon Credit Trading Scheme (CCTS 2023) in a major step toward operationalizing the Indian Carbon Market. The draft rules cover 282 plants (obligated entities) across four sectors namely – aluminium, cement, chlor-alkali, and pulp and paper.
The targets are spread across two years (2025-2026 and 2026-2027), with reductions distributed as 40% in the first year and 60% in the second. Targets are assigned through a benchmarking approach, meaning entities with higher baseline intensities are given more ambitious reduction targets than those with lower baselines.
FINANCE TAXONOMY | India introduced a draft climate finance taxonomy:
The Union Budget Speech for FY 2024-25 had first proposed formation of a climate finance taxonomy, following which the Ministry of Finance introduced a draft Framework for India’s Climate Finance Taxonomy, for public consultation in Q2 this year.
The draft broadly covers three climate areas – climate mitigation, climate adoption (both classified under ‘Climate Supportive’ activities) and climate transition (classified under ‘Transition Supportive’ activities). It defines the activities that classify under each of these groups, thereby standardising identification and demarcation of climate funds and investments.
MARKETS | SEBI introduces a Framework for ESG Debt Securities
The Securities and Exchange Board of India issued the ‘Framework for Environment, Social and Governance (ESG) Debt Securities (other than green debt securities)’ specifying the operational framework for issuance and listing of ESG debt securities in India. The Framework mandated alignment with recognised international debt standards, alongside those introduced by the regulator.
The Framework provides guidance on initial disclosure requirements, continuous disclosure requirements and third-party review/certification. It applies to existing and proposed ESG debt securities, but categorically excludes green debt securities which are expected to be covered separately. The Circular was introduced with immediate effect. The Framework signals a move to standardise and promote the now rising issuances of ESG Debt Securities.
CONSTRUCTION & MATERIALS | MoEFCC issues draft EPR for Construction and Waste Management
The Ministry of Environment, Forests and Climate Change (MoEFCC) has notified draft rules, superseding the rules issued in 2016, to manage and recycle construction and demolition waste under an Extended Producer Responsibility Framework. Producers building projects having a built-up area of 20,000 square meters and above are covered under the regulations.
The draft proposes online registration of producers, recyclers, waste storage providers, and collection points on a dedicated portal, alongside setting recycling targets and tracking disposal methods and timelines. The notification, after consultation, is expected to be effective from April 01, next year.
INVESTOR UPDATES
SUSTAINABLE FUNDS | Sustainable Funds show reliance despite an overall dip
Image Source: Morningstar Direct Global sustainable funds saw a record US $8.6 billion in outflows in Q1 2025, according to Morningstar. However, the broader context shows resilience. Despite the outflows, sustainable funds appear to have held their aggregate asset value slightly better than the wider market amid the turmoil of the first quarter, with their total assets contracting by 0.7%, against a 1.4% decline for the Morningstar Global Market index.
European outflows amounted to just 0.04% of the region’s US$ 2.68 trillion in sustainable assets, and markets like Canada, Australia, South Korea, and Taiwan still posted positive flows. While equity funds still make up the bulk, sustainable fixed-income funds enjoyed strong net inflows of US$ 14 billion last quarter (Q1).
SOVEREIGN BONDS | China issues its first sovereign green bonds
Image Source: English.gov.cn China’s Ministry of Finance issued the country’s first-ever sovereign green bond, raising RMB 6 billion (US$ 824 million), on the London Stock Exchange. This also marks the country’s first-ever sovereign bond issued overseas. The Ministry published a comprehensive sovereign green bond framework, outlining that proceeds will be directed toward climate mitigation and adaptation, natural resource protection, pollution control, and biodiversity preservation.
The bonds have 3- and 5-year maturities, with sub 2% fixed interest rates. The offering was heavily oversubscribed, attracting nearly RMB 47 billion in bids, underscoring strong investor demand.
US MARKETS | SEC Launches Green Stock Exchange:
Image Source: Skema Knowledge The US Securities and Exchange Commission greenlit the nation’s first ever “green” stock exchange by giving final approval to the Green Impact Exchange (GIX). The exchange is expected to serve both sustainability-minded investors and companies focused on managing climate-related risks.
However, this comes against a backdrop of massive ESG outflows in the US market. Nevertheless, the exchange which shall initially serve as a dual-listing platform for existing listed entities, expects global demand to eventually grow as investors consider the financial implications of climate change. The SEC, though has ceased to defend its climate disclosure bill, found the exchange’s proposed rules consistent with governing laws and that they “do not impose any burden on competition not necessary or appropriate.”
INTERESTING READ:
Excerpt:
“You might not realize it, but every time you ask an AI chatbot a question, a data center is forced to guzzle water. To be precise, a data center requires about a 500-milliliter bottle of water to generate 10 to 50 medium-length GPT-3 responses, according to one analysis. Generating an image uses substantially more water than text, and a video uses dramatically more than an image”
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