ESG Newsletter – April 2024

Welcome to the latest edition of the Linklaters global ESG Newsletter. This issue covers key developments from March 2024 - in the UK, EU, US, Asia and globally - on the full range of ESG topics.

  • Human Rights & Supply Chain Due Diligence
  • Greenwashing
  • Sustainable Finance
  • Disclosure & Reporting
  • Climate Change, Biodiversity and Energy
  • Governance and Stewardship
  • DEI & Employment 
  • USA
  • Asia
  • In case you missed it

Human Rights & Supply Chain Due Diligence

EU: Council endorses revised version of CSDDD

On 15 March 2024, the Council endorsed a revised version of the proposal for a Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). Significant concessions had to be made in order to win the required majority of EU Member States, including changes to the scope of the Directive. The thresholds for application of the CSDDD have been increased to ensure that smaller and medium companies do not directly fall under its scope, which has been one of the most critical aspects for some Member States. Originally, the CSDDD was supposed to apply to EU companies with 500 employees and worldwide turnover of more than EUR 150 million. The thresholds have now been increased to 1,000 employees and EUR 450 million turnover. On 19 March, the Legal Affairs Committee of the European Parliament approved the watered down version of the CS3D that was agreed by the Council (see EP Press Release) but the text now needs to be approved by the Parliament’s plenary on 24 April. For more information, see our blog post and FAQs on the changes made to the CSDDD by the council

EU: Parliament and Council reach political agreement on Forced Labour Ban Regulation

On 5 March 2024, the European Parliament and the Council reached political agreement on a new Regulation prohibiting products made with forced labour on the Union market (the Forced Labour Ban Regulation). The new Regulation will prohibit all economic operators from placing and making available on the EU market, or exporting from the EU market, products made with forced labour. The ban on products made with forced labour will have a far-reaching scope of application, as it will apply to: (i) all products; (ii) made in whole or in part with forced labour; and (iii) across all sectors irrespective of the provenance of the goods, including those made within the EU. The political agreement still needs to be formally adopted by the Parliament and the Council before it can be published in the Official Journal of the EU and become law. For more information, see our blog post


EU: Empowering Consumers for the Green Transition Directive becomes law

The new EU Directive on Empowering Consumers for the Green Transition was published in the Official Journal of the EU on 6 March 2024 and Member States need to transpose the Directive into national law by 27 March 2026, with the new rules applying 6 months after that. The Directive aims to improve consumer information on product durability, as well as ban greenwashing and other unfair commercial practices by amending the Unfair Commercial Practices Directive and the Consumer Rights Directive to address a number of marketing practices related to greenwashing and the early obsolescence of goods. In particular, the Directive bans the use of generic environmental claims unless they are properly substantiated by demonstrating recognised excellent environmental performance in accordance with EU law, and bans claims that a product has a neutral, reduced or positive impact on the environment (e.g. “carbon neutral” or carbon positive”) if the claim is based on offsetting of greenhouse gas emissions. Such claims should only be allowed when they are based on the actual lifecycle impact of the product in question, and not based on the offsetting of greenhouse gas emissions outside the product’s value chain. For more information, see our client briefing

EU: Parliament adopts its negotiating position on the Green Claims Directive

On 12 March 2024, the European Parliament adopted its negotiating position on the proposed Directive on the Substantiation and Communication of Environmental Claims, commonly known as the Green Claims Directive. The Directive aims to combat greenwashing by establishing minimum criteria that companies must meet when making claims to EU consumers about the environmental benefits and performance of their products or services. It also sets minimum criteria for environmental labelling schemes. The Parliament has proposed some changes to the draft Directive, including clarification of its application to online trading, delay of the start of its application and further details on the use of carbon credits in climate-related claims. However, the Council has not yet adopted its own negotiating position so the negotiations (trilogues) cannot start yet. The draft Green Claims Directive will now be followed up by the Council and the new Parliament after the EU elections that will take place in June 2024. For more information, see our blog post

UK: CMA sets out green compliance standard for environmental claims in fashion sector

On 27 March 2024, the Competition and Markets Authority (CMA) published legally binding undertakings agreed with ASOS, Boohoo and Asda (George) in relation to their green claims, alongside an open letter to the fashion retailer sector on the use of environmental claims. In the undertakings, each of the companies have agreed to modify the display, description, and promotion of their green credentials, ensuring that green claims are accurate and not misleading. The open letter published alongside the undertakings outlines general principles which firms should bear in mind to ensure that environmental claims are not misleading. The open letter also warns that the Digital Markets, Competition and Consumers Bill (DMCC), which is currently passing through the UK Parliament and is expected to be in force by the end of 2024, will give the CMA the power to fine businesses up to 10% of global turnover for infringements of consumer protection law, including in respect of misleading green claims. Although the undertakings and open letter are directed at the fashion sector, much of what they say is equally applicable to other sectors and serve as a helpful reminder of how to apply the basic principles in the CMA’s Green Claims Code. For more information, see our blog post


