Upcoming Webinars

8 March - UK corporate governance update: recent developments and what’s coming up
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16 March - Empowering women: Navigating the legal changes and practical implications of China’s amended Women's Protection Law
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18 April - TMT meets ESG: Key trends and opportunities in Asia
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EU: Provisional political agreement on EU Green Bond Standard

Provisional political agreement was reached on the EU Green Bond Standard (EU GBS) on 28 February 2023, with press releases published by the Council and Parliament. We await further detailed documentation but according to the information available, the compromise reached will provide for following: (i) a voluntary label for issuers of green use of proceeds bonds where the proceeds will be invested in economic activities aligned with the EU taxonomy (which defines economic activities that can considered as environmentally sustainable); (ii) a “flexibility pocket” of 15% for proceeds in relation to sectors not yet covered by the EU taxonomy and for certain very specific activities; (iii) a registration system and supervisory framework for external reviewers of European green bonds; and (iv) all issuers choosing to apply the standard and adopt the EU GBS label will be required to make certain disclosures about the bond’s use of proceeds but will also be obliged to show how those investments feed into the transition plans of the company as a whole.

One of the hotly debated topics was the extent to which the EU GBS label would be voluntary and whether additional mandatory disclosure requirements would extend to all issuers of bonds marketed as environmentally sustainable. From the information currently available, it seems that the compromise reached will result in a voluntary label only (in accordance with the original proposed scope). However, issuers of bonds that cannot fulfil all of the requirements for the EU GBS label will be able to elect to provide additional disclosures in relation to their environmentally sustainable bonds (thereby subjecting themselves to ambitious transparency requirements). The format of these disclosures will follow templates provided for under the legislation. We understand that there will be no additional mandatory disclosure required, pursuant to this legislation, for issuers of other environmentally sustainable bonds and sustainability-linked bonds issued in the EU. However, it remains to be seen how the disclosure templates might ultimately link into other related legislative proposals including for example the proposed EU Listing Act which will amend the EU prospectus regime in due course and includes a proposal for a new ESG disclosure annex for issuers of certain sustainable bonds. The agreement is provisional and still needs to be confirmed and adopted by the Council and Parliament before it is final. It will start applying 12 months after its entry into force.

EU: Publication of Delegated Regulation incorporating nuclear and gas disclosures into SFDR RTS

The Commission has published a Delegated Regulation 2023/363 to amend and correct the SFDR regulatory technical standards (RTS). The amendments include, in particular, changes to the pre-contractual disclosures, websites disclosures and periodic reports regarding investments in fossil gas and nuclear energy activities. The revisions entered into force on 20 February 2023. For more information, see our blog post.

EU: French regulator proposes minimum criteria for Articles 8 and 9 financial products

The French financial regulator, the ‘Autorité des marchés financiers’ (AMF) published on 13 February 2023 a position paper setting out proposals to the European Commission on the introduction of minimum environmental requirements that must be met by financial products in order to be classified as Article 8 or Article 9 under the Sustainable Finance Disclosure Regulation (SFDR). The AMF recognises that the use of the SFDR classification by Financial Market Participants (FMPs) may be misinterpreted by investors as it is currently not a label (SFDR was designed as an ESG transparency regime). According to the French regulator, this misinterpretation would have created a gap between the expectations expressed by investors and the reality of the practices of the FMPs (in the absence of established minimum environmental requirements) and would have fueled “greenwashing". In this respect, the AMF is suggesting a number of measure, such as: (i) setting up minimum environmental criteria for the classification of products as Article 9 or Article 8; (ii) clarifying the “vague” definition of “sustainable investment” with a new definition built on objective requirements; (iii) a minimum proportion of portfolio assets for Article 9 funds aligned with the Taxonomy; (iv) adoption of a binding ESG approach in the investment decision-making process by the FMPs that manage Article 8 and 9 funds; (v) exclusion of investments in fossil fuel activities that are not aligned with the Taxonomy from Article 9 funds (such investments would be possible for Article 8 products provided that these activities are engaged in an orderly transition). The AMF also proposes that policymakers may consider introducing a minimum proportion of Article 9 and 8 products’ underlying assets invested in “transition assets” (the regulator is introducing a proposed definition), reporting on PAIs, and transparency and monitoring of engagement policies. The proposals aim to initiate discussion on minimum standards in the context of the announced review of the SFDR.

