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EU: Council fails to endorse CSDDD

Although a provisional political agreement on the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) had been reached by the Council and the European Parliament in December, the proposed Directive failed to achieve final approval in the Council on 28 February 2024. It is unclear at this stage whether further negotiations on the CSDDD will continue over the coming weeks or whether this will have to wait until after the European Parliament elections this summer. For more information, see our blog post.

Greenwashing

On 29 February 2024, the Council adopted a Directive on Empowering Consumers for the Green Transition (see press release). The new Directive (which is separate but complementary to the proposed Green Claims Directive) amends the Unfair Commercial Practices Directive (UCPD) and the Consumer Rights Directive (CRD) to improve consumer information on product durability, as well as ban greenwashing and other unfair commercial practices. The European Parliament approved the Directive on 17 January 2024. The Directive will now be published in the Official Journal of the EU and will enter into force on the 20th day following its publication. For more information on this Directive, see our blog post.

Global: ICMA publishes report on transition finance in debt capital market

In this report, the International Capital Market Association (ICMA) considers the latest recommendations from the ICMA Principles as well as other market and official sources for transition finance. The report breaks down transition finance into different categories while analysing the extent to which the sustainable bond market is financing the transition. It reviews the progress of international taxonomies to integrate transition, and also considers the latest developments on guidance for sectoral pathways and industry roadmaps.

The paper also discusses recent progress for international reporting standards and their implications for the availability of transition plans. ICMA noted that the formalisation of corporate sustainability reporting and standards, such as by the International Sustainability Standards Board (ISSB), the European Sustainability Reporting Standards (ESRS) and the UK Transition Pathway Taskforce (UK TPT) presents an opportunity for mainstreaming transition plans, which may unlock the potential of transition finance in the sustainable bond market. ICMA proposes that the market precedes or accompanies regulation by promoting the voluntary provision of transition plans by issuers, especially in the fossil fuels and hard-to-abate sectors. It believes, in particular, that it should be possible for an entity to align with IFRS S2, ESRS E1, the work of the UK TPT, as well as the recommendations of the CTFH, by publishing an integrated transition plan. The report contains a structure for such an integrated transition plan.

EU: Commission asked to delay adoption of SFDR RTS

A group of trade associations (including AFME, AIMA and EFAMA) have written a joint letter requesting that the European Commission delays the adoption of the Regulatory Technical Standards (RTS) measures proposed by the European Supervisory Authorities (ESAs), until a broader review of the SFDR regime is complete. The associations express concerns over the lack of coordination between the Level 1 and Level 2 review projects and call urge the Commission to consider merging the reviews.

In addition, the associations highlight the need for appropriate grandfathering measures, and request at least one year for implementation after any changes to the SFDR are published in the Official Journal of the EU. They suggest that this period should be extended to align with the availability of the underlying data and the scope of the changes. The associations argue that revising standards that have only recently been implemented is premature. For more information, see the European Fund and Asset Management Association (EFAMA) press release.

EU Platform on Sustainable Finance publishes report on market practices

The EU Platform on Sustainable Finance, an advisory body to the European Commission, has published its report titled "A Compendium of Market Practices". This report examines the engagement of seven stakeholder groups - corporates, credit institutions, investors, insurers, auditors and consultants, small and medium-sized enterprises (SMEs), and the public sector - with the EU taxonomy and other sustainable finance tools, such as the European Green Bond Standard. These tools are being utilized to shape transition strategies, structure financial transactions, and report on sustainability efforts.

The objective of this report is to assess how the EU sustainable finance framework can support and inform the transition efforts of economic actors. The market practices discussed cover three domains: the use of the EU sustainable finance framework for business strategy, transition planning and target setting; finance and transactions; and reporting, monitoring, and assurance. The report includes an annex with case studies for each stakeholder group, providing a comprehensive overview that will guide future priorities for the implementation of the EU sustainable finance framework.

US: SEC to vote on climate disclosure rules on 6 March

After much speculation of when this would happen, the U.S. Securities and Exchange Commission has scheduled a vote to adopt the climate disclosure rules next on 6 March 2024. The rules are expected to be adopted, and while there have been rumors that the SEC has scaled back the proposal, we will not know the extent to which the final version differs from the proposal until the final rules are published, which should be shortly after the vote. For more information, see our latest blog post.

