ESG Newsletter - February 2023
Welcome to the Linklaters ESG Newsletter. Each issue covers key developments in the UK, EU and globally on the full range of ESG topics. This issue covers developments from December 2022 and January 2023.
This month we cover:
Explore the key developments below
8 February – Sustainable Finance Outlook 2023
Read more and Register
23 February - ESG Outlook 2023: key global themes
Read more and Register
8 March - Latest developments in corporate governance, and what it means for businesses
Read more and Register
EU: Council finalises its negotiating position on CSDDD
The Council finalised its position on the Commission's draft of the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) in December 2022. One of the key changes made by the Council to the Commission's draft relates to financial undertakings. The Council has decided to leave it to individual Member States to decide whether they wish the regime to regulate the provision of financial services by financial undertakings. The European Parliament is expected to finalise its own negotiating position on the proposal in March so that the official trilogue negotiations can commence after that. For more information, see our blog post: EU Council reaches compromise on CSDDD.
EU: Political agreement reached on draft Deforestation Due Diligence Regulation
The European Parliament and Council have reached political agreement on a new Regulation aimed at minimising the risk of deforestation and forest degradation associated with products that are imported into or exported from the EU. One of the key changes made to the Commission’s original proposal is an extension of the regime to a wider list of commodities. The political agreement needs to be formally adopted before the Regulation can be published in the Official Journal of the EU. For more information, see our blog post: Political agreement reached on EU Deforestation Due Diligence Proposal.
Disclosure & Reporting
EU: CSRD published in Official Journal
The Corporate Sustainability Reporting Directive (CSRD) was published in the Official Journal of the EU on 16 December 2022 and Member States now have 18 months to implement the new rules into national law. The CSRD introduces new requirements for large companies and all companies listed on EU regulated markets, as well as some non-EU companies, to report on sustainability issues, including environmental matters, social and human rights and governance factors. It expands the existing rules under the Non-Financial Reporting Directive (NFRD). In-scope companies will need to report in accordance with the mandatory European Sustainable Reporting Standards (ESRS) that have been developed by the European Financial Reporting Advisory Group (EFRAG) and which the Commission plans to adopt in June 2023. Application of the CSRD will be phased in (for financial years starting on or after):
- 1 January 2024 for large public interest entities already subject to the NFRD;
- 1 January 2025 for organisations that are not presently subject to the NFRD but which fall within the CSRD’s enlarged scope;
- 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings;
- 1 January 2028 for non-EU companies.
Linklaters will be producing a more detailed summary of the CSRD shortly.
EU: Prudential disclosure of ESG risks
Commission Implementing Regulation (EU) 2022/2453, which amends the implementing technical standards (ITS) laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of ESG risks, was published in the Official Journal of the EU in December 2022 and entered into force on 8 January 2023.
The 2021 Implementing Regulation specifies disclosure formats and instructions for disclosures required under the Capital Requirements Regulation (CRR). Article 449a of the CRR requires large institutions with securities traded on a regulated market of any Member State to disclose prudential information on ESG risks, including quantitative information on physical risks and transition risks. Transitional provisions apply for some of the information, in particular where this is required to align with the timing of information that is also required under the EU Taxonomy Regulation.
The information to be disclosed is granular and includes information that large credit institutions are not currently otherwise required to disclose including in relation to scope 3 emissions (subject to transitional provisions unless this information is already available), the energy efficiency of loans collateralised by immovable property and exposures to top 20 carbon-intensive firms. The original proposal to also require, on a best effort’s basis, quantitative climate change mitigation information on entities which are not covered by the Non-Financial Reporting Directive (referred to as the “BTAR information”) has been retained but on the basis this “may” rather than “shall” be required to be disclosed.
In addition, the European Central Bank (ECB), when it outlined its work priorities for 2023-2025, warned banks in the EU to expect scrutiny of their climate transition planning. The ECB said it will study banks’ readiness to report in line with rules finalised last year by the European Banking Authority, to show how climate change may exacerbate other risks within institutions’ balance sheets, how institutions are mitigating those risks, and their ratios on exposures financing activities in the EU’s sustainability taxonomy.