EU: Five EU banks urged by a group of investors to stop direct fossil fuel financing

According to a ShareAction press release, 30 investors, coordinated by ShareAction and representing over US$1.5 trillion in assets under management, have written a letter to one or more of five European banks (which they claim are the largest European financiers of top oil and gas expanders) urging them to stop directly financing new oil and gas fields by the end of 2023. The investors are concerned that the development of new oil and gas fields may jeopardise the global path to net zero and is holding back the upscaling of renewable energy in Europe. The letters refer to a report by the International Energy Agency (IEA) in May 2021, which warned that new oil and gas fields are not compatible with achieving net zero by 2050. The investors have also asked the banks “to swiftly turn their attention to the companies behind these new oil and gas fields” as direct financing is only the “tip of the iceberg”. The investors have asked for a response prior to announcement of the banks’ AGMs this year.

EU: EBA launches industry survey on green loans and mortgages

On 13 February 2023, the European Banking Authority (EBA) launched an industry survey to receive input from credit institutions on their green loans and mortgages as well as market practices related to these loans (see EBA’s press release). Credit institutions that would like to participate in the survey should contact their national competent authority to receive the templates and information on the process. Replies to the survey should be provided by 7 April 2023. The purpose of the survey is to collect both quantitative and qualitative information the EBA can use to advise the European Commission. In November 2022, the EBA received a call for advice from the Commission on green retail lending. The EBA has been asked to provide an overview of current market practices and the prevalence of green loans in the banking market, propose and consider the merits of an EU definition of green loans and mortgages, and consider measures for the uptake or access to green finance by retail and SME borrowers. The EBA should deliver advice until 29 December 2023.

EU: European Long-Term Investments (ELTIFs) on the rise

The Parliament voted on 15 February 2023 in favour for the revised ELTIF Regulation (also known as “ELTIF 2.0”) which now awaits final publication in the Official Journal of the EU and entry into force 20 days later. The new Regulation will then apply directly nine months later to all EU Member States but ELTIFs authorised prior to the date of entry into application will be able to opt into the new regime. European Long-Term Investment Funds (ELTIFs) are fund vehicles that can invest in assets such as energy and infrastructure, transport, public buildings, and can easily be distributed cross-border including to European retail investors. One main objective of the ELTIF Regulation is to channel private capital towards long-term investments in the real economy, including investments that promote the European Green Deal. ELTIFs have a potential to facilitate long-term investments, among others, in energy, transport and social infrastructure. Green bonds as a category of investment assets are now also eligible for ELTIF and will further contribute to the green economy. The revised Regulation did not introduce a “green ELTIF” as a special product category but imposed obligation on the Commission to reconsider the appropriateness of creating a green ELTIF and relating criteria within two years of the application of the Regulation. For more information, see the Linklaters ELTIFs materials.

UK: FCA consults on finance for positive sustainable change

The Financial Conduct Authority (FCA) has published a new discussion paper inviting views from regulated firms across the financial sector with the aim of encouraging an “industry-wide dialogue on firms’ sustainability-related governance, incentives, and competencies”. The FCA is seeking views on how it can move most effectively beyond disclosure-based initiatives. Firms are encouraged to reflect on the matters discussed, and consider incorporating them as they review and refine their current approaches to governance, remuneration, incentives, and training. The deadline for comments is 10 May 2023. According to the FCA's ESG Director, Sacha Sadan, closing the "say-do" gap is key to tackling greenwashing and boosting confidence in ESG standards. For more information, see our client briefing.

UK: FCA sets out supervisory priorities for asset managers, including on ESG

On 3 February 2023, the FCA published a ‘Dear CEO’ letter to asset managers, setting out its supervisory strategy for the coming months, and highlighting its views on the key risks posed to customers and markets. In relation to ESG, the FCA highlighted the risk that some claims about ESG and sustainable investing are misleading or inaccurate, which may negatively impact the integrity of the UK financial disclosure regime and is likely to harm consumers’ confidence. In addition, it undermines efficient allocation of capital intended for delivery to environmental and social outcomes. The FCA’s supervisory priorities on ESG and sustainable investing include testing whether firms are delivering on the claims made in their communications with investors. The FCA will shortly publish a review of some firms’ ESG oversight practices, and asset managers will be expected to benchmark their own practices against those findings. For more information, see our client briefing.

UK: Investment Association sets out asset managers’ expectations for listed companies

The Investment Association has published an updated and expanded statement of shareholder priorities which sets out asset managers’ expectations for UK-listed companies in 2023. The four main investor priorities are still climate change, diversity, audit quality and stakeholder engagement. These issues were originally identified in 2020 as key drivers of long-term value and have been retained for this year, alongside commentary on additional emerging risks and macroeconomic challenges and the results of a review of the progress made by listed companies in the 2022 AGM season. For more information, see our client briefing.

Global: Revised market standards for sustainability-linked, green and social loans

On 23 February 2023, a joint working group which included the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA) published updated Sustainability-Linked Loan Principles, Green Loan Principles and Social Loan Principles, together with related guidance. The changes made are intended to reflect market developments and ensure that these publications continue to promote the development and integrity of sustainability-linked, green and social loans. For more information, see our publication.