EU CSRD reporting standards: where are we in February 2024?

Since the publication of our February edition of the ESG Newsletter, the following developments have occurred in relation to the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD):

• On 7 February 2024, the European Parliament and the Council announced their agreement with the European Commission's proposal to delay until 30 June 2026 the adoption of the sector-specific ESRS and the ESRS for non-EU entities doing business in the EU that meet specific thresholds. The text now needs to be formally approved by both the Council and the Parliament before it can be published in the Official Journal of the EU and enter into force.
• On 9 February 2024, European Financial Reporting Advisory Group (EFRAG) initiated a public consultation on the draft ESRS Set 1 XBRL Taxonomy. This digital taxonomy facilitates the marking up ('tagging') of sustainability reports in a machine-readable XBRL format. The ESRS Set 1 XBRL Taxonomy represents the digital transposition of the human-readable ESRS already adopted by the Commission. The consultation is open until 8 April 2024.
• At the end of 2023, EFRAG launched the ESRS Q&A Platform to collect and address technical questions, supporting the implementation of the first set of ESRS. On 6 February 2024, EFRAG published the first batch of technical explanations on the Q&A Platform, categorised according to their nature: cross-cutting; environmental; social; and governance. The second batch followed on 1 March 2024.

For more details on these developments, see our blog post.

UK: FCA goes live with UK SDR guidance page

The Financial Conduct Authority (FCA) has published a guidance page setting out its thoughts on how firms should consider the UK sustainability disclosure and labelling (SDR) regime and, where relevant, take steps ahead of the rules coming into effect. It also provides clarification around some common implementation questions the FCA has received, including the process for using a label, the application of the naming and marketing rules, and some general guidance around the selection of assets against a “robust evidence-based standard”. For more information, see our blog post.

EU: Commission recommends 2040 climate targets

On 6 February 2024, the Commission published an impact assessment and a Communication on pathways to make the EU climate-neutral by 2050. Based on this impact assessment, the Commission recommends a 90% net greenhouse gas emissions reduction by 2040 compared to 1990 levels. A legislative proposal to include the 2040 target in the existing European Climate Law will be made by the next Commission after the European elections. Once a legally binding target of 2040 has been adopted, the Commission will need to prepare a new post-2030 policy framework. The 2040 Communication is intended to start the political debate on that future policy framework. The 2040 target, once agreed upon, will serve as the basis for the EU’s new Nationally Determined Contribution (NDC) under the Paris Agreement, which will be communicated to the UNFCCC by 2025, ahead of COP30. A net greenhouse gas emissions figure for the EU in 2035 will be derived once the 2040 target is agreed upon, for communication as part of the new NDC.

The Commission notes that delivering the 2040 target will depend to a large extent on the full implementation of the 2030 climate and energy framework. The ongoing update of the National Energy and Climate Plans (NECPs) is a key element in monitoring progress towards the 2030 climate and energy targets. This must be complemented by a framework for a just transition and competitive sustainability. According to press reports, the Commission was criticised for not addressing emissions from the agricultural sector which is believed to be due to the farmers’ protests. The decarbonization pathways discussed in the Commission’s impact assessment and Communication focus on the energy and transport sectors instead.

The Commission notes that “the Green Deal now needs to become an industrial decarbonisation deal” that builds on existing industrial strengths like wind power, hydropower, and electrolysers, and continues to increase domestic manufacturing capacity in growth sectors such as batteries, electric vehicles, heat pumps, solar PV, CCU/CCS, biogas and biomethane, and the circular economy. Carbon pricing and access to finance are also critical to delivery of emission reduction targets by European industry. According to the Commission, a “European approach” on finance will be needed in the coming years.

In addition to the 2040 Communication, the Commission has also published a Communication on Industrial Carbon Management. The Commission stresses that achieving the 90% target will require both emissions reductions and carbon removals. This will require the deployment of carbon capture and storage technologies, as well as the use of captured carbon in industry. Carbon capture should be targeted at hard-to-abate sectors where alternatives are less economically viable.

