ESG Newsletter – November 2023
Welcome to the latest edition of the Linklaters global ESG Newsletter. This issue covers key developments from October 2023 - in the UK, EU, US, Asia and globally - on the full range of ESG topics.
Explore the key developments below
Linklaters ESG ranking
We are delighted to be recognised as a Band 1 law firm for Environment & Climate Change in the Chambers and Partners 2024 UK rankings, a reflection of some of the brilliant matters we have been supporting our clients on over the last 12 months.
To learn more about our ESG offering, visit our website.
15 November 2023: Competition law and sustainability collaborations - green shoots?
Disclosure & Reporting
Global: The Financial Stability Board publishes annual report on climate-related disclosures: “significant further progress” on standard setting, more needed on climate disclosures
On 12 October 2023, the Financial Stability Board (FSB) published its annual progress report on climate-related disclosures. Within this report, it also commented on the TCFD’s sixth and final Status Report (also published on the same day). The headline from the FSB annual progress report on climate-related disclosures was that “Significant further progress has been achieved on setting comparable, consistent and decision-useful climate-related financial disclosures standards and requirements over the last year”. The 2023 TCFD Status Report describes companies’ progress in making climate-related financial disclosures and highlights some of the challenges they face in making such disclosures. The report finds that the percentage of companies reporting on climate-related risks or opportunities, board oversight, and climate-related targets increased significantly between fiscal years 2020 and 2022 but more progress is needed. Although companies continue to make progress in their disclosures, significant gaps in data remain. In particular, reporting the impact of climate change on companies’ businesses, strategies, and financial planning is still lagging behind. For more information, see our blog post.
EU: ESMA publishes report on disclosures of climate-related matters in financial statements
On 25 October 2023, the European Securities and Markets Authority (ESMA) published a report on disclosures of climate-related matters in financial statements prepared in accordance with International Financial Reporting Standards (IFRS). The report focuses on disclosures related to climate matters included in the 2022 annual financial statements of European non-financial corporate issuers. The report includes practical examples of how climate-related matters may be presented. ESMA encouraged issuers and auditors to consider the examples provided in this report when assessing and disclosing how climate-related matters impact IFRS financial statements. However, ESMA noted that this report does not provide best practices or prescribe how these disclosures should be made. ESMA also highlighted that it does not address disclosures under the sustainability reporting requirements and whether the actions taken or planned by companies are sufficient to tackle climate change.
EU: ESMA examines reporting practices under the EU Taxonomy and publishes 2023 enforcement priorities
On 25 October 2023, ESMA released a report on the results of a fact-finding exercise on corporate reporting practices under the EU Taxonomy Regulation. Article 8 of this Regulation requires in-scope companies to include in their non-financial statements information on how, and to what extent, their activities are associated with environmentally sustainable economic activities under the EU Taxonomy. For in-scope non-financial undertakings, 2023 is the first year of reporting of alignment information regarding the climate mitigation and adaptation objectives, in addition to eligibility information. ESMA has collected information on non-financial statements published by non-financial undertakings listed in the EU. The findings from this exercise showed that: (i) almost all assessed issuers disclosed required taxonomy alignment KPIs; (ii) 30% of the assessed companies have either modified or not fully completed the mandatory templates; (iii) at least some of the mandatory qualitative information was missing or insufficient for more than 40% of the companies; (iv) further areas of incorrect application included transparency on the avoidance of double counting, screening of activities against one climate objective only or reconciliation with financial reporting.
Based on these findings, ESMA reminded issuers of the importance of providing all quantitative, as well as detailed qualitative, information as required by the EU Taxonomy and encouraged them to use the guidance and tools published by the Commission. These recommendations, as well as additional recommendations in relation to the EU Taxonomy, were included in ESMA’s 2023 Statement on European common enforcement priorities. Such priorities related to non-financial statements also include disclosures of climate-related targets, actions and progress and Scope 3 GHG emissions.
UK: Pensions regulator issues fine for late climate disclosures
The Pensions Regulator has published a regulatory intervention report relating to the failure by the trustee of the ExxonMobil Pension Plan to publish its TCFD report by the deadline. The report explains that, while the trustees had produced the report and the scheme administrators had uploaded it by the deadline of 31 July 2022, a faulty URL meant the report was not published on a publicly available website until 10 August 2022. The Regulator issued a mandatory penalty of £5,000 in May 2023, which has now been paid. The report says that the Regulator applied an amount above the minimum of £2,500 because the trustee was a corporate body and to reflect the nature of the breach. This is the first fine issued by the Regulator for a failure to meet climate change reporting duties. It is interesting that the Regulator has chosen to impose a penalty above the minimum level and to “name and shame" the trustee despite the failure being inadvertent and quickly remedied.
UK Government backtracks on new reporting requirements
In a surprise U-turn, the Government has withdrawn draft legislation which was to impose new reporting obligations on the largest UK-incorporated companies. The Companies (Strategic Report and Directors’ Report) (Amendment) Regulations were laid before Parliament in July and would require UK-incorporated companies with more than 750 employees and more than £750m in turnover to include new information in their annual reports. This was to include a resilience statement, an audit and assurance policy, details of their distribution policy and level of distributable reserves, and a statement on material fraud. The Government has stated that it has listened to concerns about increasing the burden on companies, and the impact that has on the competitiveness of the UK. It has therefore withdrawn the regulations and will instead introduce a simpler framework (in due course). For more information, see our blog post.