Sustainable Finance

Global: Guide to application of Sustainability Linked Loan Principles in fund finance

On 5 March 2024, the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA), the Loan Syndications and Trading Association (LSTA) and the Fund Finance Association jointly published a Guide to the Application of the Sustainability Linked Loan Principles in Fund Finance. The guide aims to provide practical guidance on how the Sustainability-Linked Loan Principles (SLLP) apply in fund finance transactions, by identifying challenges and considerations that may arise in a fund finance context and considering how the SLLP can be best used in the fund finance market in a way that is consistent with the overarching goals of the SLLP. For more information, see our client briefing

EU: ESMA consults on rules for external reviewers of European Green Bonds

On 26 March 2024, the European Securities and Markets Authority (ESMA) launched a consultation on technical standards relating to the registration and supervision of external reviewers interested in becoming external reviewers of European Green Bonds. The proposals aim to clarify the criteria used for assessing an application for registration by an external reviewer and standardise these registration requirements. The consultation closes on 14 June 2024. ESMA will then consider the feedback received and submit the draft technical standards to the European Commission by 21 December 2024. For more information, see our blog post. 

EU Banking Package: Redlines of CRR and CRD

The EU Banking Package is on the brink of completion, signalling a significant step forward in fortifying the robustness of EU banks. The final adoption of the CRD6 and CRR3 is expected at the end of April 2024 with most amendments applying in 2025. This comprehensive legislative package, while largely focused on the full adoption of Basel III rules, also paves the way for the banking sector’s contribution to achieving climate neutrality. It introduces, for the first time, clear definitions of ESG risks within financial supervisory laws, and it will require financial institutions to establish climate transition plans. In a broader context, this package will ensure that ESG considerations become an integral part of banking operations by amending the requirements for business strategies, processes and governance, for the management body and remuneration requirements respectively. To help clients navigate the upcoming changes, we have updated our redlines of the CRR and CRD to display the amendments made by CRR3 and CRD6 in the form of the compromise texts published by the Council in December 2023. The CRR redline also includes the recitals of the original CRR as well as those of the amending acts highlighted in the text. See the CRR redline and the CRD redline which are available on the Linklaters Client Knowledge Portal.

UK: FCA "Dear CEO" letter to Asset Managers and alternatives portfolios

On 1 March 2024, the Financial Conduct Authority (FCA) published a “Dear CEO” letter to asset managers and alternative firms with an interim update on its supervisory strategy, setting out the FCA’s areas of focus for this sector over the next year. The FCA has set out its expectations for firms and any next steps for the FCA, including in the context of ESG/sustainability. A key focus of the FCA is establishing firms' preparedness to handle the considerable amount of current and planned regulatory change impacting this sector. In particular, the FCA has said that it “will be concerned if firms make exaggerated or misleading sustainability-related claims, including about their investment products”. For more information, see our blog post.

UK: Transition Finance Market Review launches call for evidence to explore how the UK can become a global hub for transition finance

On 14 March 2024, the Transition Finance Market Review (TFMR) launched a call for evidence seeking views on how the UK can leverage its existing strengths as a leading financial and insurance market, legal centre and significant exporter of professional services to become a global hub for funding the global net zero transition. The call for evidence closes on 25 April and the TFMR will report back to the UK government this Summer. The TFMR is an independent market-led review commissioned by the Treasury and the Department for Energy Security and Net Zero. The Review is led by Vanessa Havard-Williams, former co-head of Linklaters’ sustainability practice. Although this review has been commissioned by the UK government, the intention is to look at how the UK financial market can support organisations globally to transition to net zero. The Review proposes to take a broad view of what constitutes transition finance, focusing on how financing and financial services of any type, across all relevant asset classes, can be enabled to support a “credible net zero transition” (meaning an entity or organisation’s strategy or plan that is consistent with global climate and nature goals, including the Paris Agreement). It will focus in particular on what financial products and services are required to support hard-to-abate and high-emitting sectors (such as energy, real estate, transportation, cement, and mining) and the barriers to scaling transition finance in these areas. For more information, see our blog post. 

Disclosure & Reporting

EU: German government consults on CSRD implementation law

On 22 March 2024, the German Federal Ministry of Justice (BMJ) published for consultation a draft law for the implementation of the Corporate Sustainability Reporting Directive (CSRD). The BMJ confirmed that the draft law implements the CSRD on a "one-to-one" basis without any additional reporting requirements. The following aspects of the draft law are particularly noteworthy:

  • The draft law contains a transitional provision on the appointment of the auditor of the sustainability report for financial years beginning before 1 January 2025.
  • The German legislator has not made use of the option in the Accounting Directive to allow an independent assurance services provider to audit the sustainability report.
  • To avoid duplicate reporting obligations, companies that fall within the scope of the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG) can fulfil their reporting obligations under the LkSG by submitting a CSRD report.