Banks are due to make their first disclosures in line with the rules this year at the same time as they publish their financial statements or as soon as possible thereafter. They are required to report annually for the first year with a reference date of 31 December and then bi-annually thereafter.
UK: Overview of corporate governance and reporting requirements for UK companies
For an overview of key UK corporate governance and reporting developments over the last year, together with expected impacts and timings that UK companies will need to consider, including on climate change and other ESG issues, see our publications:
- FCA reminds companies of TCFD-aligned climate disclosure rules and sets out next steps in Primary Market Bulletin 42;
- Corporate Round-up: UK listed companies;
- UK corporate reporting 2022/23 - Recent developments and guidance for listed companies;
- UK corporate reporting 2022/23 - Recent developments and guidance for unlisted companies and LLPs.
Global: Latest developments on draft ISSB standards
The International Sustainability Standards Board (ISSB) is expected to publish the final version of the climate and general disclosures standards in June and will consult on a series of issues, including reporting on biodiversity, human capital and human rights, as well on the connectivity of financial reporting with sustainability reporting.
The ISSB has said it will allow omission of commercially sensitive information where it is not already public and when disclosing the information could “be expected to prejudice seriously” the economic benefits the company could otherwise expect from pursuing the opportunity. Reporting entities would be required to state their use of the clause and say why it chose to do so.
Last year, the ISBB decided that reporting entities should be required to use scenario analysis to prepare information about their resilience to climate change but “acknowledged that scenario analysis would encompass a range of practice, from qualitative scenario narratives to complex statistical modelling”. The ISSB has now approved a definition that requires an entity to conduct analysis that will enable it to consider all information “that is available without undue cost or effort” to understand how climate change could materially affect its value. The intention is to help reporting entities “advance through [three] stages of progression” in terms of sophistication of scenario analysis:
- “just beginning” – including qualitative scenario narratives;
- “gaining experience” – with scenarios and associated analysis using quantitative information; and
- “advanced experience” – with greater rigour and sophistication in the use of data sets and mathematical models to support statistical analysis and quantitative, entity-specific outputs.
The ISSB said it would require the use of a method “commensurate with the entity’s circumstances”. The starting point for climate-related scenario analysis “may take the form of publicly available, off-the-shelf scenarios [and] is likely to provide a minimum basis for the assessment at almost no cost or effort”. However, it has said that some entities in the most carbon-intensive sectors (such as extractives and minerals processing), which are likely to have been working on climate-related scenario analysis for years, can be expected to undertake the most sophisticated analysis.
Also, as a result of feedback, the ISSB has decided to remove references to “enterprise value” so as to avoid confusion. The ISSB has updated its definition of “sustainability” as “the ability for a company to sustainably maintain resources and relationships with and manage its dependencies and impacts within its whole business ecosystem over the short, medium, and long term”. And it has clarified that “a company’s ability to deliver value for its investors is inextricably linked to the stakeholders it works with and serves, the society it operates in, and the natural resources it draws on”. However, the decision does not change the ISSB’s decision to focus on single materiality as opposed to double materiality.
The ISSB has also voted in favour of a package of “relief provisions” for Scope 3 emissions disclosures, which includes a temporary exemption from the proposed requirement to disclose Scope 3 emissions for a minimum of one year.
The ISSB and IFRS have also been working closely with IOSCO and expect the organisation’s endorsement of the ISSB standards “relatively soon”. In the meantime, the US SEC is expected to publish its new climate disclosure rules in April.