Global: Principles for Responsible Banking strengthen their climate ambition

The UN Principles for Responsible Banking, which has over 300 banks representing half of the global banking industry as signatories, have announced amendments to the Principles for Responsible Banking (see press release). Through the Principles, banks commit to take action to align their strategy, decision-making, lending and investment with the UN Sustainable Development Goals, and international agreements such as the Paris Climate Agreement. At the last Board meeting in 2022, the signatories decided to change the definition of the Principles’ climate ambition to specify that all signatory banks that have a significant impact on GHG emissions are expected to align their portfolios with a pathway towards 1.5 degrees Celsius global warming (instead of “well below 2 degrees”), compared to pre-industrial levels. For banks operating in developed countries, this includes achieving net-zero emissions by at least 2050. The UNEP FI has produced documents for banks to support target setting, including an updated version of the Foundations of Climate Mitigation Target Setting and the Guidelines for Climate Target Setting for Banks.

Global: ISSB standards expected at the end of Q2 2023

The International Sustainability Standards Board (ISSB) has confirmed that it plans to issue the first set of its global sustainability disclosure standards at the end of Q2 2023, so that reporting entities can start to use them from January 2024. The ISSB also voted to reference the European Sustainability Reporting Standards (ESRS) within an appendix to Disclosure Standard S1 (the ISSB’s general requirements standard) “as a source of guidance companies may consider, in the absence of a specific ISSB standard to identify metrics and disclosures if they meet the information needs of investors". The ISSB will now work with the European Commission and EFRAG on detailed terminology within the standards. ISSB’s Chair, Emmanuel Faber, also said: “Now, we will work with regulators around the world as they play their part, creating the conditions within their markets for adoption, so that investors can use comparable information about sustainability-related risks and opportunities in their investment decisions without delay.” For more information, see ISSB announcement.

EU: Commission publishes delegated act on green hydrogen

After a long wait, the Commission published, on 13 February 2023, a delegated act (DA) with more details on when renewable fuels of non-biological origin (RNFBOs), which include hydrogen and its derivates, can be considered “green” under the Renewable Energy Directive (EU) 2018/2001. As RNFBOs are typically produced using electricity intensive electrolysis, the electricity used for their production should stem from renewable sources (RE plants) to qualify as "green". The Commission was tasked with providing details on the qualification of electricity to be fully renewable. In the DA, it has come up with four different scenarios for on- and off-grid RNFBO plants which have to fulfil varying additional requirements, especially allowing for exemptions in certain situations characterised by a high amount of (renewable) electricity available in the grid. The DA will be applicable for the production of RFNBOs both in and outside the EU. For more information, see our blog post.

EU: Regulation on REPowerEU chapters came into force

UK: National Grid has opened registration for CfDs for the fifth allocation round

Global: NZAOA publishes third edition of its Targets Setting Protocol

Global: Latest climate and ESG litigation

In our ESG Legal Outlook 2023, we predicted that greenwashing claims and climate/ESG litigation would continue to be a key risk this year. The year has barely started and we have already seen the launch of several high-profile actions, some of which have been described as “world firsts”:

• Three NGOs have commenced legal action in the French courts against a European bank alleging that the banks’ continued financing of fossil fuels despite its public climate commitments is contrary to the French duty of vigilance law (see NGO briefing);
• Two NGOs have commenced legal action in the French courts against the same European bank under the French duty of vigilance law, alleging that the bank has provided financial services without adequate due diligence of corporations engaged in deforestation, forced labour and indigenous rights violations (see NGOs press release);
• ClientEarth has commenced legal action in the French courts against a global food company, also under the French duty of vigilance law, over the company’s approach to plastics (see ClientEarth press release);
• ClientEarth has commenced a derivative action in the UK courts against the directors of an energy company alleging that the directors have breached their legal duties under the Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement (see ClientEarth press release); and
• ClientEarth is seeking judicial review in the UK courts of the Financial Conduct Authority (FCA) in respect of alleged inadequacies of climate disclosures in an energy company’s IPO prospectus (see ClientEarth press release).

The French courts have also handed down their first decision under the French duty of vigilance law, in which a number of claims lodged by six NGOs against TotalEnergies in relation to oil projects in Uganda and Tanzania were dismissed on procedural grounds (see our blog post).

For more information on these actions and other ESG litigation, sign up for the Linklaters ESG Disputes Bulletin here.