The consultation closes on 19 April 2024. The CSRD must be transposed into national law by 6 July 2024.

UK: Transition Plan Taskforce publishes final sector-specific guidance

On 9 April 2024, the UK Transition Plan Taskforce (TPT) published the final versions of its sector-specific guidance, covering the following sectors: banks; asset owners; asset managers; electric utilities & power generators; food & beverage; metals & mining; and oil & gas. The package of final materials also includes: a sector summary, which covers 30 financial and real economy sectors not already covered by the detailed sectoral guidance mentioned above; guidance on the how to undertake a transition planning cycle; and a paper on the opportunities and challenges of transition plans in emerging markets and developing economies. The package of materials complements the TPT Disclosure Framework which was published in October 2023 and provides a set of good practice recommendations aimed at facilitating high-quality, consistent, and comparable transition plan disclosures. The package of TPT materials provide a roadmap for organisations in the private sector to formulate and disclose credible and robust climate transition plans. This will be relevant to the private sector in the UK and elsewhere across the globe. For more information, see our blog post. 

UK: IA report on lessons from Year 1 TCFD reporting by asset managers

In March 2024, the Investment Association (IA) published a report focusing on key themes and challenges that have emerged from the first round of asset manager reporting in line with the TCFD recommendations, which involved disclosures at both entity and product level. The report is intended to provide ideas for firms to take away when producing their 2024 reports and also highlights areas where further FCA guidance would be useful. For more information, see our blog post. 

UK: Corporate reporting 2023/24 - recent developments and guidance for large unlisted companies and LLPs

We have published a new guide to help large unlisted UK companies and LLPs prepare their 2023/24 annual reports. It outlines the new requirement for large companies and LLPs to make climate-related financial disclosures in their annual reports this year and highlights key points from the Financial Reporting Council’s annual review of corporate reporting and its thematic review of reporting by large UK private companies. The briefing also notes possible future developments including UK proposals to streamline non-financial reporting, and new EU rules for sustainability disclosures which may affect non-EU entities. See also our annual reporting guide for UK listed companies.  

Climate Change, Biodiversity & Energy

Global: PRI publishes biodiversity guidance for investors

The UN’s Principles for Responsible Investment (PRI) has published guidance for investors on incorporating biodiversity into existing operations and developing policies – see An Introduction to Responsible Investment: Biodiversity for Asset Owners. The guidance, which is intended to be a “starter guide”, explains the importance and relevance of biodiversity in the context of the investment process and outlines how asset owners might incorporate the issue into responsible investment policies, investment processes and stewardship practices. For more information on biodiversity and nature issues for businesses, see the Linklaters Biodiversity & Nature materials.

EU: European Parliament adopts revised Energy Performance of Buildings Directive

On 12 March 2024, the European Parliament formally adopted a revision of the Energy Performance of Buildings Directive (EPBD) (see EP press release). The revised Directive now needs to be formally endorsed by the Council before it can be published in the Official Journal of the EU and become law. The revised EPBD aims to progressively reduce greenhouse gas emissions and energy consumption in the EU building sector and make it climate neutral by 2050. In particular, all new buildings should be zero-emission as of 2030 and new buildings occupied or owned by public authorities should be zero-emission as of 2028. For residential buildings, Member States will have to put in place measures to ensure a reduction in the average primary energy used of at least 16% by 2030 and at least 20 to 22% by 2035. Member States will have to renovate the 16% worst-performing non-residential buildings by 2030 and, by 2033, the worst-performing 26% through minimum energy performance requirements. If technically and economically suitable, Member States would have to deploy solar installations progressively in public and non-residential buildings, depending on their size, and in all new residential buildings by 2030. Member States will have to outline how they will adopt measures to decarbonise heating systems, with a view to phasing out fossil fuels in heating and cooling by 2040. For more information on the revised EPBD, see our blog post.

EU: No delays to application of EU Deforestation Regulation

According to various press reports, the EU Environment Commissioner, Virginijus Sinkevicius, has confirmed that there will be no delay to the entry into force of the new EU Deforestation Regulation, which is due to apply from 30 December 2024. However, as the Commission’s work to classify countries into low, standard or high risk is still ongoing, when the Regulation comes into force, according to EU officials, every country will by default be classified as standard risk in the absence of a finalised risk classification (see FT article (subscription required) and Reuters article). Around 20 of the EU’s 27 Member States had asked the Commission for a temporary suspension and revision of the Regulation, due to concerns over its impact on EU farmers (see Reuters article). For more information on the EU Deforestation Regulation, see our previous blog post.