Global: UN PRI launches revised reporting framework
The Principles for Responsible Investment (PRI) has announced the release of its new Reporting Framework, which will apply from May 2023. The PRI, which is supported by the UN, is a network of investors designed to promote sustainable investment through the incorporation of ESG factors in the investment process. The network collectively manage around US$121 trillion in assets. Signatories to the PRI are required to report annually on their responsible investment activities based on a number of different indicators. However, the reporting process has been on hold since 2021 to allow for updates to the framework. Changes to the reporting framework include improvements in clarity, with updated terminology and minimised ambiguity in questions, as well as reduced granularity of the data requested and a decrease in the overall number of indicators, and restructuring of some sections for better alignment with other sustainability reporting frameworks. The framework now also includes new voluntary indicators focused on human rights. For more information, see the UN PRI press release.
EU: Commission publishes additional FAQs on EU Taxonomy
In December 2022, the European Commission published two draft FAQs on the EU Taxonomy – setting out responses to FAQs on the technical screening criteria (TSC) in the Climate Delegated Act and setting out responses to FAQs on the implementation of the Article 8 Delegated Act for non-financial undertakings. The drafts were approved in principle by the Commission on 19 December 2022 and their formal adoption in all the official languages of the European Union will take place later as soon as the language versions are available. Amongst other things, the FAQs state that non-financial undertakings should disclose both eligibility and alignment of nuclear energy and fossil gas related activities as of 1 January 2023, in respect of the 2022 financial year. The FAQs also state that reporting eligibility and alignment by non-financial undertakings for the remaining four environmental objectives is not expected in 2023 as the Commission has not yet published the delegated act with the TSC for the remaining four environmental objectives. However, the FAQs do not say when that delegated act will be published. For more information, see our blog post: EU: Commission publishes additional FAQs on the Climate Delegated Act and Article 8 Delegated Act.
EU: Forthcoming review of SFDR
The SFDR RTS containing the detailed disclosure requirements finally came into force on 1 January 2023. However, this is not the end of the story for the SFDR as the European Commission has announced that it will commence a review of the disclosure framework this year. We expect a consultation to be published in Q3 2023, with the outcomes of that assessment coming in Q2 2024. And, as mentioned by Commissioner McGuinness in December 2022 at an European Parliament committee meeting, workshops with the industry and other stakeholder groups will likely be organised in Q3/Q4 2023. The review is likely to focus on concerns around lack of clarity in the disclosure regime, how the regime could be developed as a labelling tool and whether it is adequate as a means of preventing greenwashing.
EU: Alternative green taxonomy launched by environmental coalition
A coalition of environmental experts and NGOs have published an Independent Science-Based Taxonomy and are appealing to the investor community to use these technical screening criteria instead of the official EU Taxonomy (see here and here). A spokesperson for the Observatory Against Greenwashing coalition said: “The EU Taxonomy was originally designed to eliminate greenwashing but instead has become another tool to deceive consumers. The science-based Taxonomy wants to succeed where the original Taxonomy failed: it will create rigorous criteria, which financial institutions can use to properly assess what is green and what is not”. According to the coalition, the new taxonomy duplicates the EU Taxonomy’s technical screening criteria wherever they are robust and only departs from them when they are not rooted in science or harmful to the environment. It will categorise all economic activities using a traffic light system: “green” for sustainable activities, “amber” for activities that operate between significantly harmful and substantial contribution performance levels, and “red” for harmful activities. The criteria will be updated every 3 to 5 years to reflect technological, scientific and legislative developments. In the meantime, the European Commission still has not indicated when it will publish the delegated act with the technical screening criteria for the remaining four environmental objectives in the EU Taxonomy and various legal challenges are still outstanding in respect of other aspects of the EU Taxonomy (see our previous blog posts here and here).
UK: Green Finance Strategy, green taxonomy and regulation of ESG ratings providers
The UK government has indicated that it plans to publish an updated Green Finance Strategy and consult on a regulatory framework for ESG ratings providers in Q1 2023. The announcement was made as part of a package of reforms to the regulation of the UK finance sector known as the Edinburgh Reforms (see our client briefing). The government has also said that plans for a UK green taxonomy have been delayed so that the government can review its approach. Further details on the UK taxonomy are expected when the government publishes the Green Finance Strategy. However, there are concerns that any further delays could result in the UK falling behind the EU and other jurisdictions in its leadership on sustainable finance.