UK Government consults on Scope 3 emissions reporting and future of SECR regime
On 19 October 2023, the Department for Energy Security and Net Zero (DESNZ) launched a call for evidence to gather feedback on the costs, benefits, and practicalities of Scope 3 greenhouse gas (GHG) emissions reporting in the UK, and the effectiveness and impact of the Streamlined Energy and Carbon Reporting (SECR) regime. The SECR regime imposes certain GHG emissions reporting requirements on quoted companies, large unquoted companies and large LLPs (see our previous blog post). Existing SECR requirements primarily focus on Scope 1 and Scope 2 GHG emissions, with most Scope 3 emissions disclosures being voluntary. The government acknowledges that Scope 3 emissions can account for 80-95% of the total value chain of an organisation’s carbon footprint but that calculating these emissions can be difficult and complex. The call for evidence closes on 14 December 2023 and the Government aims to publish its response within 12 weeks of the closing date. For more information, see our blog post.
Global: ICMA publishes paper on market integrity and greenwashing risks in sustainable finance
On 10 October 2023, the International Capital Market Association (ICMA) released a paper on market integrity and greenwashing risks in sustainable finance. The paper is a follow-up to ICMA’s earlier response to the European Supervisory Authorities call for evidence on greenwashing and further develops ICMA's analysis of greenwashing concerns in sustainable finance from a global perspective. The paper concludes with five high-level recommendations for policy makers and regulators. For more information, see our blog post.
The European Sustainability Reporting Standards under the EU’s Corporate Sustainability Reporting Directive faces a number of challenges
The European Sustainability Reporting Standards (ESRS) under the EU’s Corporate Sustainability Reporting Directive (CSRD) faces a number of challenges:
- First, certain elements in the European Parliament attempted to block the first set of (sector agnostic) ESRS – which failed in a vote in the plenary on Wednesday, 18 October 2023. For more information, see our blog post.
- Secondly, the Commission has published a proposal to delay the publication of the next two sets of ESRS by two years – one set deals with the sector-specific ESRS and the other set deals with the ESRS to be applied by non-EU companies that fall within the scope of the CSRD. For more information, see our blog post.
- Thirdly, the Commission has adopted a Delegated Directive amending the Accounting Directive to adjust the monetary size criteria (balance sheet and net turnover) for micro, small, medium-sized and large companies by 25% to account for inflation, which will reduce the number of companies falling within scope of the CSRD. For more information, see our blog post.
Notwithstanding all this, it looks likely that the first set of ESRS will come into force as expected before the end of this year. EFRAG has published a press release confirming the end of the ESRS scrutiny period on 21 October 2023 with no objections or delays. We expect the ESRS Delegated Act to be published in the Official Journal of the EU soon. It will start to apply from 1 January 2024.
EU: ESMA to launch Common Supervisory Action on MiFID II sustainability requirements in 2024
On 3 October 2023, ESMA published a statement to announce that it will launch a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the integration of sustainability in firms’ suitability assessment and product governance processes and procedures in 2024. ESMA explains that the goal of the CSA will be to assess the progress made by intermediaries in the application of the key sustainability requirements, which entered into application in 2022 following the amendments to the MiFID II Delegated Acts. ESMA believes this initiative, and the related sharing of practices across NCAs, will help ensure consistent application of EU rules and enhance the protection of investors in line with ESMA’s objectives. For more information, see our blog post.
EU: ESMA article identifies increase in use of ESG-related language in fund names and documentation
ESMA has published an article exploring the use of language related to ESG factors in EU investment fund names and documentation. Tackling greenwashing is one of the key priorities in ESMA’s sustainable finance strategy. ESMA sees this report as an important first step in the detection and monitoring of potential greenwashing, particularly “given that greenwashing stems – first and foremost – from misleading, confusing, or inaccurate claims”. With this in mind, ESMA has constructed a comprehensive list (to be refined in the future) of ESG words and phrases, against which the ESG-related language used by funds can be measured and compared. This allows ESMA to apply natural language processing (NLP) techniques to several large text and numerical datasets spanning funds across the EU. ESMA consider that its findings support, among other things, ESMA’s recent public consultation on guidelines to ensure fund names accurately reflect their portfolio from an ESG perspective. On this related work, final guidelines are expected to be published in the coming months (they would apply three months after the translations are published (with a six month transitional period for funds launched prior to that date). For more information, see our blog post.
EU: ESMA publishes article on the EU sustainable debt market and analysis of ESG pricing effect
On 6 October 2023, ESMA published an article on the European sustainable debt market, analysing the existence of an ESG pricing effect (the Greenium) across different types of sustainable-labelled debt instruments, beyond only green bonds. ESMA noted that it is interested in this as part of its financial stability objectives (as evidence of a systemic greenium for sustainable debt may signal pricing distortions in the market, which could present financial stability issues) and as part of its strategic priority of monitoring ESG market developments (noting in particular investor protection concerns if ESG claims/performance turn out to be inaccurate). The article also (i) investigates if issuer-level ESG credentials can serve as an explanatory variable to explain the phenomenon; (ii) provides an overview of the current state of play of the European sustainable debt market (including the development of thematic bonds such as blue bonds and rhino bonds); and (iii) provides details about how ESG characteristics have, in the past and present, impacted bond pricing differences. ESMA noted that it cannot confirm a systematic pricing benefit for any sustainable-labelled debt type as of March 2023. However, issuers of sustainable-labelled bonds did benefit from a statistically significant pricing benefit in the past driven by their issuer-level ESG credentials, but this trend has not continued into the present; finally, public ESG commitments were not found to have an effect on bond yields overall.