EU: Parliament adopts negotiating position on changes to Waste Framework Directive to address textile and food waste

On 13 March 2024, the European Parliament adopted its negotiating position on a proposal for a Directive amending the Waste Framework Directive 2008 (see EP press release). The proposal focuses on reducing the environmental and climate impacts of food waste and textiles waste through targeted amendments to the Waste Framework Directive. On textiles waste, the proposal would introduce an extended producer responsibility scheme for household textiles, clothing and footwear, which would make producers of relevant textile products responsible for the costs of collection and subsequent waste management of used and waste textiles. On food waste, the Parliament is proposing higher binding waste reduction targets to be met at national level by 31 December 2030 - at least 20% in food processing and manufacturing (instead of 10% proposed by the Commission) and 40% per capita in retail, restaurants, food services and households (instead of 30%). The Parliament also wants the Commission to evaluate if higher targets for 2035 (at least 30% and 50% respectively) should be introduced. Trialogue negotiations between the Parliament and Council have not yet started, and so this file will need to be followed up by the new Parliament after the European elections in June.

EU: Commission publishes framework for assessing and managing biodiversity risks

On 22 March 2024, the European Commission published a study for a methodological framework and assessment of potential financial risks associated with biodiversity loss and ecosystem degradation. The study provides a methodology for financial institutions to assess the financial impacts of biodiversity and nature-related risks. The main steps and concepts used in this framework are intended to be aligned with the three existing methodological guidance related to biodiversity and nature-related risk assessments in the financial sector, including the Network for Greening the Financial System (NGFS) conceptual framework, the OECD supervisory framework and the Taskforce on Nature-related Financial Disclosures (TNFD) approach (for more information on TNFD, see our previous blog post). The Commission’s proposed framework provides financial institutions with an additional layer of detail on practical steps to implement a biodiversity and nature- risk assessment, including the approach to scenario analysis and collating data. The study covers the key definitions and steps in determining risk drivers, types, transmission channels, and exposure assessments. The Commission noted, in particular, that in the EU a wide array of sectors are heavily dependent on nature and thus exposed to associated risks in one form or another: agriculture, real estate and construction, and the healthcare sector. The framework offers practical considerations for risk identification, forward-looking scenarios, and mitigation actions. It is based on a scalable approach in order to make the framework adaptable to the needs and capacities of financial institutions. The framework aims to encourage financial institutions to integrate nature-related risks into their sustainability frameworks and decision-making processes. This study highlights the increasing focus being given by the European Commission on the role of financial institutions in understanding and managing nature-related risks.

UK:  Government consults on proposals for a UK CBAM

On 21 March 2024, the UK government published a consultation on proposals for a UK carbon border adjustment mechanism (CBAM). The consultation sets out proposals for the design, implementation and administration of the mechanism. It seeks views on (among other things):   which sectors and goods will be in scope of the CBAM; how the liability for the CBAM will be calculated; and administration, payment and compliance with the CBAM. The consultation confirms that the CBAM will apply to imports covered by a specified list of commodity codes in the following sectors: aluminium, cement, ceramics, fertiliser, glass, hydrogen, and iron and steel. The consultation closes on 13 June 2024. The government had already confirmed in the Spring Budget that the UK CBAM will apply from 1 January 2027.

UK: Legal opinion on directors’ duties to consider company’s nature-related risks

On 13 March 2024, the Commonwealth Climate and Law Initiative (CCLI) and Pollination Law published a legal opinion by a team of barristers, which analyses the relevance of nature-related risks to company directors' duties and concludes that directors need to consider their company's nature-related risks as part of their legal duties under UK corporate law (see CCLI press release). The opinion examines directors' duties to promote the success of the company and to act with reasonable care, skill and diligence under sections 172 and 174 of the Companies Act 2006. It concludes that failure to identify and assess latent financial risks arising from a company's unaddressed nature-related impacts and dependencies could expose directors to increased shareholder scrutiny and legal consequences under the Companies Act. It advises that directors can document active consideration of these risks to protect from litigation and that directors could potentially breach their duties by failing to consider or act on relevant nature-related risks, which could lead to personal liability.


Governance & Stewardship

UK: Updated guidance on how to vote at AGMs of UK-listed companies

Updated guidance on how to vote at annual general meetings (AGMs) of UK-listed companies has been made available by a number of prominent proxy advisors, including Glass Lewis, Institutional Shareholder Services (ISS), and the UK's Pension and Lifetime Savings Association (PLSA). Key themes emerging from the three updated sets of guidance include a focus on cybersecurity and climate-related risks, and the need to take account of biodiversity and to promote diversity. For more information on the updated guidance, see our client briefing. See also our Guide for UK-listed companies: preparing for 2024 AGM season.