UK: CFRF publishes third set of guides to help financial industry manage climate financial risks
The Climate Financial Risk Forum (CFRF), which is chaired jointly by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), has published a third set of guides to help financial firms in the UK understand and manage the risks and opportunities from climate change, including a paper on disclosures and managing legal risks and a paper on climate litigation risks. For more information, see our blog post: UK: CFRF publishes third set of guides to help financial industry manage climate financial risks.
UK: FCA responds to Treasury concerns over sustainability disclosure requirements
The FCA has responded to concerns raised by the Treasury Sub-Committee following the FCA’s plans to tighten regulations around sustainability labelling which would determine the criteria an investment fund needs to meet before it can describe itself as ‘sustainable’, ‘ESG’, ‘green’ and other similar labels. The FCA’s final rules are expected to be published at the end of June 2023 and are due to come into force in June 2024. The Treasury Sub-Committee has an interest in the FCA’s proposals in this area, particularly on the question of whether reforms “could drive funds away from ESG investing”. For more information, see our blog post: FCA responds to Treasury concerns over its sustainability disclosure requirements.
Global: ESG issues for private equity
For the latest developments on ESG issues for private equity, including a series of podcasts where the Linklaters ESG team discusses with Montagu their ESG strategy, see our blog post: ESG and Private Equity: In conversation with Montagu.
Global: ISDA Verified Carbon Credit Derivatives Definitions
ISDA has published the 2022 ISDA Verified Carbon Credit Transactions Definitions. The VCC Definitions, on which Linklaters was pleased to act as drafting counsel, are in the form of a standard definitions booklet for physically settled secondary market verified carbon credit (VCC) transactions and are accompanied by template confirmations for VCC spot, forward and option transactions. For more information on how they can be used, see our client briefing: The 2022 ISDA Verified Carbon Credit Derivatives Definitions.
Climate Change & Energy
EU: Political agreement reached on CBAM and revised EU ETS
On 13 December 2022, the European Parliament and Council reached political agreement on the introduction of a carbon border adjustment mechanism (CBAM). This was followed, on 18 December 2022, by political agreement on the reform of the EU Emissions Trading System (EU ETS). The CBAM and EU ETS are both aimed at reducing carbon emissions by placing a price on carbon. They are intended to be complementary, with the revised ETS applying to intra-EU goods and CBAM applying to goods imported into the EU from regions of the world with less stringent carbon rules. The revised texts of the CBAM and EU ETS proposals have not been published yet. Once they are finalised, they will need to be formally adopted by the European Parliament and the Council, after which they will be published in the Official Journal of the EU and enter into force. For more information, see our blog post: EU: Political agreement reached on CBAM and revised EU ETS.
EU: Commission publishes Green Deal Industrial Plan for a Net-Zero Age
The EU raised concerns that the passage in 2022 in the US of the Inflation Reduction Act (IRA), a $369 billion subsidy package for green industry, together with high energy prices, might lure away the EU’s cleantech industry. To address this, the European Commission proposed on 1 February a Green Deal Industrial Plan (see Commission Communication) which includes plans for a Net-Zero Industry Act, which will provide for fast-track permitting and other measures to support the rapid scale-up of green technologies across the EU. It will go hand-in-hand with the forthcoming Critical Raw Materials Act which aims to secure the EU’s supply of raw materials critical for the energy transition and the reform of the electricity market design. This will be backed with a set of measures to ensure quick access to funds for green investments, including simplifying State aid rules via an amended Temporary State aid Crisis and Transition Framework and a revised Green Deal General Block Exemption Regulation (see press release) for renewable energy deployments and decarbonising industrial processes, redirection of existing EU funds and creation of a European Sovereignty Fund. However, while some EU Member States oppose the relaxation of national State aid rules, others are against the new EU funding being proposed, so it remains to be seen which of the measures proposed by the Commission will make their way into the final legislation. The Plan also includes a set of measures to ensure that the European workforce is skilled in the technologies required for the net zero transition. The Commission has also said it will continue to develop the EU's network of Free Trade Agreements and other forms of cooperation with partners to support the green transition and will also explore the creation of a Critical Raw Materials Club, to bring together raw material consumers and resource-rich countries to ensure global security of supply, as well as the creation of Clean Tech/Net-Zero Industrial Partnerships. For more information, see EU press release and Q&A.