EU Commission hosts SFDR workshop: discussing the shape of a possible labelling system, merits of expanding SFDR disclosures to all products and more
When the Commission issued its consultation on the implementation of the SFDR back in September (see our previous blog post), it noted its intention to host a series of online workshops and roundtables to discuss the current challenges of the SFDR and possible ways forward for sustainability disclosures in the EU. The first of these workshops was held on 10 October 2023, with the Commission hosting a wide-ranging panel discussion on a number of key topics. Topics included: (i) disclosures for all products, or just those with sustainability characteristics? (ii) designing a product categorisation system; (iii) distinguishing disclosures for retail and professional investors; (iv) compliance costs; (v) funds with a transition strategy; and (vi) the interplay with other sustainable finance legislation. Further technical workshops are being organised for the coming months – and will possibly run into the beginning of 2024. For more information, see our blog post.
EU: Regulation on European green bonds adopted by European Parliament and Council of the EU
On 5 October 2023, the European Parliament announced its adoption of the text for a Regulation on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds (the EU GBS). The Council of the EU adopted the Regulation on 23 October 2023. The Regulation introduces a voluntary label for issuers of green use of proceeds bonds where proceeds are fully allocated to economic activities aligned with the EU Taxonomy Regulation (subject to some limited flexibility), the “EuGB label”, and also creates an optional disclosure regime for bonds marketed as environmentally sustainable and sustainability-linked bonds. Issuers choosing to apply the voluntary EuGB label when marketing a green bond will be required to disclose considerable information about how the bond’s proceeds will be allocated in accordance with prescribed templates. This will include information on how the bonds are intended to contribute to funding and implementing transition plans. The adopted law will now be signed, published in the Official Journal of the EU and enter into force on the 20th day following publication, with the provisions of the Regulation to apply 12 months thereafter. For more information, see our blog post.
The EU Parliament’s ECON committee publishes draft report on the EU Commission’s proposed ESG Ratings Regulation
The EU Parliament’s ECON committee has in recent months been negotiating its position on the European Commission’s legislative proposal on authorisation and rules for ESG ratings providers published in June 2023 (see our previous blog post) - it has now published its draft report on the proposed Regulation, giving an early indication of its position on a number of key aspects, including (i) limited changes to scope at this stage – but the Commission is to consider whether to extend this scope within three years; (ii) a proposed ban on aggregating E, S and G ratings into a single metric; (iii) more stringent provisions addressing conflicts of interest, and ensuring the independence of ratings analysts; and (iv) support for smaller ESG ratings providers. By introducing an obligation for the Commission to review scope, and the need to set out minimum requirements regarding the content of ESG ratings and their methodologies within three years of the in-force date, the Parliament appears to be sidestepping some of the potentially more contentious issues. This could speed up current negotiations within Parliament, meaning that agreement could be reached during the current presidency – albeit this remains to be seen. For more information, see our blog post.
EU: stakeholder request mechanism is launched in relation to the EU Taxonomy
On 17 October 2023, the Platform on Sustainable Finance and the European Commission launched a stakeholder request mechanism (the Mechanism) in order to consider suggestions from stakeholders regarding activities in the EU Taxonomy. This mechanism allows stakeholders to submit scientific and/or technical-based suggestions for new economic activities that could be added to the EU Taxonomy or for potential revisions of technical screening criteria of existing activities. The Platform on Sustainable Finance will review requests and provide recommendations to the Commission. After assessing these recommendations, the Commission may decide on possible amendments to the EU Taxonomy. The Mechanism will be run with cut-off dates for the processing of requests received. The first cut-off date will be 15 December 2023. All requests received by that date will be processed by the Technical Working Group of the Platform on Sustainable Finance in early 2024.
UK: Final advice paper from GTAG on the UK Taxonomy - this time on longer term governance arrangements
The Green Technical Advisory Group (GTAG) has published its final piece of advice to the UK government on the design and implementation of a UK Green Taxonomy, completing a suite of nine GTAG papers. This final paper acknowledges that questions remain about the long-term governance arrangements for the UK Green Taxonomy, including how and by whom it will be updated and how the question of whether it is appropriate to develop a “Transition Taxonomy” will be answered – with this in mind, it focuses on the options for creating an “institutional home” for the taxonomy. For more information, see our blog post.
UK Solvency II reforms may give insurers more flexibility to invest in net zero-related assets
The UK’s Prudential Regulation Authority (the PRA) has published a consultation paper on reform of a mechanism known as the “matching adjustment” – which affects the way that some insurers calculate their capital requirements – as part of its broader programme of work to implement the UK government’s Solvency II reform package. The PRA’s proposals would widen the range of investments that insurers are able to include in portfolios of assets taken into account for the purposes of the matching adjustment calculation. Although the PRA’s proposals do not directly seek to incentivise insurers’ investments into green assets, the extra flexibility afforded by its plans could, according to the PRA, allow insurers to invest more in long term sustainable infrastructure, should they choose to do so. In its consultation, the PRA also comments that many insurers have expressed their opinion that reform of Solvency II could improve the ability of the sector to contribute to the Government’s net zero targets. For more information, see our publication.