UK: Investor stewardship and new PLSA guidance for pension funds

We have prepared a round-up of recent developments relevant to investor stewardship and pension trustees in the UK, including:

  • updated Stewardship and Voting Guidelines from the Pension and Lifetime Savings Association (PLSA), which includes new commentary on climate change and sustainability, biodiversity and the importance of taking account of social factors;
  • results of recent discussions by the UK Asset Owner Roundtable;
  • the Financial Markets Law Committee’s (FMLC) paper on fiduciary duties;
  • recent observations and recommendations from the PLSA and The Pensions Regulator (TPR) on climate change, sustainability and social factors.

UK: FRC sets out details and timeline for review of Stewardship Code

The Financial Reporting Council (FRC) has published a policy update in relation to its review of the UK Stewardship Code. The FRC will seek views from all stakeholders on whether the Code is being used by asset managers, asset owners and other signatories to the Code in a way that drives better stewardship outcomes from engagement with issuers across all asset classes. The review will be undertaken in three phases and the revised Code is expected to be published in early 2025. For more information, see our blog post.

DEI & Employment

UK: Gender pay gap reporting

4 April 2024 marked the seventh year employers with 250 or more employees have been required to report on their gender pay gap. This is the difference between the average pay of men and women in an organisation. The scope of the Gender Pay Gap Regulations has remained unchanged since the rules were first introduced in 2017 despite a review of the Regulations having been expected in 2022. Initial analysis of the reports published this year (see Deloitte summary) indicate that little progress has been made since 2017, with the median pay gap now at 9.1% (a marginal decline from 9.4% seven years ago).


Greenwashing litigation 

Greenwashing litigation claims continue to rise in the U.S. On 28 February 2024, the state of New York sued a Brazilian food company in New York state court, alleging that the company failed to implement agricultural practices to reduce its greenhouse gas (GHG) emissions despite public representations of its commitment to be “net zero by 2040.” The complaint alleges that the defendant “repeatedly and persistently made unsubstantiated and misleading environmental marketing claims to New York consumers, even after the [National Advertising Division] and the Review Board found such claims to be unsubstantiated and recommended that the [company] stop making them.” The plaintiff seeks injunctive relief, disgorgement, and civil penalties.

On 11 March 2024, a South Carolina federal court granted final approval of a class action settlement to resolve 2021 claims from the city of Charleston’s public water utility  that several retailers sold “flushable” wipes that do not perform as advertised, leading to clogs and damage to county sewers and consumer property. The complaint argues that the “clogged sewer lines can also lead to other problems, such as causing spills to flow onto public and private property as well as into lakes, rivers, and oceans, where they can harm public health and the environment.” Under the terms of the settlement, the defendants must, inter alia, “(1) meet certain flushability standards, (2) submit to periodic independent testing, and (3) modifications to the packaging of non-flushable wipes.”

Also in March 2024, Bucks County, Pennsylvania filed a lawsuit in Pennsylvania state court against various oil and gas companies, alleging climate change related harms. The complaint alleges that the companies engaged in a climate deception campaign to mislead the public about the damaging nature of their fossil fuel products. It further claims that the campaign was intentionally orchestrated to inflate the market for fossil fuels, resulting in increased greenhouse gas emissions and devastating climate change impacts to Bucks County.

States also continue to enact and propose legislation to target greenwashing and mandate climate related disclosures. California Assembly Bill 1305, which was initially passed in October 2023, came into effect starting on 1 January 2024. The bill requires specific in depth public disclosures related to GHG emissions for any entity that is: (i) marketing or selling voluntary carbon offsets;  or (ii) purchasing or using voluntary carbon offsets and also making claims regarding the achievement of net zero emissions. Additionally, companies that make emissions marketing claims within the state will be required to disclose information regarding how its emissions claim was determined to be accurate and how the progress will be measured. On 27 February 2024, New York S.B. 897, referred to as “The Climate Corporate Data Accountability Act” (CCDAA), was reported and committed to the New York State Senate Finance Committee. If passed, the CCDAA would require certain business entities operating in the state to annually report all Scope 1, Scope 2, and Scope 3 emissions to the New York Department of Environmental Conservation.

SEC climate disclosure rule and related litigation

On 6 March 2024, the U.S. Securities and Exchange Commission (SEC) adopted its long-anticipated climate disclosure rules that will require SEC registrants, including private issuers, to make certain climate-related disclosures, including information about GHG emissions, weather risks, and financial impacts of climate events.  For more information about the rules, see our client briefing.