UK: Government publishes Net Zero Review final report
The Department for Business, Energy and Industrial Strategy (BEIS) has published the final report on the UK Net Zero Review (see here and here). The report follows an independent review carried out by former Energy Minister, Chris Skidmore, of how best to meet the UK’s legally-binding climate target of net zero by 2050 in a way that grows the economy and does not place undue burdens on businesses or consumers. The review's 129 recommendations set out short-, medium-, and long-term actions together with roadmaps intended to provide certainty for investment and R&D. It sets out the UK’s decarbonisation pathway to 2037 and concludes that net zero is “the growth opportunity of the 21st century” but warns that reaping the benefits will not be possible without a “step change” in the government’s approach to delivering net zero. The head of the CBI and others across industry have also warned that the UK is lagging behind the US and the EU on green investment. According to the IEA’s Energy Technology Perspectives 2023 report, the world is “at the dawn of a new industrial age” focused on clean technology manufacturing that could be worth more than US$ 650 billion annually by 2030 (more than three times greater than current levels), provided countries can overcome challenges related to concentrated supply chains and expanding the workforce.
Global: Pre-COP28 climate summit scheduled for September
The UN has said it will convene a Climate Action Summit in September, ahead of COP28, where nations will be asked to put forward “credible, serious and new climate action and nature-based solutions that will move the needle forward and respond to the urgency of the climate crisis” (see here). Without these plans, nations will not be able to attend the summit.
Global: Preparing for the 2023 AGM season
Activist group As You Sow has filed shareholder resolutions calling on a number of large US banks to disclose their climate transition plans for achieving their 2030 net zero-aligned emission reduction goals (see here and here). The New York City Comptroller and three New York City pension plans have also said they want lenders to disclose their 2030 targets to cut greenhouse gas emissions on an absolute basis rather than an intensity basis (see here). This follows other shareholder resolutions filed at the end of last year by Follow This calling on a number of large energy companies to set clear targets to reduce their scope 3 emissions by 2030 in order to be consistent with the goals of the Paris Agreement (see here) and the world’s largest sovereign wealth fund warning that it will vote against companies that fail to set a net zero emissions target, overpay their top leaders, or do not have sufficiently diverse boards (see here and here). Norway’s sovereign wealth fund owns on average 1.5% of every listed company worldwide. For more information on how to prepare for this year’s AGM season in the UK, see our publication: AGMs Update 2023: A guide for UK-listed companies.
UK: CMA to scrutinise green claims in fast moving consumer goods and consult on draft sustainability guidance
The Competition and Markets Authority (CMA) has said it will examine the accuracy of green claims made about fast moving consumer goods (FMCG), such as food, drink, toiletries and cleaning products. This follows a similar probe into the fast fashion sector last year which is still ongoing, and will allow the CMA to take enforcement action against unfounded or misleading environmental claims. The CMA has also indicated that it plans to consult in February on draft sustainability guidance to ensure that competition law is not an unnecessary barrier to business collaboration on climate change initiatives. For more information, see our blog post: Greening up its Act? UK’s CMA gives a steer regarding imminent draft Sustainability Guidance and expands investigation into green claims.
Global: COP15 - outcome of global biodiversity summit
COP15, the 15th Conference of the Parties to the United Nations Convention on Biological Diversity, was held in Montreal on 7-19 December 2022. The main aim of COP15 was for nations to agree on a post-2020 global biodiversity framework with targets and actions on tackling nature and biodiversity loss – known as the Kunming-Montreal Global Biodiversity Framework. For more information on the biodiversity framework and what the new targets mean for companies and financial institutions, see our blog post: COP15: outcome of global biodiversity summit.