EU: Political agreement reached on Net-Zero Industry Act

On 6 February 2024, the Parliament and the Council reached a provisional agreement on the Net-Zero Industry Act (NZIA). The NZIA’s goal is for the EU to make 40% of its own clean technology by 2030. Instead of providing subsidies like the US’ Inflation Reduction Act (IRA), the EU’s NZIA aims to boost investment in key technologies by simplifying permitting procedures and prioritising strategic technologies. The NZIA also introduces non-price criteria (such as resilience and sustainability) into public procurement rules that might exclude projects that rely too heavily on a single non-EU supplier. The NZIA will now need formal approval from the Parliament and the Council before it can be published in the Official Journal of the EU and enter into force. It will be directly applicable in all Member States. For more information, see our blog post.

EU: Political agreement reached on Certification Framework for Carbon Removals

On 20 February 2024, the European Parliament and the Council reached a provisional political agreement on the Carbon Removal Certification Framework (CRCF). This initiative seeks to build a statutory framework around projects taking place within the EU that generate carbon credits. Under the framework, methodologies (pursuant to which the carbon credits are generated) will be developed, monitoring and verification activities will be regulated, and a registry to hold the carbon credits generated will be established. There are also rules on how the credits can be used. It is hoped that the regulatory framework will bring greater confidence to private sector actors in the integrity of the carbon credits generated under the framework, thus stimulating the development and investment in the carbon removal activities, which will contribute towards achieving the EU’s net zero goals. For more information, see our blog post.

EU: Parliament approves Nature Restoration Law

On 27 February 2024, the European Parliament approved the compromise deal reached during the trilogues with the Council in November 2023 by a narrow majority. The Regulation on Nature Restoration (commonly referred to as the “Nature Restoration Law”) aims to improve the state of nature by setting binding targets and obligations for a wide variety of land and sea ecosystems. The new rules are intended to help restore degraded ecosystems across Member States’ land and sea habitats, support EU goals for climate mitigation and adaptation, and strengthen food security. For more information on the political agreement, see our blog post. The text must now also be adopted by the Council before being published in the Official Journal of the EU and entering into force 20 days later.

UK to exit the Energy Charter Treaty

The UK government announced on 22 February 2024 that the UK will leave the Energy Charter Treaty (ECT), in order to support the government’s plans for a transition to net zero. The UK’s withdrawal will take effect one year after the ECT Depository is notified. The ECT entered into force in 1998 and was designed to protect foreign investments in the energy sector. The UK government’s decision to withdraw from the ECT comes after efforts at adopting a ‘modernised’ version of the ECT failed. This would have allowed the treaty to be updated to preserve the acceptable parts but to remove the potential negative effects on the energy transition. For more information, see our blog post.

UK: New EHRC guidance on supporting menopause in the workplace

On 22 February 2024, the Equality and Human Rights Commission (EHRC) published new guidance for employers on supporting workers experiencing menopausal symptoms. The guidance clarifies employers’ legal obligations and provides suggestions of ways employers can support menopausal employees, including making variations to working arrangements, changing room temperatures and increasing ventilation, providing rest areas, and relaxing uniform policies. For more information, see our blog post.

UK: FTSE Women Leaders Review 2024 report

The FTSE Women Leaders Review reports annually on the percentage of women in leadership roles across the UK’s largest companies. It has set a voluntary target of at least 40% representation of women on FTSE 350 and the top 50 private companies’ boards and leadership teams by the end of 2025, with at least one woman in one of the four key roles (Chair, Senior Independent Director, CEO and Finance Director). Their most recent report, published on 27 February 2024, confirmed that women’s representation on FTSE 350 boards now stands at 42.1%. This is the highest ever level (up from just 9.5% in 2011), ranking the UK second place internationally for women’s representation on boards. However, progress in women’s representation in the top roles has been slower. There are just 21 women CEOs in the FTSE 350, up from 15 in 2011, highlighting the challenges that remain. For more information, see the FTSE Women Leaders Review.

UK: FCA conducts survey on non-financial misconduct

On 6 February 2024, the Financial Conduct Authority (FCA) launched the first phase of its sector-wide survey on non-financial misconduct. The UK’s financial regulator wrote to various regulated firms seeking statistics for the years 2021-2023 on: (i) the number of non-financial misconduct incidents recorded (by type/ category) and the method by which these incidents were detected (e.g. whistleblowing, surveillance within the firm); (ii) the outcomes of those incidents (e.g. dismissal, written warning, complaint not upheld); and (iii) the number of further outcomes recorded (e.g. non-disclosure agreements, employment tribunal). A response to the survey must be provided by no later than 5 March 2024. It is expected that the FCA will make equivalent requests to other regulated firms in due course. For more information on the FCA’s efforts to tackle non-financial misconduct, see our blog post.