Greenwashing & Litigation
ESG Disputes Bulletin
In our autumn edition of the ESG Disputes Bulletin, we cover some of the key developments in contentious ESG matters since our July 2023 edition. See our ESG Disputes Bulletin – November 2023 edition.
Running the greenwashing gauntlet
Discover our greenwashing podcast series, Running the greenwashing gauntlet: exploring the litigation and regulatory risks, which looks at the many forms greenwashing risk can take, how these risks can evolve and how they can be mitigated. Listen to our fifth episode which looks at greenwashing from an EU perspective, including discussing the legislative amendments proposed by the EU as well as recent decisions and claims across the region.
EU: New collective redress instruments available in the EU for private enforcement of ESG claims
While only very few EU Member States have transposed the EU Collective Redress Directive into national law within the implementation deadline, the implementation process is now picking up speed in many Member States. The Directive obliges Member States to ensure that so-called “qualified entities” may launch, in their own name: (i) actions for injunctions to bring infringements of consumer law to an end; and (ii) so-called “redress actions” to enforce consumer rights. Such instruments of collective redress are very important in the area of ESG. For example, greenwashing claims are often based on the EU Unfair Commercial Practices Directive and its national implementation acts, which, according to its annex, are also covered by the Collective Redress Directive and its national implementation acts. Collective redress could be increasingly used in the future to enforce alleged greenwashing claims – as well as other ESG harms. For more information, see our blog post.
Climate Change & Energy
Offshore wind in Europe
Offshore wind in Europe currently is facing a number of key challenges, ranging from continued supply chain constraints and inflationary impacts through to regulatory regimes no longer always providing the required level of support to crowd in sufficient capital in an increasingly global and competitive market for offshore wind. However, there remains an unquestionable need for an acceleration in the deployment of renewable generation capacity in order to meet the world’s net zero objectives, and offshore wind remains set to play a central role in helping to deliver this essential policy objective. Our report looks at the main regulatory, policy and market developments in key markets in Europe, as well as the challenges and opportunities facing the offshore wind industry globally.
EU: Commission published 2024 Work Programme
On 17 October 2023, the European Commission published its 2024 Work Programme. A detailed overview is provided in the Annexes. The European Green Deal is one of the six headline ambitions for the Commission. While the main focus is now on its implementation, the Programme includes a number of related initiatives such as: (i) launching a process to establish a 2040 climate target, to keep the EU on course towards climate neutrality by 2050; (ii) the European wind power package (it was published on 24 October 2023 (see below)); (iii) strategy for environmentally sustainable carbon capture, utilisation and storage deployment in the EU; (iv) initiative on water resilience to ensure access to water for citizens, nature and the economy, while also tackling catastrophic flooding and water shortages and (v) an initiative to identify and manage climate risks across EU policy areas.
The Programme also mentions proposals on the protection of animals during transport (although comprehensive review of the animal welfare rules is not on the agenda) and microplastic pollution (the Proposal for a Regulation on preventing pellet losses to reduce microplastic pollution has already been announced by the Commission on 16 October 2023) as well as initiatives to improve forest monitoring.
The concerns were raised in the press that some important environmental legislation appears to be missing from the Programme such as review of the REACH Regulation on chemicals and proposals aimed at prohibiting exports of hazardous chemicals that are banned within the EU as well as Sustainable Food Systems Law. Maroš Šefčovič, Commissioner for the Green Deal, stated that reform of REACH Regulation may be left for the next Commission and, due to its complexity, may take several years to finalise.
European Renewable Energy Directive (RED III): updated ambitious targets to boost the renewable energy market
On 9 October 2023, the EU Council adopted two final acts of the “Fit for 55” legislative package which is expected to reduce EU net greenhouse gas emissions by 57% by 2030: the amended Renewable Energy Directive (RED III) and ReFuelEU Aviation Regulation.
The RED III aims to increase the share of renewable energy in the EU’s overall energy consumption to 42.5% by 2030, with a further indicative target of 2.5%. The Directive also introduces specific targets for Member States in the industry, transport, and building (district heating and cooling) sectors. For more information, see our blog post.
Under the ReFuelEU Aviation Regulation, aviation fuel suppliers will have to blend increasing amounts of sustainable aviation fuels (SAF) with kerosene, starting with a 2% minimum blend in 2025, and rising to 70% in 2050. According to the Commission press release, the Regulation is expected to reduce aviation CO2 emissions by around two thirds by 2050 compared to a ‘no action’ scenario, and to improve air quality.
The Directives have been published in the Official Journal of the EU on 31 October 2023 and will enter into force 20 days later.
EU: Commission publishes European Wind Power Action Plan
On 24 October 2023, the European Commission has unveiled a new plan to support the European wind industry and promises to deliver on 15 action points across six areas of interest, including faster permitting, updated auction support design and better access to finance. The European Wind Power Action Plan is not legally binding, and its implementation will require the adoption of dedicated European and national legislation. The timelines set by the Commission are not the same for all categories and action plans, but, overall, the new measures are expected to be adopted by the end of 2024. The Plan is accompanied by a Communication on delivering on the EU’s offshore energy ambition, Q&A and Factsheet. For more information, see our publication.