Almost immediately after the rules were announced, several states, companies, and NGOs filed lawsuits challenging the rules on various grounds. For instance, the same day the final rules were announced, a coalition of 11 states filed a petition for review in the Eleventh Circuit, arguing that the rules exceed the SEC’s statutory authority and are otherwise arbitrary, capricious, and not in accordance with law. Similar petitions were filed days later by other states and corporations in the Fifth Circuit and the Eight Circuit.  Environmental NGOs also took issue with the final rules.  Two NGOs sued the SEC in the Second Circuit and in the District of Columbia Circuit, arguing that the final requirements yield “much less information about companies’ exposure to climate-based risks” than the original proposed rules would have, leaving investors without crucial information to manage their investments.  On 21 March 2024, the United States Judicial Panel on Multidistrict Litigation consolidated the pending actions in the D.C., Second, Fifth, Eighth, and Eleventh Circuit, ordering the case to proceed in the Eighth Circuit and lifting the stay on the rules ordered by the Fifth Circuit.  On 5 April 2024, the SEC voluntarily stayed the rules pending the Eighth Circuit’s review.  For more information on the SEC’s stay, see our blog post.

The energy and fracking company that was party to one of the lawsuits in the Fifth Circuit also filed a separate lawsuit in the Northern District of Texas “out of an abundance of caution” if the Eighth Circuit determines it does not have jurisdiction over the challenges, alleging that the new rules unlawfully compelled corporations to make burdensome disclosures about GHG emissions.  The complaint alleges, inter alia, that the rules violate the Administrative Procedures Act and the First Amendment of the U.S. Constitution. 

Shareholder proposal disputes

 The SEC publicised two decision letters on the exclusions of ESG-related shareholder proposals.  On 1 March 2024, the SEC sent a response letter to a major parcel shipping company, stating that the company was unable to exclude a shareholder proposal requesting that it produce a report on risks arising from carbon-reducing commitments from its annual meeting of shareholders.  The company argued in its letter to the SEC in December 2023 that the proposal should be properly excluded because its proponent failed to provide the requisite proof of continuous stock ownership as requested by the company.  The SEC found this argument unconvincing, deciding that the proponent had supplied "clear documentary support" of their eligibility to submit the proposal, and that the requirements the company was trying to impose were not supported by a plain reading of the relevant statute, Rule 14a-8(b)(2)(ii). 

However, other companies had greater success in excluding certain ESG proposals under Rule 14a-8(i)(7), which permits the exclusion of a proposal if it "relates to the Company’s ordinary business operations.”  On 8 March 2024, the SEC sent a letter to a major U.S. bank, allowing it to exclude a shareholder proposal requesting that it "prepare a report on the feasibility of offering customized proxy voting preferences for [the bank’s] clients that seek to maximize portfolio-wide returns by pursuing voting strategies designed to push certain companies to address social and environmental externalities" from its annual shareholders meeting. The SEC found that there was "some basis" for the bank’s view that this proposal could be excluded under Rule 14a-8(i)(7) and concluded that it "will not recommend enforcement action to the Commission if [the bank] omits the Proposal from its proxy materials."  Similar decisions were reached on proposals related to net zero targets in letters sent on 4 March 2024 and 6 March 2024 to two other financial services companies.  

U.S. Environmental Protection Agency regulatory updates and disputes

The U.S. Environmental Protection Agency (EPA) finalised several noteworthy rules this month.  On 14 March 2024, the EPA announced new Gasoline Distribution National Emission Standards for Hazardous Air Pollutants (Gas NESHAP), which aim to reduce toxic air pollution by requiring the adoption of new practices and control technologies, including more stringent standards for gasoline loading racks at area sources and gasoline cargo tank vapor tightness, LEL monitoring to ensure the effectiveness of internal floating roofs, and instrument monitoring for equipment leaks at gasoline distribution facilities.  The EPA expects that reducing these emissions will result in cost savings for businesses and reduce air toxics by 2,220 tons a year and volatile organic compounds by 45,500 tons per year. 

On 20 March 2024, the EPA announced Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles, which apply to passenger cars, light-duty trucks, and medium-duty vehicles over model years 2027 to 2032.  The program includes more stringent emission standards for GHGs and criteria pollutants, changes to certain optional credit programs, durability provisions for light-duty and medium-duty electrified vehicle batteries, and warranty provisions for both electrified vehicles and diesel engine-equipped vehicles. The EPA predicts that the new standards will significantly reduce emissions of greenhouse gases, hydrocarbons, nitrogen oxides and particulate matter from these vehicles. 

The EPA also faced several legal challenges this month. On 6 March 2024, a group of 24 states and 8 industry groups filed a petition before the U.S. Court of Appeals for the District of Columbia Circuit challenging the EPA's Reconsideration of the National Ambient Air Quality Standards for Particulate Matter.  On 8 March 2024, the State of Texas, along with the Railroad Commission of Texas and the Texas Commission on Environmental Quality, filed a petition in the U.S. Court of Appeals for the D.C. Circuit requesting review of the EPA’s Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review. Also in March 2024, the U.S. Court of Appeals for the D.C. Circuit ruled partially in favour of the EPA in a lawsuit brought by 16 states regarding the EPA’s overview of state implementation plans (SIPs) on air pollutants.  The court agreed with the EPA that it has the authority to require states to revise their SIPs if there are “overbroad enforcement discretion provisions” or “affirmative defenses against monetary damages.”  However, the decision also noted that SIPs could not be rejected by the EPA for the inclusion of automatic exemptions, director's discretion provisions, and affirmative defenses that are functionally exemptions.