US: SEC to vote on climate disclosure rules on 6 March

After much speculation of when this would happen, the U.S. Securities and Exchange Commission has scheduled a vote to adopt the climate disclosure rules on 6 March 2024. The rules are expected to be adopted, and while there have been rumors that the SEC has scaled back the proposal, we will not know the extent to which the final version differs from the proposal until the final rules are published, which should be shortly after the vote. For more information, see our latest blog post.

Climate litigation

Climate change litigation continues to rise in the U.S. On 20 February 2024, the City of Chicago sued six major oil companies in state court, alleging that the defendants funded and organised efforts to deceive consumers and the public about “the role of fossil fuel products in causing the global climate crisis.” The complaint claims that the defendants’ misrepresentations about and concealment of the hazards of fossil fuel use caused a significant increase in greenhouse gas emissions and accelerated climate change, resulting in devastating consequences to the City of Chicago and its residents. The plaintiffs seek compensatory damages, disgorgement, and equitable relief, including abatement of public nuisance.

On 2 February 2024, three environmental NGOs and several states filed separate suits in the Northern District of California against the U.S. Postal Service (USPS), challenging the agency’s decision to purchase and deploy 106,480 postal delivery vehicles without first performing an environmental review as required under the National Environmental Policy Act (NEPA). The complaints argue that, while the USPS plays a crucial role in national mail delivery, its vehicles emit significant amounts of greenhouse gases that “harm the health, welfare, economic, recreational, and aesthetic interests” of the NGOs’ members and the general public. The state and NGO plaintiffs request declaratory and injunctive relief.

Greenwashing / PFAS litigation

On 15 February 2024, two environmental groups filed suit against the U.S. Environmental Protection Agency (EPA) in the U.S. District Court for the District of Columbia, seeking to compel the EPA to disclose documents and information pursuant to the Freedom of Information Act (FOIA), in the EPA’s possession “relating to the formation of Per- and Polyfluoroalkyl Substances (PFAS), specifically long-chain perfluoroalkyl carboxylate (LCPFAC) substances, during the fluorination of plastic containers by [a Houston-based specialty plastics and chemical company].” The plaintiffs request injunctive and declarative relief.

Greenwashing litigation also continues to gain traction. On 6 February 2024, plaintiffs secured class certification in a lawsuit in the Northern District of California against a major paint manufacturer for false advertising. The complaint alleges that the company misleads and deceives customers by falsely advertising several of its cleaner/degreaser products as “non-toxic” and “Earth friendly” despite containing harmful ingredients. The lawsuit seeks declarative and injunctive relief.

On 30 January 2024, a putative class action was filed in the Northern District of California against a large American food company, alleging that the corporation uses deceptive labelling to conceal its child labour and child-slavery practices and environmental devastation in violation of California state law. The complaint alleges that the company falsely labels its products as “100% sustainable” while relying on child labour practices in its cocoa production and purchasing mechanisms and failing to follow any sustainable environmental protocols, “adversely affect[ing] the local ecosystem.” The plaintiffs seek restitution, disgorgement, injunctive relief, and monetary damages.

Also in January 2024, the National Consumers League, a consumer advocacy organization, sued a major coffee retailer in the Superior Court of D.C., alleging that the company made false and misleading statements advertising its coffee and tea products. The complaint alleges that the company misrepresented to consumers that it was committed to “100% ethical coffee sourcing” and to “100% ethically sourced tea” despite sourcing its coffee beans and tea from farms with documented human rights and labour violations. The plaintiffs claim the alleged misrepresentations and material omissions regarding the defendant’s ethical sourcing have harmed consumers in violation of the District of Columbia Consumer Protection Procedures Act. The plaintiffs seek declarative relief, injunctive relief, monetary damages, and punitive damages.

ESG legislation and investment strategy

Following California’s enactment of its climate disclosure laws, a number of other states are pursuing their own climate disclosure legislation. In January 2024, the Illinois General Assembly introduced the Climate Corporate Accountability Act (HB4268), which would require entities with total annual revenue exceeding US$1 billion conducting business in Illinois to disclose to the emissions registry and verify all of its Scope 1, Scope 2 and Scope 3 emissions.