UK: Energy Act 2023 receives Royal Assent
Following a longer than anticipated passage through Parliament the Energy Act 2023 has now received Royal Assent. The Act provides the framework for the Government’s plans to reform the UK’s energy systems to ensure security of supply, develop resilience in the system and enable the UK to reach its net zero ambitions. The Act provides the mechanism through which the Government’s hydrogen and CCUS business models will be implemented and puts in place structures for systemic reform of the energy system. For more information, see our blog post.
Unpacking the UK Modern Slavery Act 2015 eight years on
The business and human rights landscape has changed significantly since the introduction of the UK Modern Slavery Act in 2015 (MSA 2015), which, at the time was a trailblazing piece of legislation. Regimes governing business’ human rights impacts have multiplied globally with the EU, in particular, leading the way with the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) proposal currently being negotiated, and several member states having already introduced (or are working on) their own regimes, such France, Germany, and the Netherlands (see our guide to key supply chain due diligence regimes across the globe). The rise in human rights-related legislation mirrors the increase in stakeholder and regulatory scrutiny of this area. In particular, we have seen this lead to a renewed focus on the UK's MSA 2015. For more information, see our blog post.
UK: Key developments in corporate governance on the horizon for UK companies and LLPs
Our two recent briefings help clients in the UK plan ahead and focus on some of the major legislative and regulatory developments which are set to have an impact on governance and reporting at UK companies and LLPs over the next few years. The key developments include (i) audit and governance reforms, the scope of which is now unclear following a significant change of government policy on 16 October, but which have the potential to affect internal controls, risk management, assurance policies and how companies report on them; (ii) the ongoing development of diligence and reporting regimes, which will frame a company’s approach to assessing and disclosing climate and wider sustainability risks; (iii) for listed companies, the proposed shake-up of the UK listing regime, which will affect the continuing obligations companies will need to comply with, and the drive towards greater efficiency through the digitisation of shares; and (iv) measures to fight economic crime and to make UK corporate structures more transparent, which will mean checking on anti-fraud controls and administrative procedures. The briefings include a handy summary of what is happening in respect of the UK Sustainability Disclosure Standards, climate transition plan disclosures, and nature-related disclosures. For more information, see our publications for listed companies and for private companies and LLPs.
UK: At a Glance: Governance and Risk
The latest edition of our UK Governance and Risk guide covers developments relating to: (i) climate and ESG matters, including the ongoing development of UK and EU disclosure frameworks, (ii) the progress of governance and audit reforms, including the proposed new reporting regulations which will affect very large UK companies, (iii) caselaw, market information and guidance relevant to UK directors, as well as the new duty to protect consumers of financial services and products, (iv) cyber-related issues, including a look at the use of AI, how to protect supply chains, UK laws relevant to digital assets and new US disclosure requirements, (v) the latest measures to combat economic crime, support UK sanctions and increase corporate transparency, (vi) developments aimed at encouraging diversity and inclusion in the workforce, (vii) the current position on the revoking of retained EU law, (vii) ongoing activities aimed at shaking up the UK’s financial services regime and enhancing Britain’s competitiveness, and (viii) for UK listed companies, new investor guidance on requisitioning resolutions at shareholder meetings, an update on “Say on Climate” resolutions, and streamlined requirements for electronic annual financial statements. For more information, see our publication.
UK: The Financial Conduct Authority indicates likely trajectory of listing reform proposals
On 16 October 2023, Nikhil Rathi, Chief Executive of the Financial Conduct Authority, delivered a speech at the Mansion House where he set out the “ingredients” necessary for the UK to increase its competitive advantage, both as a listing venue and in the financial services industry more generally. A key theme was the need to take a more balanced view of risk – not to be so afraid of failure that innovation is stifled. In line with that philosophy, yesterday also saw the Government withdraw the proposed regulations that would have imposed more onerous corporate governance disclosures on large UK listed and private companies and state its intention to set out options to further reduce the burden of red tape on businesses. For more information, see our blog post.
DEI and Employment
EU: Council adopts Amended Asbestos at Work Directive
On 23 October 2023, the Council of the EU adopted the amended Asbestos at Work Directive. This Directive was previously adopted by the European Parliament on 3 October 2023 following a political agreement reached on 27 June 2023. It is designed to protect workers from risks to their safety and health due to exposure to asbestos in the workplace. According to the Council press release, the new rules significantly lower current asbestos limits and provide for more accurate ways of measuring exposure levels based on electron microscopy - a more modern and sensitive method. They also include strengthened preventive and protective measures such as obtaining special permits for asbestos removal and checking for its presence in older buildings before starting demolition or maintenance work. The Directive will be published in the Official Journal of the European Union and will enter into force twenty days after publication. Member states have two years to incorporate all provisions into their national legislation except for introducing electron microscopy as a measuring method for which they will have six years.