Diversity & Inclusion
EU: Directive on Women on Boards published in Official Journal
The Women on Boards Directive was published in the Official Journal of the EU on 7 December 2022 and Member States now have two years (until 27 December 2024) to transpose the Directive into national law. For more information, see our previous blog post: European Parliament adopts EU Directive for more women on boards.
EU: Proposal for Directive on pay transparency
The European Parliament and Council have reached provisional agreement on rules to address pay transparency. Key elements of the Proposal for a Directive include pay transparency for job seekers, rights for employees to request pay information, gender pay gap reporting, requirements to conduct pay assessments in certain situations, and better access to justice for victims of pay discrimination. The proposed agreement is currently before the Parliament and Council for formal approval. For more information, see the European Commission’s press release.
UK: FCA findings on D&I in financial firms
The Financial Conduct Authority (FCA) has published its findings on diversity and inclusion practices in regulated firms. Its conclusions echoed similar sentiments to other diversity analysis – whilst progress has been made, we still have a long way to go. They also provide a reminder that building diverse and inclusive cultures extends beyond training and external targets. It is important to create an environment where staff feel safe speaking up and different perspectives are welcomed. For more information, see our blog post: Approaches to D&I in financial services.
UK: Government response on menopause and the workplace
The UK government has published its response to the Women and Equalities Committee’s report on menopause and the workplace. Whilst it will not be piloting a menopause leave policy, consulting on making menopause a protected characteristic or introducing combined discrimination laws, it will be appointing a ‘Menopause Employment Champion’ to drive forward work with employers on menopause workplace issues. For more information, see the government’s response.
Federal agencies exhibit a continued focus on ESG and climate issues
In December 2022, the U.S. Federal Reserve System (Federal Reserve) released a proposal that would provide banks with more than $100 billion in total assets with a high-level guiding framework for climate change-related risk management. The proposal covers six main areas: bank governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. Public comments on the proposal are currently being accepted until 6 February. In parallel, the Federal Reserve is also requesting climate change data from six of the largest banks in the US. The requested data, which includes estimates of how corporate lending might be affected by a net-zero carbon economy and physical risks that commercial and residential real estate may face, is due by 31 July and will help the Federal Reserve analyse how “certain climate-related financial risks could manifest" in the U.S. economy.
Also in December 2022, the U.S. Federal Trade Commission (FTC) requested public comments on potential changes to the “Green Guides for the Use of Environmental Claims”, which help marketers from making false environmental claims that are unfair or deceptive to consumers under Section 5 of the FTC Act. In order to ensure the Green Guides reflect changes in the marketplace over time, the FTC is seeking comments on the continuing need for the Guides, as well as on their economic impact, their effect on the accuracy of various environmental claims, and their interaction with other environmental marketing regulations. The FTC is also seeking comments on specific issues such as carbon offsets, the terms “recyclable” and “recycled content,” and need for additional guidance about other environmental claims.
In January 2023, the U.S. Securities and Exchange Commission (SEC) released the Fall 2022 issue of the Regulatory Flexibility Agenda, which sets forth the anticipated timing of new rule proposals and adoptions of finalised rules. The Regulatory Flexibility Agenda indicates that the SEC “Climate Disclosure Rule” and the “Investment Companies and Investment Advisors- ESG Factors Rule” will be adopted in April and October, respectively. Also in January 2023, the White House and the U.S. Department of Commerce announced a plan for a U.S. system to account for natural assets and quantify and track “changes in the condition and economic value of land, water, air, and other natural assets.”
Greenwashing litigation round-up
In December 2022, a major clothing retailer sought to dismiss a class action suit by consumers claiming that its recycled clothing line is not as sustainable as they were led to believe. The retailer claims that while the clothing line is advertised to contain more sustainable materials than their other lines, it “does not represent that its products are sustainable – full stop.”