State pension funds are also developing investment strategies prioritising emissions reduction goals.  In February 2024, the Oregon state treasury announced its plans to achieve net zero carbon emissions in the Oregon Public Employees Retirement Fund (OPERF) portfolio by 2050. The treasury aims to reduce the OPERF portfolio’s carbon emissions by, among other things, tripling climate positive investments, increasing the percentage of public equity holdings that are climate- or transition-aligned, and excluding new investments in funds that primarily invest in fossil fuels. The New York State Comptroller also recently announced that the New York State Common Retirement Fund (NYSCRF) will restrict its investments in eight oil and gas companies after reviewing the businesses’ “readiness to transition to a low-carbon economy.” The value of these holdings is estimated at US$26.8 million. The State Comptroller also set a new goal to invest US$40 billion in the Sustainable Investments and Climate Solutions program by 2035.

Anti-ESG legislation and legal challenges

Anti-ESG legal challenges and policies continue to rise in several states. On 21 February 2024, the Northern District of Texas denied a motion to dismiss a lawsuit against a major U.S. airline challenging the airline’s ESG-conscious 401(k) investment strategy. For more information on this case, see our ESG Disputes Bulletin – July 2023.

On 30 January 2024, five national business association advocacy organisations sued the California Air Resources Board in the Central District of California, alleging that California’s climate disclosure laws “unlawfully attempt to regulate speech related to climate change,” imposing immense costs on businesses. The complaint alleges that the state seeks to hold corporations accountable for climate change by mandating companies to “engage in controversial speech that they do not wish to make” in violation of the First Amendment of the U.S. Constitution. Further, the plaintiffs argue that the state climate disclosure laws operate as de facto regulations of greenhouse gas emission nationwide and are precluded by the federal Clean Air Act. The plaintiffs seek declarative and injunctive relief. For more information on the California climate disclosure rules, see our client alert.

On 22 January 2024, a major oil company sued two investors in the Northern District of Texas, challenging the investors’ push for a vote on a climate proposal that would accelerate the company’s pace of greenhouse gas emissions reduction goals. The complaint argues that the defendants’ climate proposal was a “sweeping intrusion into [the company’s] ordinary business operations” and was “designed to substitute Defendants’ preferences for the judgment of [the company’s] management and board in determining how best to operate the company in an efficient and environmentally-conscious way.” Although the investors decided to withdraw the proposal, the oil company plans to move forward with the suit, seeking declarative relief.

On 26 January 2024, Texas Attorney General Ken Paxton announced that a prominent British bank would no longer be allowed to underwrite Texas municipal bonds. The press release stated that this decision followed the bank’s failure to respond to information requests regarding its net zero carbon emissions commitments.

Regulatory challenges

In February 2024, an oil and gas trade association and a group of environmental NGOs filed separate petitions against the U.S. Department of the Interior (DOI) and the Bureau of Ocean Energy Management (BOEM) challenging the Biden administration’s 2024-2029 National Outer Continental Shelf Oil and Gas Leasing Final Program (the Final Program). The environmental NGOs’ petition for review aims “to hold the Interior Department accountable for failing to adequately consider the public health impacts on frontline communities” in the program. In contrast, the oil and gas trade association’s petition argued that the Record of Decision and Approval of the Final Program is “arbitrary, capricious, and not in accordance with law.”

China: Stock exchanges consult on mandatory sustainability reporting requirements for listed companies

On 8 February 2024, China's three major stock markets - the Shanghai Stock Exchange (SSE), Shenzhen Stock Exchange (SZSE) and Beijing Stock Exchange (BSE) - released for consultation their first guidelines on corporate sustainability reporting. These draft guidelines will require large companies listed on the SSE 180, Shanghai Science and Technology Innovation 50 (STAR 50), SZSE 100, and ChiNext indexes, as well as those with dual listings, to disclose on a wide range of sustainability topics starting in 2026. Small and medium-sized enterprises listed on the BSE, on the other hand, have the option to issue voluntary disclosures. The guidelines aim to standardise sustainability reports and help companies establish comprehensive governance mechanisms, to promote higher-quality disclosures and better inform investors about investee companies’ sustainability activities. This move puts China in line with other major markets, such as the EU and the US, which have already implemented or are planning to implement similar regulations. For more information, see our blog post.