Executive actions 

In March 2024, the Biden Administration published its 2025 Spending Proposal, which included various investments focused on climate change mitigation. The proposed budget provides funding for: (i) the development of new climate-resilient affordable housing; (ii) the expansion of the American Climate Corps (an initiative that provides job training and service opportunities for young people to work on climate change project); (iii) climate adaptation and resilience across the federal government in order to address the increasing severity of flood, wildfire, drought, and other extreme weather events fuelled by climate change, including funding to support the wildland firefighting workforce through permanent and comprehensive pay reform; and (iv) commitments to international climate finance and the Green Climate Fund (a fund established by the United Nations to assist developing countries in adaptation and mitigation practices to counter climate change).

Also in March 2024, the Joint Office of Energy and Transportation and U.S. Department of Energy (DOE), in collaboration with the U.S. Department of Transportation and the EPA, developed the  National Zero-Emission Freight Corridor Strategy.  The initiative aims to align public policy and public and private investments by prioritising infrastructure deployment along the National Freight Network, as well as complementary roadways, through a progression of phases to accelerate the adoption of commercial zero-emission vehicles.  Later in the month, the DOE also published a final rule that revises the method by which it calculates the petroleum-equivalency estimate for electric vehicles.  The update in calculation will phase out a multiplier that grossly inflated electric vehicles’ mile per gallon comparison, providing further incentive for automakers to transition to electric vehicles.


Singapore requires mandatory climate reporting aligned with the ISSB for listed and large non-listed companies

On 28 February 2024, the Accounting and Corporate Regulatory Authority of Singapore (ACRA) and the Singapore Exchange Regulation (SGX Regco) provided details on mandatory climate reporting that will be implemented for all listed issuers and large non-listed companies in Singapore, following the public consultation held in 2023. From FY2025, all listed issuers (including those incorporated overseas, business trusts and real estate investment trusts) must report and file annual climate-related disclosures (CRDs), using requirements aligned with the International Sustainability Standards Board (ISSB) standards. From FY2027, large non-listed companies must provide CRDs, which will be filed with ACRA. A large non-listed company is defined as one with annual revenue of at least S$1 billion and total assets of at least S$500 million for two financial years immediately preceding the current financial year. ACRA will exempt large non-listed companies where its parent company is already making CRDs under certain circumstances. The Singapore government has also announced the launch of a new Sustainability Reporting Grant for large companies to cover a proportion of the costs of preparing the company’s first sustainability report. For more information, see our blog post.

Singapore Exchange Regulation issues consultation paper on sustainability reporting

On 7 March 2024, the Singapore Exchange Regulation (SGX RegCo) published a consultation paper on steps to be taken to incorporate the International Sustainability Standards Board (ISSB) standards into its sustainability reporting rules for climate-related disclosures for listed companies. This is in line with the recommendations announced on 28 February 2024 by the Accounting and Corporate Regulatory Authority and SGX RegCo as discussed above. The consultation paper proposes amendments to SGX-ST Listing Rules (Mainboard) and the SGX-ST Listing Rules (Catalist). The consultation closed on 5 April 2024. For more information, see our blog post.

ASEAN Taxonomy Board releases Version 3 of its Sustainable Finance Taxonomy

On 27 March 2024, an updated iteration of the ASEAN Taxonomy for Sustainable Finance (Version 3) was released by the ASEAN Taxonomy Board (ATB). As reported in the ATB’s press release, revisions made in the new iteration include new technical screening criteria (TSC). Having published TSC for electricity, gas, steam and air conditioning supply (energy) sector in the ASEAN Taxonomy (Version 2), the ASEAN Taxonomy (Version 3) introduces TSC for two more focus sectors, namely (i) transportation and storage and (ii) construction and real estate. The new focus sectors cover activities including construction and renovation of buildings, demolition and site reparation, and acquisition and ownership of buildings, as well as urban and freight transport, and infrastructure for land, water, and air transport, among others. Following this release, the ATB will conduct targeted consultations with key stakeholders and users of the ASEAN Taxonomy.