UK: Chartered Institute of Personnel and Development publishes report finding lack of awareness and discomfort around DEI among boards
The High Pay Centre, an independent non-party think tank, has published a report by the Chartered Institute of Personnel and Development (CIPD) looking at the value of people expertise on the boards of the UK’s largest publicly listed companies. Key findings from the report include: (i) only 25% of FTSE 350 firms have a board member (both executive and non-executive) with a HR background, but all boards have financial expertise; (ii) 65% of boards have a director with a background in banking; (iii) 49% of boards include a director with a background in marketing/sales/advertising; and (iv) 41% of companies now have an ESG or impact committee. The CIPD report suggests that this lack of HR representation results in a significant mismatch between the skills and knowledge of boards, and those needed to understand the main people-related issues facing organisations – a ‘people insight deficit’. For more information, see our blog post.
Competition & Antitrust
Competition law remains a barrier to sustainability collaborations
A new survey commissioned by Linklaters has found that despite most businesses wanting to work together, 60% of survey respondents are still put off collaborating on ESG issues due to fear of breaking competition rules and the risk of litigation. Exposure to antitrust liability, whether at the hands of an agency or a litigant, is a concern for companies when considering partnering with competitors on ESG issues despite the 360 pressure they are facing to improve their sustainability performance. The survey of over 500 sustainability professionals in the UK, USA, France, Germany and the Netherlands indicated that guidance from EU and UK antitrust regulators is starting to have an impact, with companies increasingly having the confidence to work together on sustainability projects. We commissioned the same survey in 2020 and have put together a new report which compares the findings to see how far the needle has moved. For more information, see our report which looks at how business views on the risk of sustainability collaborations are evolving.
Green Deals: Can EU Merger Control support the bloc’s wider policy objectives?
The European Commission published its latest competition merger brief, setting out the views of staff in its Directorate General for Competition (DG Comp) on sustainability-related aspects in EU merger control. The competition spotlight has to date mainly focused on issues surrounding cooperation between competitors for environmental or sustainability goals. This paper changes tack – setting out the Commission’s approach to sustainability in its merger control function and explaining how its mergers work and the current legal framework support the European Green Deal. We have been considering this issue for some time and welcome the Commission’s new focus. The Commission claims, and we see in practice, that there is a clear trend towards sustainability becoming increasingly important in its merger reviews, while also recognising the limits of the Commission’s powers within the current legal framework (for instance in assessing sustainability-related efficiencies or designing green remedies). For more information, see our blog post.
UK’s Competition and Markets Authority publishes final guidance on environmental sustainability agreements
On 12 October 2023, the UK’s Competition and Markets Authority (CMA) published its “Green Agreements Guidance” in final form (having previously published and consulted on draft guidance in February 2023) (the Guidance). In doing so, it has firmly positioned itself as one of the most liberal regulator voices on the application of antitrust to environmental sustainability agreements. While there have been a number of changes from the draft Guidance, there is no movement in the position taken by the CMA on the key questions of principle. The Guidance will provide much-needed clarity to businesses on the antitrust boundaries for environmental efforts amongst industry players operating in the UK. While global initiatives will still have to contend with divergent approaches to enforcement in less ‘green’ jurisdictions, the CMA’s approach should open the door to further collaboration for UK agreements. For more information, see our blog post.
ESG-related investment litigation and regulations
Plaintiffs continue to bring legal challenges to pro-ESG investment policies. In October 2023, the Securities Industry and Financial Markets Association (SIFMA) (a national non-profit trade association for broker-dealers, banks, and investment firms) filed an amended complaint in the U.S. District Court for the Western District of Missouri challenging two new Missouri Securities Division rules (collectively, the Missouri Rules) that require financial firms and professionals to obtain written consent on a state-written script before providing advice that “incorporates a social objective or other nonfinancial objective.” The script requires clients to acknowledge that incorporating these objectives “will result in investments and recommendations/advice that are not solely focused on maximizing a financial return.” The amended complaint argues that the Missouri Rules, in addition to being overbroad and unnecessary, compel speech in violation of the First Amendment of the U.S. Constitution and are also pre-empted by the Employee Retirement Income Security Act of 1974.
Also in October 2023, the Alliance for Fair Board Recruitment and the National Center for Public Policy Research filed a petition in the U.S. Court of Appeals for the Fifth Circuit, requesting that the court grant rehearing en banc of their challenge to the Nasdaq board-diversity rule approved by the U.S. Securities and Exchange Commission (SEC) in August 2021. The rule requires Nasdaq-listed companies to publicly disclose information on self-identified gender and racial characteristics and LGTBQ+ status of the company’s board of directors. The groups’ initial challenge argued that the rule was discriminatory on the basis of race and sex in violation of First and Fourteenth Amendments to the U.S. Constitution and violated the SEC’s statutory obligations under the Securities Exchange Act (Exchange Act) and the Administrative Procedure Act (APA). The Fifth Circuit rejected their arguments, holding that the SEC’s approval complied with the Exchange Act and the APA and that the rule does not constitute state action and thus is not subject to constitutional constraints.
Some state attorneys general continue to double-down on anti-ESG investment policies. In October 2023, Texas Attorney General Ken Paxton issued an advisory letter providing guidance on the enforcement of a series of laws that restrict government entities from contracting with companies engaged in certain ESG-related activities, including companies that “boycott energy companies” and “discriminate against firearm entities or associations.” His office also launched a review of financial companies that are members of a Net Zero Alliance - a list that includes several major U.S. banks - to determine if they are “companies that boycott energy companies” in violation of Senate Bill 13.