Hong Kong SAR: Securities and Futures Commission includes ESG in its three-year priority action plan

Hong Kong SAR’s Securities and Futures Commission (SFC) has released its 2024-2026 action plan setting out the SFC’s priorities in capital market regulation and its approach to improve Hong Kong’s competitiveness as an international financial centre. One of the four strategic priorities is “leading financial market transformation through technology and ESG”. The ESG objectives are aimed at supporting Hong Kong’s position as a leading sustainable finance hub through: (i) steering the local and regional development of corporate sustainability disclosure standards with a pragmatic approach; (ii) being a regional and global leader to bridge the gap between emerging and developed economies; (iii) driving growth by bridging Mainland China’s carbon markets with international investors; (iv) supporting the development of a healthy and integral ESG ecosystem by growing local ESG products and markets; (v) stemming greenwashing; (vi) nurturing sustainable finance talent; and (vii) reducing the SFC’s carbon footprint with its carbon neutrality roadmap.

Hong Kong: Monetary Authority includes green and sustainable banking as a priority area for 2024

On 31 January 2024, in a speech by Arthur Yuen, Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA), the HKMA set out its work priorities for 2024, which included for green and sustainable banking in the following areas: (i) disclosure on climate-related financial risks: preparatory work on adopting Basel’s proposed disclosure framework; (ii) taxonomy: finalise and issue the taxonomy and continue the development of the taxonomy in the second phase; (iii) transition planning: issue observations and guidance on best practices and organise seminars or workshops; (iv) physical risk assessment platform: launch platform and make enhancements based on feedback; (v) capacity building: developing the professional level of ECF-GSF; and (vi) supervision of climate risk management: thematic exams on climate risk management practices; consultative sessions on implementation of HKMA’s supervisory expectations; and completing the second round sector-wide CRST.

Hong Kong SAR: Government issues its first multi-currency digital green bond

The Hong Kong SAR government issued approximately HK$ 5.9bn multi-currency digital green bonds on 7 February 2024. The two-year multi-currency (i.e. US dollar, euro, HK dollar and Renminbi) digital green bonds were issued in dematerialised book entry form, with the definitive records of legal title to such bonds being maintained using distributed ledger technology on the HSBC Orion digital assets platform operated by the Central Moneymarkets Unit (CMU) of the HKMA. HSBC Orion refers to the distributed ledger technology platform deployed by HSBC to the CMU as the platform operator for the purposes of, among other things, recording, clearing and settling the digital green bonds. The issuance combines digitalisation with green bonds to promote a sustainable and responsible development of the digital capital markets. In addition, the issuer’s green bond documentation can be viewed on the digital assets platform, enhancing transparency and information accessibility by platform participants. The bonds are issued in digitally native format, without the need to first issue in a conventional clearing system and subsequently converted into digital format, making this the first digitally native bond issuance in Hong Kong. Investors may, directly or indirectly, hold the bonds through the CMU as a digital securities intermediary. By connecting to CMU’s traditional clearing and settlement platform, the bonds benefit from CMU’s linkage with Euroclear and Clearstream, thereby reaching a wider pool of investors and enhancing liquidity. The digital green bonds are listed on The Stock Exchange of Hong Kong Limited. For more information, see our press release.

Hong Kong: Cross-Agency Steering Group launches new greenhouse gas emissions calculation and estimation tools

On 21 February 2024, the Green and Sustainable Finance Cross-Agency Steering Group launched an updated website with enhanced database and tools to serve as a one-stop hub for green and sustainable finance information. Key enhancements of the website include greenhouse gas emissions calculation and estimation tools as well as the sustainability disclosure e-portal and centralised sustainability data and information. The tools, developed by the Steering Group in collaboration with the Hong Kong University of Science and Technology, are available for free public access. The aim is to support sustainability reporting and decarbonisation efforts by corporates and financial institutions in Hong Kong by improving the availability and quality of sustainability-related data in the real economy.