In January 2023, an environmental advocacy group filed a whistleblower complaint with the SEC alleging greenwashing claims against a major meatpacking food company. The complaint alleges that the company has been “misleading, concealing, and massively under-reporting its climate emissions.” These allegations come after the company issued $3.2 billion in sustainability-linked bonds in 2021 announcing its commitment to achieve net-zero emissions by 2040. However, the environmental advocacy group alleges that the company has not submitted its emissions figures on public filings and omits key information in its emissions presentations to clients and investors.
Also in January 2023, a major beverage company again filed a motion to dismiss against plaintiffs who allege that defendants’ claim of 100% recycled plastic bottles is misleading. For more information on the initial lawsuit, see our blog post: Major beverage retailer wins dismissal of “greenwashing” false advertising lawsuit.
Financial Services Agency of Japan introduces further ESG developments
The Financial Services Agency of Japan (FSA) has introduced a number of ESG developments in the past few months. Some of these developments are still in draft form, while others impose mandatory obligations. Such developments include: (i) the publication of the draft amendments to the ESG disclosure rules under the Financial Instruments and Exchange Act of Japan; (ii) the publication of the finalised Code of Conduct for ESG Evaluation and Data Providers; and (iii) the publication of the draft amendments to “the Comprehensive Supervisory Guidelines for Financial Instruments Business Operators, etc. regarding ESG Investment Trusts”. For more information, see our blog post: Financial Services Agency of Japan introduces number of ESG developments.
In other developments, on 13 January 2023, the Japan Fair Trade Commission published new draft antitrust guidelines on environmental sustainability looking to address collective action, vertical collaborations on supply chains, abuse of superior bargaining positions and mergers and acquisitions. The draft guidelines are open for public comment until 13 February 2023.
ICMA and CCDC publish white paper on ESG practices in China
On 10 January 2023, ICMA and the China Central Depository & Clearing Co., Ltd. (CCDC) published a white paper on ESG Practices in China. The white paper sets out ESG development trends in China, summarises China’s ESG-related policies and provides an analysis of ESG information disclosure and ESG performance by Chinese corporates. For more information, see the ICMA website.
China finalises guidance on ESG commitments to data security and personal information protection
On 30 December 2022, China Cybersecurity Industry Alliance (CCIA) released the final form of the “Guidance on Social Responsibility of Data Security and Personal Information Protection” (Guidance). The Guidance addresses data compliance, covering key requirements under the Data Security Law and the Personal Information Protection Law, on the “social” aspect of ESG. It became effective on 1 February 2023. Although the Guidance is only currently directly applicable to CCIA members, it remains to be seen how the scope of application may be expanded in the future, as more businesses may consider using the Guidance to help further their ESG goals and practices in line with the Chinese government’s wider policies in this area. For more information, see our blog post: China finalises guidance on ESG commitments to data security and personal information protection.
IFRS Foundation to open Beijing Office
On 29 December 2022, the International Financial Reporting Standards (IFRS) Foundation announced a Memorandum of Understanding with the Chinese Ministry of Finance to establish a Beijing office. The Beijing office will lead the International Sustainability Standards Board’s (ISSB) strategy for emerging and developing economies and will act as a hub for stakeholder engagement in Asia, according to the IFRS Foundation. For more information, see the Ministry of Finance website.
China releases its implementation plan to facilitate the market-oriented green technology innovation system
On 13 December 2022, the National Development and Reform Commission and the Ministry of Science and Technology jointly released the “Implementation Plan for Further Improving Market-oriented Green Technology Innovation System (2023-2025)” (the Plan). The Plan aims to strengthen the leading role of enterprises in innovation, improve the market mechanism to incentivise the growth of green technology, and facilitate more efficient cooperation among enterprises, universities and research institutes in the green tech space. The Plan also focuses on improving systems for evaluating green technology, enhancing fiscal and financial support, strengthening the protection of intellectual property for green technology and expanding international cooperation. For more information, see here.
