ESG Newsletter – May 2023

Welcome to the ESG newsletter, our monthly update covering key developments in the UK, EU and globally on the full range of ESG topics. This issue covers the following developments from April 2023.

This month we cover:

  • Due Diligence
  • Sustainable Finance
  • Disclosure & Reporting
  • Climate Change & Energy
  • Competition & Antitrust
  • Diversity, Equity & Inclusion
  • USA
  • Asia
  • Middle East

Explore the key developments below

Due Diligence

EU: Parliament very close to finalising its negotiating position on CSDDD proposal

The European Parliament is in the process of finalising its negotiation position on the Commission’s February 2022 proposal for a Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) (see our previous client alert). The Council reached its own negotiating position on the CSDDD in December 2022 (see our previous blog post).

The Parliament’s legal affairs committee (aka JURI) voted on 25 April on changes to the Commission’s proposal (see EP press release). The official, consolidated version of the JURI wording is not yet available but see here and here for the unofficial/leaked versions.

In particular, the JURI committee wants the new DD regime to be extended to include EU-based companies with more than 250 employees and a worldwide turnover higher than 40 million Euro, as well as parent companies over 500 employees and a worldwide turnover higher than 150 million Euro. The rules would also apply to non-EU companies with a turnover higher than 150 million Euro if at least 40 million was generated in the EU. The JURI committee also wants fines to be at least 5% of the net worldwide turnover. According to the JURI proposal, the new obligations would apply after 3 or 4 years depending on the company’s size and turnover. One of the key sticking points (not just between the Parliament and Council but also within the Parliament itself) is whether the regime should apply to financial services. The Council wants to give Member States the right to choose whether to apply the regime to financial services when they implement the Directive into national law. The Parliament’s JURI committee, on the other hand, has voted to include financial services within the scope of the Directive.

However, the JURI text will now need to be voted on by the Parliament as a whole in a plenary session, expected to be sometime in May or early June. Ahead of the plenary vote, MEPs from other Committees can table amendments to the JURI report so it is not yet clear whether there will be any changes to the JURI text in the plenary session. 

Once the Parliament has finalised its negotiating position at the plenary vote, the formal negotiations between the Parliament and the Council (aka “trilogues”) can then commence. It is likely that there will be further, significant changes to the CSDDD proposal between now and its final adoption, which the Linklaters ESG team will be following closely. 

EU: Parliament adopts Deforestation Due Diligence Regulation 

The European Parliament has formally adopted the Deforestation Due Diligence Regulation (see EP press release). This follows the political agreement reached by the Parliament and Council in December 2022 (see our previous blog post). The Council now needs to formally adopt the Regulation before it can be published in final form in the Official Journal of the EU (OJEU) and come into force. We will report on the final Regulation in more detail once it has been published in the OJEU.

Sustainable Finance

EU: Commission consults on draft TSC for Taxo 4 and additional TSC for climate

The European Commission has published, for consultation a draft Delegated Act with technical screening criteria (TSC) for the remaining four environmental objectives under the Taxonomy Regulation, and a draft Delegated Act that amends the existing TSC for climate change. The consultation on the two draft Delegated Acts closes on 3 May. The Commission will then decide (based on feedback from the consultation) whether to make any changes to the drafts and will adopt the two Delegated Acts. Once the Commission has adopted the two Delegated Acts, the European Parliament and Council will then have four months (which can be extended by an additional two months) to scrutinise the Delegated Acts. They do not  have the power to amend the Delegated Acts – the most they can do is veto it. Provided neither the European Parliament nor the Council object to either of the Delegated Acts, these would then be published on the Official Journal of the EU and would apply from 1 January 2024. For more information, see our blog post

EU: Commission publishes responses to questions from ESAs on SFDR 

On 14 April, the European Commission published its long-awaited responses to the questions the European Supervisory Authorities (ESAs) had raised previously on the Sustainable Finance Disclosure Regulation (SFDR) – in particular regarding the “sustainable investments” test and the compliance requirements for Article 9(3) funds that track EU Paris Aligned Benchmarks (PABs) and  Climate Transition Benchmarks (CTBs). Overall, the responses are helpful for the industry (as they have not resulted in a tightening of standards as had been feared) and appear to be in line with the SFDR’s policy aim as a disclosure regime. The Commission has also helpfully back-tracked on previous guidance that Article 9(3) funds tracking EU PABs/CTBs must additionally comply with the Article 2(17) sustainable investment requirements – as they have now confirmed that passively tracking an EU PAB/CTB will be sufficient for the fund to be treated as an Article 9 product. For more information, see our blog post