Stock exchanges in Southeast Asia establish sustainability ecosystem

On 15 February 2024, the Bursa Malaysia Berhad (Bursa Malaysia), the Indonesia Stock Exchange (IDX), the Stock Exchange of Thailand (SET) and the Singapore Exchange (SGX) announced a collaboration to develop an “ASEAN-Interconnected Sustainability Ecosystem” (ASEAN-ISE). The aim of the initiative is to put in place common ESG metrics into each exchanges’ respective data infrastructures. The objectives of the ASEAN-ISE initiative include: (i) creating an integrated ESG ecosystem to promote the progress of sustainable development in ASEAN; (ii) enabling economies of scale through cost efficiency; and (iii) assist ESG-compliant corporates improve the quality of their disclosures and good ESG practices. This initiative reflects the commitment of the four exchanges to drive sustainable development in the ASEAN region, develop infrastructure solutions to facilitate cross-border trade flows, connect corporates’ supply chains to ESG-oriented investment capital, and provide suppliers with good ESG practices and disclosures.

Malaysia: Consultation on adopting ISSB sustainability disclosure standards

On 15 February 2024, Malaysia’s Advisory Committee on Sustainability Reporting (ACSR) published a public consultation paper seeking market feedback on the approach and timing for adoption of the mandatory sustainability disclosure standards issued by the International Sustainability Standards Board (ISSB) for listed issuers. Under the ACSR’s proposed approach, Main Market listed issuers (i.e., established companies that have met the quality, size and operations requirements) will be required to fully adopt the ISSB climate disclosure standards for financial year end (FYE) 31 December 2027. Access, Certainty, Efficiency (ACE) Market listed issuers (i.e., companies assessed by sponsors to have growth prospects) and large non-listed companies with annual revenue of RM 2 billion (approx. USD417 million) and above will follow suit by adopting the ISSB standards for FYE 31 December 2029. This proposed approach aligns with the approach taken by several countries in the APAC region, who are proposing to adopt the ISSB standards and making climate and sustainability disclosure mandatory. The consultation period will end on 21 March 2024. For more information, see our blog post.

China: New trading rules for voluntary carbon markets

On 4 February 2024, the State Council published China’s first regulation governing voluntary carbon emissions trading titled Interim Regulations on the Management of Carbon Emissions Trading, which will be effective on 1 May 2024. The regulation aims to provide a legal framework for the operation of China's voluntary carbon emissions trading market. The regulation focuses on the allocation of responsibilities, designating the State Council's ecological and environmental departments to oversee and manage voluntary carbon emissions trading. The regulation also specifies details including the products eligible for trading, trading methods and the distribution of carbon emissions quotas. Penalties for emissions data fabrication are provided for in the new regulation.

China: Guidelines on carbon emission in the industrial sector

On 4 February 2024, the Ministry of Industry and Information Technology issued the Guidelines for the Establishment of Carbon Peak and Carbon Neutrality Standard System in the Industrial Sector (Guidelines). The Guidelines aim to: by 2025, establish a preliminary carbon peak and carbon neutrality standard system in the industrial sector, with more than 200 urgently needed standards for carbon peak being formulated; and by 2030, establish a relatively complete industrial sector carbon peak and carbon neutrality standard system. In particular, the Guidelines provide a standard system framework and lay out key areas for formulation of the carbon peak and carbon neutrality standards. These standards consist of the following five major categories: (i) basic and universal standards; (ii) accounting and verification standards; (iii) technology and equipment standards; (iv) monitoring standards; and (v) management and evaluation standards.

China: Guidelines to establish a waste recycling system

On 9 February 2024, the State Council issued the Opinions on Expediting the Establishment of a Waste Recycling System (Guidelines). The Guidelines set goals that “by 2025, a waste recycling system covering all fields and links will be initially established, and by 2030, a comprehensive, efficient, regulated and well-organised waste recycling system will be built up, and the value of various waste resources will be fully utilised, and the overall level of waste recycling will rank among the top in the world”. The measures to be taken under the Guidelines include promoting “meticulous management” and effective recycling of industrial and agricultural waste, improving the level of recycling and reuse of waste, strengthening recycling of key waste, fostering the recycling industry, optimising recycling policies and mechanisms, and enhancing the organisational implementation of the Guidelines.

China: Green Bond Standard Committee issues notice on green bond disclosure guidelines

On 31 January 2024, the China Green Bond Standard Committee (CGBSC) issued the Notice on Application of Guidelines for Disclosure of Green Bonds Duration Information on Green Debt Financing Tools (Application Notice). The Application Notice follows the Guidelines for Disclosure of Green Bonds Duration Information (Guidelines) issued by the CGBSC in November 2023, which aims to improve the transparency as to how funds raised from green bonds are used. On top of the Guidelines, the Application Notice also sets out the disclosure requirements for both existing and newly issued green debt financing tools, the disclosure form, and the scope of the Application Notice.