Hong Kong Monetary Authority publishes good practices for due diligence processes for green and sustainable products and report on greenwashing in the green bond market
On 9 December 2022, the Hong Kong Monetary Authority (HKMA) sent a circular (and annex) to authorised institutions attaching good practice guidance on due diligence and other processes for the offering of their green and sustainable products. This follows the report published by the HKMA on 21 November 2022 on “Greenwashing in the Corporate Green Bond Markets”. For more information, see our blog post: Hong Kong Monetary Authority publishes good practice for due diligence processes for green and sustainable products.
In other ESG-related developments this winter, on:
- 13 December 2022, the Hong Kong Government launched the three-year “Pilot Green and Sustainable Finance Capacity Building Support Scheme” to encourage a local uptake in training related to green and sustainable finance. For more information, see here.
- 20 December 2022, the Green and Sustainable Finance Cross-Agency Steering Group (the Steering Group) announced its collaboration with CDP (an international non-profit organisation that runs the global environmental disclosure system for companies), to jointly enhance climate data availability and sustainability reporting in Hong Kong. For more information, see here.
- 23 December 2022, the HKMA published its updated Risk Based Supervisory Approach Module of the Supervisory Policy Manual (SPM) to set out how the HKMA will supervise emerging risks, including climate related risks. For more information, see our blog post: Hong Kong Monetary Authority updates risk-based supervisory approach on emerging risks.
- 12 January 2023, the HKMA issued a circular alerting banks in Hong Kong to the recent Basel Committee on Banking Supervision responses clarifying how climate-related financial risks may be captured in the existing Basel Framework. The HKMA will be incorporating these responses into its own supervisory framework so banks should be referring to them in relation to their own climate risk assessment.
Launch of Vietnam’s Just Energy Transition Plan (JETP)
On 14 December 2022, the Vietnam Just Energy Transition Plan (JETP) was announcement with the International Partners Group (IPG). The Vietnam JETP is the US$15.5 billion plan to support Vietnam transition from fossil fuels to clean energy and deliver on its net zero 2050 goal. IPG members include the EU, UK, the United States and Japan. Initial contributions to the Vietnam JETP include US$7.75 billion in pledges from the IPG together with the Asian Development Bank and the International Finance Corporation. This is supported by a commitment to work to mobilise and facilitate a matching US$7.75 billion in private investment from an initial set of private financial institutions coordinated by the Glasgow Financial Alliance for Net Zero (GFANZ). The Vietnam JETP follows the South Africa JETP announced at COP26 and the Indonesia JETP announced at COP27. For more information, see here.
Recent policy developments in hydrogen sector in China, Japan and Singapore
Key to the de-carbonisation plans for many companies, industries and countries globally is low-carbon hydrogen and its derivatives, and Asia is no exception. There has been much hype around hydrogen and ammonia in recent years but now real progress is finally emerging in policy terms from governments in Asia looking to unlock vast investment and true energy transition for many hard-to-abate parts of the global economy. For recent national policy developments in hydrogen in China, Japan and Singapore, see our blog post: Recent developments in the low carbon hydrogen sector in Asia.
In case you missed it
Linklaters recognised across Legal 500 Green Guide
We are delighted that our cross-practice ESG expertise has been recognised in The Legal 500’s inaugural Green Guide for various regions across the globe. The guide recognises how we have embedded ESG into our offering by ensuring ESG advice is highly integrated across our practice groups. It also highlights the firm’s own commitment to ESG and the steps we are taking to reduce our carbon emissions. For more information, see:
- The Legal 500 Green Guide: UK
- The Legal 500 Green Guide: US
- The Legal 55 Green Guide: Asia
- The Legal 500 Green Guide: EMEA
How to produce accurate and robust climate transition plans
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A look at the FCA’s consultation on its Sustainability Disclosure Requirements
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Tech & Biodiversity Conference
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Looking at Hong Kong SAR as a sustainable finance hub now and beyond
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Protection of Foreign Investments in the Energy Sector - Recent Developments
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CCUS: Capturing the moment
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EU Regulatory Milestones timeline 2023
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