Philippines publishes Sustainable Finance Taxonomy Guidelines

On 14 February 2024, the Philippine Sustainable Finance Taxonomy Guidelines (the Taxonomy) was published. The Taxonomy was developed by the Financial Services Forum inter-agency group which includes the Bangko Sentral ng Pilipinas (BSP), the Securities and Exchange Commission (SEC), and the Insurance Commission (IC). This iteration of the Taxonomy focuses on the objectives of climate change mitigation and climate change adaptation, with a view to adding ecosystems and biodiversity and circular economy, as well as potential social objectives in future iterations. Other environmental and social factors are considered through additional screening based on the “do no significant harm” principle, and minimum social safeguards, appropriate to the Philippines context. The Taxonomy draws from the ASEAN Taxonomy (Version 2) adopting as a first phase a “principles-based” approach to determining whether an activity aligns with the Taxonomy. It adopts a traffic light approach for “transition” activities and includes a set of guiding questions and decision trees. It is intended that banks shall use the Taxonomy when extending credit, making investment decisions or designing sustainable financial products and services, among others. Banks are expected to apply the Taxonomy from 2025 and have been given until the end of December 2024 to familiarise themselves with applying the Taxonomy.

Thailand wraps up public consultation process for the draft Climate Change Bill

Following the issuance of the Climate Change Bill (CC Bill) in February 2024, Thailand’s Ministry of Natural Resources and Environment concluded the public consultation process for the CC Bill on 5 April 2024. A revised draft is expected in May 2024 and the Ministry is aiming to submit the revised draft to the National Climate Change Policy Committee and the cabinet for their respective consideration in June 2024. As an overview, the CC Bill has been developed by the Ministry and aims to establish a comprehensive framework to support Thailand’s climate change goals. Key elements of the CC Bill which are relevant to companies in the private sector are as follows: (i) the disclosure and reporting obligations, in that secondary legislations will be passed to identify companies that will be subject to such reporting requirements; (ii) the establishment of the Climate Change Fund and the rights of companies with legal obligations to undertake climate change activities to seek financial assistance in the form of loans from it; and (iii) the framework of Thailand’s carbon pricing instruments, namely emissions trading scheme (ETS), carbon tax and carbon credits, which will need to be further clarified and supplemented by secondary legislation which are aimed to be passed between 2026 - 2028. Interestingly, the CC Bill suggests that qualified voluntary carbon market (VCM) credits will be capable of being used to meet a portion of an in-scope company’s compliance obligation under the ETS - the pilot phase of which is currently expected to be launched in 2029, followed by two further phases up to 2040. The CC Bill is not expected to become law until the end of 2025 at the earliest, although even then, significant secondary legislation will need to be developed before it starts to affect businesses. The Ministry intends to further engage with stakeholders in respect of the secondary legislation to be enacted.

China releases industry guidance for green and low carbon transition

On 29 February 2024, the National Development and Reform Commission together with eight other ministries released the Guidance Catalogue for Green and Low-Carbon Transition Industry (2024 edition). For the green industries captured by the Guidance, policies will be issued to encourage, for example, their production, product circulation and consumption. Compared to the last version of the Guidance published in 2019, major revisions include re-categorising the green industries, expanding industry coverage and strengthening implementation of legal requirements. In particular, the Guidance brings under its scope the industries of greenhouse gas control, green and low-carbon transition of key industrial sectors, new pollutant treatment, etc.

Hong Kong SAR government issues vision statement on adoption of the ISSB standards

On 25 March 2024, Hong Kong’s Financial Services and the Treasury Bureau (FSTB) issued a vision statement outlining the Hong Kong SAR’s government and financial regulator’s commitment to developing a robust sustainability disclosure ecosystem in line with international standards (the Vision Statement). The Vision Statement sets out the goal for Hong Kong to be among the first jurisdictions to align its sustainability disclosure requirements with the International Sustainability Standards Board sustainability disclosure standards (ISSB Standards). It also gives an indication of several upcoming milestones. For further information, see our blog post.

Hong Kong Federation of Insurers launches insurance industry climate charter

On 29 February 2024, the Hong Kong Federation of Insurers (HKFI) and the HKFI Task Force on Green Insurance launched the first Insurance Industry Climate Charter. The Charter outlines a set of climate principles and commitments which signatories are expected to comply with. The Charter covers areas such as: business operations and governance; investments; claims management, products and underwriting; social engagement; and reporting and disclosure.

Hong Kong SAR launches Green Fintech Map

On 1 March 2024, the Green and Sustainable Finance Cross-Agency Steering Group, Cyberport and Invest Hong Kong launched the Prototype Hong Kong Green Fintech Map. This directory features over 50 Green Fintech firms operating in Hong Kong, offering solutions in: (i) ESG data and analytics; (ii) ESG disclosures and regulatory reporting; (iii) climate risk modelling and assessment; (iv) green digital finance and investments; and (v) carbon credit trading and analytics. The aim of the Green Fintech Map is to help companies and financial institutions better understand the availability and development stage of solutions in the Hong Kong green fintech landscape, as well as raise the profile of green fintech organisations in Hong Kong.


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