Japan: World’s first sovereign transition bonds

On 14 February 2024, the Ministry of Finance of Japan conducted an inaugural auction of JPY 800 billion of 10-year GX (Green Transformation) Economy Transition Bonds. Japan's transition bonds are the first sovereign bonds in the world that aim to lower emissions in traditionally high-polluting industries by facilitating the deployment of technologies such as hydrogen supply networks, carbon capture and utilization, synthetic fuels and fast nuclear reactors. Ahead these transition bonds being issued, the Japanese government published the Japan Climate Transition Bond Framework, which describes, among other things, how the proceeds are expected to be used and the process for evaluating and selecting projects. The GX Economy Transition Bonds will be implemented in alignment with this framework. Although the green premium was less than market expectations, the strong demand showed a considerable interest with bids triple the issuance size. Over the next 10 years, the Japanese government aims to issue a total of JPY 20 trillion (USD 133 billion) in transition bonds on the fledgling market.

Indonesia: New regulatory framework for carbon, capture and storage launched

On 30 January 2024, the President of the Republic of Indonesia issued Presidential Regulation No. 14 of 2024 on Carbon Capture and Storage (CCS) (PR 14/2024). PR 14/2024 takes effect as of its enactment date. Shortly before PR 14/2024, on 12 January 2024, the Special Task Force for the Implementation of Upstream Oil and Gas Business Activities (SKK Migas) issued Working Guidelines No. PTK-070/SKKIA0000/2024/S9 on Implementation of CCS and CCUS in PSC Contractors' Working Area (PTK 070). Based on PR 14/2024, CCS business activities can be conducted in either: (i) an upstream oil and gas Working Area based on a Cooperation Contract (most commonly, a Production Sharing Contract (PSC)); or (ii) a Carbon Storage Licence Area based on Exploration Licence and Storage Operation Licence, using depleted reservoir or saline aquifer storage. PR 14/2024 provides that the carbon storage capacity is prioritised for domestic carbon emitters as a PSC Contractor or the holder of Storage Operation Licence shall allocate 70% of its carbon storage capacity for domestic carbon storage. For further information on CCS/CCUS regulatory developments in Indonesia, listen to our previous podcast.

Indonesia: Updated version of “traffic light” taxonomy issued

On 20 February 2024, Indonesia published an updated version of its taxonomy or “green investment rulebook”. The taxonomy is based on a traffic light system which defines “green” investments as those aligned with Indonesia's climate goals, “amber” for those activities which support the transition to a low carbon economy, and “red” for those activities that harm the environment. Under the new version of the taxonomy, captive coal power plants can be labelled as “amber” transitional activities if they meet certain criteria, such as being built before 2031, shutting down before 2050, and committing to reduce greenhouse gas emissions by 35% within 10 years. The “amber” category also applies to the mining of critical minerals for clean technology, such as nickel for EV batteries, if certain criteria is met. The updated version of the taxonomy also lists investments that support the early retirement of coal-fired power plants as “green”. The plan to include financing for new coal power plants in the taxonomy has been criticised by environmentalists arguing such plants are a significant source of carbon emissions. However, as reported in the press, Indonesia's Financial Services Authority (OJK) chief Mahendra Siregar defended the position, stating that it takes a comprehensive approach to balancing environmental, social, and economic aspects. Despite global banks stopping funding coal assets, Indonesian lenders continue to finance such projects due to their importance of coal and nickel for the Indonesian economy.

Updated version of ASEAN Taxonomy for Sustainable Finance

On 19 February 2024, the updated iteration of the ASEAN Taxonomy for Sustainable Finance (Version 2) was released by the ASEAN Taxonomy Board (ATB). This followed the targeted stakeholder consultation which finished in November 2023. The new version incorporates feedback from stakeholders to improve the clarity and usability of the taxonomy. As reported in the ATB’s press release, revisions made in the new iteration included clarifying the definitions and criteria for Environmental Objectives as well as updated guiding principles. The revisions also included a finalised criteria for coal phase out and finalised “Do No Significant Harm” guiding principles.

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