Per- and polyfluoroalkyl substances litigation
Litigation related to per- and polyfluoroalkyl substances (PFAS) and other “forever chemicals” continues to proliferate in the U.S. In October 2023, the State of Delaware filed a lawsuit against thirteen chemical companies, alleging that the companies designed, manufactured, marketed, distributed, supplied, and/or sold PFAS-based aqueous film-forming foam (AFFF) products and other chemical products that resulted in significant environmental contamination and injuries to public health. The state argued that the defendants knew, or should have known, about the toxicity and environmental dangers posed by the chemical ingredients in their AFFF products and failed to provide adequate instructions and warnings with their AFFF products. The state seeks compensatory damages for past, present, and future injuries to Delaware’s natural resources and property, as well as punitive damages.
U.S. President and Department of Energy announces seven selected hydrogen hub proposals
In October 2023, U.S. President Joe Biden and the U.S. Department of Energy (DOE) announced that seven regional clean hydrogen hubs were selected for up to US$7 billion in Bipartisan Infrastructure Law funding. According to the announcement, the selected hubs are expected to catalyse more than US$40 billion in private investments, create tens of thousands of job opportunities, and eliminate carbon emissions by 25 million metric tons per year. The selected regional hydrogen hubs span 16 states and involve hundreds of partner companies. The projects that successfully complete the negotiation phase will move into a four-phased development structure with a phased release of DOE funding. For more information, see our publication.
Regulatory updates on management of climate-related financial risks and SEC climate disclosure rules
The Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) recently issued principles for the “safe and sound management” of climate-related financial risks for large financial institutions with more than US$100 billion in total consolidated assets. The principles, which are “designed to support efforts by large financial institutions,” discuss, among other things, a financial institution’s governance, policies and procedures, strategic planning, risk management, data reporting, and scenario analysis. The OCC, the Federal Reserve Board, and the FDIC also recently approved an interagency final rule that implements a revised regulatory framework for the Community Reinvestment Act.
Also, in October 2023, the U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler participated in a question-and-answer session with U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness where he discussed the upcoming SEC climate disclosure rules. On the topic of potential legal challenges to the upcoming climate disclosure rules, he noted that U.S. companies should support an SEC climate disclosure rule because otherwise many would have to comply with other jurisdictions’ disclosure rules, which may be more onerous.
Recent developments in offshore wind
On 27 October 2023, the U.S. Bureau of Ocean Energy Management (BOEM) announced it has finalised four Wind Energy Areas (WEAs) in the Gulf of Mexico for potential offshore wind leasing and development. The first WEA (Option J) is located approximately 47.2 miles off the coast of Texas and totals 495,567 acres. The second area (Option K) is located approximately 61.5 miles off the coast of Texas and totals 119,635 acres. The third WEA (Option L) is located approximately 52.9 miles off the coast of Texas and totals 91,157 acres. The fourth WEA (Option N) is located approximately 82 miles off the coast of Louisiana and totals 56,978 acres. On 30 May 2023, BOEM published a programmatic Gulf of Mexico Wind Lease Environmental Assessment (EA) pursuant to the National Environmental Policy Act that analysed the entire Gulf of Mexico call area, including the four final WEAs recently announced. Next, BOEM will issue a Proposed Sale Notice (PSN) or a 60-day comment period later this year or early next. The PSN will identify, among other things, the proposed areas to offer for lease in the WEAs, auction format, and qualified bidders to date.
On 19 October 2023, BOEM announced a draft WEA in the Gulf of Maine that covers approximately 3,519,067 acres offshore Maine, Massachusetts and New Hampshire, ranging from approximately 23 to 120 miles off the coast. The draft WEA represents a 64% reduction from the “Call Area”, which BOEM announced for comment in April 2023. The draft WEA has a combined capacity of over 40 GW (assuming a power density of 3 megawatts per square kilometer), which exceeds the current combined offshore wind planning goals for the Gulf of Maine states: 10 GW for Massachusetts; 3 GW for Maine. Additional reductions to the draft WEA may result from comments received. Next, BOEM will issue a final WEA in the Gulf of Maine.
Malaysia publishes its National Energy Transition Roadmap and Hydrogen Economy and Technology Roadmap
The Malaysian Government has been driving ahead of its Southeast Asian counterparts in its efforts to transition to a low-carbon future. It is also a government that is keen to stay ahead of the game, with the recent announcement on 13 October 2023 of the Budget 2024 that, amongst others, focusses on measures to stimulate the adoption of green energy in the country. As part of these efforts, various ministries have published roadmaps to inform the public of their strategic plans and goals of how it expects to achieve net zero greenhouse gas emissions as early as 2050. On 5 October 2023, the Hydrogen Economy and Technology Roadmap was launched which establishes an ambitious target for the country to be a leading hydrogen economy country with projected revenues of more than RM400billion by 2050. This followed the publication of the National Energy Transition Roadmap in July and August 2023 which identifies six energy transition “levers” to facilitate Malaysia’s energy transition along with catalyst projects under each lever. These “levers” collectively aim to reduce carbon emissions, generate investment / jobs and increase overall accessibility to clean energy resources. The six levers are (i) energy efficiency, (ii) renewable energy, (iii) hydrogen, (iv) bioenergy, (v) green mobility and (vi) carbon capture, utilisation & storage (CCUS). For more information, see our blog post.