Global: Other recent greenwashing developments

In related developments:

• The UK is expected to publish, very soon, a Digital Markets, Competition and Consumer Bill which would (among other things) give the Competition and Markets Authority (CMA) the power to impose financial penalties of up to 10% of global turnover for breaches of consumer law (see our blog post).
• The UK Committee of Advertising Practice (CAP) and the Broadcast Committee of Advertising Practice (BCAP) have published updated advertising guidance, which includes guidance on the use of terms such as “carbon neutral”, “net zero” and similar claims.
• In Asia, an Australian climate NGO (Market Forces) has lodged a complaint with the Singapore Exchange over a Japanese power company’s alleged failure to fully disclose climate and other risks associated with a US$300 million bond issued last year (see Reuters article and Market Forces press release).
• The Australian Securities & Investments Commission (ASIC) has launched its first court action against greenwashing, accusing a pension fund of misleading investors in the marketing of some of its sustainable products (see ASIC press release).

UK: CMA publishes draft guidance on environmental sustainability agreements

The Competition and Markets Authority (CMA) published its long-awaited Draft Guidance on Environmental Sustainability Agreements on 28 February. The consultation closes on 11 April 2023. The draft guidance is intended to provide more certainty on antitrust risk for businesses who enter into agreements aimed at achieving environmental goals and reflects calls by businesses and practitioners for more clarity amid concerns that legal uncertainty could chill legitimate efforts to work together to combat climate change.

The CMA has also indicated that it will not:

• take enforcement action against agreements that clearly correspond to examples in, and are consistent with the principles set out in the Guidance; or 
• issue fines against parties that implement agreements discussed informally with the CMA in advance, where the CMA’s competition concerns (if any) were addressed by the parties (provided that the parties did not withhold any relevant information from the CMA during its assessment phase which would have made a material difference to the outcome).

For more information, see our blog post.

EU: Pay Transparency Directive

The Pay Transparency Directive, which was approved by the Council on 15 December 2022, is just a few steps away from being formally voted upon by the European Parliament (expected in March 2023). The Directive introduces a framework of onerous obligations on employers requiring them to prepare gender pay gap reports, be interrogated on those reports and be subject to compulsory pay assessments where the reports reveal pay disparities of 5% or more. It also requires employers to be more transparent and objective in their hiring and salary determination processes. For more information, see our client briefing.

UK: FTSE Women Leaders Review

The FTSE Women Leaders Review reports annually on the percentage of women in leadership roles across the UK’s largest companies. Its target is a minimum of 40% representation of women on FTSE 350 Boards and leadership teams by the end of 2025. Its most recent report published on 28 February 2023 confirmed that overall women’s representation on FTSE 350 boards now stands at 40.2% - its highest ever level and up from just 9.5% in 2011. The UK now ranks second place internationally for women’s representation on boards. However, progress in representation in the top roles has been slower with only 21 female FTSE 350 chief executives (up from 18 the previous year). For the first time this year, the top 50 private companies were also in scope. Women’s representation on the boards of private companies stood at 31.8%. One of the key recommendations from the FTSE Women Leaders Review is to now focus on increasing female appointments to the most senior board and leadership roles.

Federal ESG developments

In February 2023, the U.S. Commodity Futures Trading Commission (CFTC) Commissioner gave a keynote speech stating that the CFTC must enhance its ability to identify and monitor the physical, financial, systemic and transition risks associated with climate events that impact markets and market participants. The Commissioner announced three new proposals: (i) the promotion of market integrity by increasing enforcement resources and expertise to combat greenwashing and other forms of fraud; (ii) the promotion of market resilience to climate-related risk by monitoring climate-related financial risk to commodities and derivative markets and working with intermediaries to understand how they are managing climate risk; and (iii) the promotion of responsible innovation in climate/sustainability products by working with exchanges and market participants to ensure the integrity of derivative markets. 

Also in February 2023, the Chairman of the U.S. House Committee on Financial Services announced the formation of a Republican Working Group, created with the goal of combating ESG proposal efforts and perceived regulatory overreach. The formation of the working group appears to be, in part, a response to recently announced proposed rules by the U.S. Securities and Exchange Commission (SEC) on climate and other ESG disclosures. The group stated it plans to examine ways to “rein in the SEC’s regulatory overreach,” as well as reinforce the materiality standard for disclosure requirements and hold market participants who use the proxy process to implement ESG measures accountable. For more information on the SEC’s proposed rules, see our blog post.

ESG Outlook 2023: key global themes webinar – Access the recording

Sustainable Finance Outlook 2023 webinar – Access the recording

Asset Management Spotlight: Financial Regulation Outlook 2023 webinar – Access the recording

Investors call for Say on Climate votes at 2023 UK AGMs - Access our materials

Litigation risk for financial services firms – what 2023 holds in store - Access our materials