The Monetary Authority of Singapore publishes consultation on proposed guidelines on transition planning for banks, asset managers and insurers.
On 18 October 2023, the Monetary Authority of Singapore (MAS) issued a set of consultation papers proposing guidelines (the Proposed Guidelines) on transition planning for banks, insurers and asset managers (collectively, the FIs). The Proposed Guidelines set out MAS’ supervisory expectations for FIs to have a sound transition planning process in place to enable effective climate change mitigation and adaption measurers by their customers and investee companies. The Proposed Guidelines are intended to supplement the Environment Risk Management (EnRM) Guidelines and information paper (see our previous blog post) with additional granularity in relation to the respective FIs’ transition planning process. The public consultation closes on 18 December 2023.
The Monetary Authority of Singapore publishes working paper on accelerating the early retirement of coal-fired power plants through carbon credits
The Monetary Authority of Singapore (MAS), together with McKinsey & Company, published a working paper on 26 September 2023 setting out how high-integrity carbon credits can be used as a complementary financing instrument to accelerate the early retirement of coal-fired power plants (CFPPs) in the region. The working paper sets out an “end-to-end approach” which looks at the key elements needed to effectively retire a CFPP early using “transition credits”, from project inception to project development. The working paper focuses on the following four areas: (i) the economics of early retirement of CFPPs (to determine the extent of the “economic gap” that could potentially be closed by capital from carbon credits), (ii) carbon credits as an instrument for early retirement of CFPPs (to consider what is needed for transition credits to be considered a credible financing tool), (iii) financing early retirement transactions (to identify barriers to financing such transactions with transition credits and how to mitigate identified risk) and (iv) early retirement project development and integrity (to illustrate possible transaction structures and appropriate safeguards for a “Just Transition”, and to identify stakeholders needed to enable such transactions). The working paper includes a proposed transition template which is intended as a standardised checklist for principal stakeholders (e.g. capital providers, carbon credit offtakers, power offtakers and renewable energy asset owners). The MAS has invited interested parties to join a coalition of partners to help progress this concept and identify suitable CFPPs to pilot integrating transition credits into the early retirement of such CFPPs.
Hong Kong’s SFC supports and sponsors the development of an industry-led voluntary code of conduct for ESG ratings and data products providers
On 31 October 2023, the Securities and Futures Commission (SFC) announced that it will be sponsoring and supporting the development of a voluntary code of conduct for ESG ratings and data products providers who are providing products and services in Hong Kong. The code will be developed by an industry-led working group, led by the International Capital Market Association (ICMA). It is intended that the code will align with international best practices as recommended by IOSCO and with expectations for ESG ratings and data product providers which have been introduced in other major jurisdictions. The working group’s terms of reference set a target to issue a draft code of conduct for industry consultation in Q1 2024. For more information, see our blog post.
Final regulations published for the China Certified Emission Reduction Scheme
On 19 October 2023, the Ministry of Ecology and Environment of the People’s Republic of China and the State Administration for Market Regulation jointly published the final version of the “Measures for the Administration of Greenhouse Gas Voluntary Emission Reduction Trading (for Trial Implementation)” (the Administrative Measures), such rules to come into effect on the same day as the date of publication. The Administrative Measures were finalised after the conclusion of a public consultation in August this year. Numerous drafting changes were made to the final version of the Administrative Measures when compared with the consultation draft. Most of these drafting changes, however, are technical in nature and the purpose and core provisions of the Administrative Measures remain unchanged; that is, to establish a unified regulatory framework for the trading and related activities with respect to voluntary emission reduction under the China Certified Emission Reduction Scheme. For more information, see our blog post.
China releases Global AI Governance Initiative
On 18 October 2023, the Cyberspace Administration of China released the Global AI Governance Initiative. Among other elements, the initiative maintains the stance taken in some of China’s earlier tech-related frameworks in respect of promoting the “S” in ESG. In particular, the initiative calls for a people-centric approach to developing AI that fosters mutual respect, equality, and mutual benefit, fairness and non-discrimination, and prioritises good ethics.
China envisages a carbon certification system by 2025
On 17 October 2023, China’s State Administration for Market Regulation released the “Implementing Opinions on Coordinating the Use of Quality Certification for Carbon Peak and Carbon Neutrality” (Implementing Opinions). The Implementing Opinions aim to establish a preliminary system for carbon peak and carbon neutrality certification by 2025, covering both direct and indirect carbon-related types of certifications. Under the Implementing Opinions, China will gradually establish a direct carbon-related certification system for carbon labelling of products, a carbon-related management system and service certification, and improve the indirect carbon-related certification system for green product certification, energy management system certification and environmental management system certification.
Tokyo Stock Exchange opens carbon credit market
Further to the “Technical Demonstration Project for Carbon Credit Market” commissioned by the Ministry of Economy, Trade and Industry (METI) in FY2022, the Tokyo Stock Exchange opened the carbon credit market and began trading on 11 October 2023. It was announced that the number of market participants had reached 188 as of the opening day.
In case you missed it
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Key Takeaways from our Inspiring Business Leadership for a Sustainable Future Panel in New York – Read our blog post
Meet our ESG team: Dearbhla – Read our blog post