EU: ESAs publish consultation paper proposing significant changes to SFDR RTS

On 12 April, the European Supervisory Authorities (ESAs) published a joint consultation paper seeking feedback on changes to the SFDR RTS in areas such as principal adverse impact (PAI) disclosures, the SFDR “do no significant harm” (DNSH) test and product level disclosures. This review has been in response to a mandate the ESAs had previously received from the Commission to review the SFDR RTS and is separate from the broader review of the EU SFDR rules that was announced by the Commission in January of this year (which we think will involve a more fundamental review of the SFDR Level 1 requirements). Interestingly, the ESAs have noted that their proposals in this consultation paper go further than the mandate they had received from the Commission on the basis that this is necessary to address the weakness/issues within the current framework. Overall, the proposed changes (if adopted) are quite significant and will require firms to potentially revisit their categorisation of Article 9/8+ products (because of changes to the DNSH test and PAI indicators), uplift existing PAI and product disclosures (due to the inclusion of additional PAI indicators and changes to the product templates) and also provide detailed disclosures of any product level GHG emissions targets. The deadline for feedback is 4 July and the ESAs have not indicated when they expect to publish final rules. For more information, see our client briefing

EU: Environmental NGOs take Commission to court over inclusion of nuclear and natural gas in Taxonomy

A number of environmental NGOs including Greenpeace are taking the European Commission to the Court of Justice of the European Union over its decision to include nuclear power in the EU green Taxonomy, arguing that this is contrary to the EU’s climate laws and risks diverting investments away from renewable energy (see Reuters coverage). A number of other environmental NGOs including ClientEarth and WWF are also commencing legal proceedings against the Commission for inclusion of natural gas in the green Taxonomy (see ClientEarth press release). The Commission is already facing a legal challenge from the Austrian government over the inclusion of nuclear power and natural gas in the Taxonomy (see our previous blog post).

EU: Latest ECB assessment finds quality of banks’ climate and environmental disclosures needs urgent improvement

On 21 April, the European Central Bank (ECB) published its third assessment report on the progress banks have made on disclosing climate-related and environmental risks as set out in the ECB’s November 2020 guide. Although, the ECB has found a significant increase in the amount of basic information banks have disclosed across categories, it notes that the quality of disclosure is often insufficient and most institutions “still need to make significant efforts to transparently disclose their exposure to C&E risks and further substantiate the disclosure of the practices they have put in place to mitigate C&E risk”. At present, external stakeholders are not given sufficient information on how banks could be affected by C&E risks, how they monitor these risks, which scenarios have been used, and how their business strategies have been amended following their findings. The report also finds that most in-scope banks are “largely unprepared” to disclose information under the EBA ITS on Pillar 3 disclosures on ESG risks and that banks will need to make “substantial efforts” to disclose the necessary ESG risk information.

UK: Bank of England update on climate change and prudential thinking

On 13 March, the Bank of England (BoE) published its latest report on climate-related risks and the regulatory capital frameworks for banks and insurers. It is the first update on the policy position of the BoE in relation to climate-related risks since the October 2021 Climate Change Adaption Report and follows on from various reviews of these risks, including the climate and capital conference in October 2022, the PRA’s thematic review and results of the 2021 Climate Biennial Exploratory Scenario (CBES). The BoE’s current position, as set out in the latest report, is that there will be no change to the existing policy, including: no change to time horizons; no requirement for firms to hold more capital against assets exposed to carbon-intensive energy sources; and no introduction of macroprudential tools to address climate-related risks. However, the report acknowledges that there are various uncertainties and concerns in relation to whether and how fully the current regulatory prudential framework captures climate-related risks, therefore substantial further research is required in a number of areas. In the interim, the short-term priority of the BoE is on ensuring firms improve their identification, measurement and management of risks. This includes robust and consistent financial/regulatory accounting, strategic actions to manage exposures and demonstrating in ICAAPs and ORSAs the analysis behind how the firm is comfortable that any material climate risks are appropriately capitalised. For more information, see our client briefing.

UK: FCA update on SDR and investment labels consultation

The Financial Conduct Authority (FCA) has received a significant response (around 240 written responses) to CP22/20, its consultation paper on sustainability disclosure requirements and investment labels (see our previous blog post for more detail on the consultation).  In order to take account of this significant response, the FCA now intends to publish its Policy Statement in Q3 this year (previously expected in Q2), and the proposed effective dates of the rules will be adjusted accordingly (see FCA press release). The FCA reports that there is broad support for the proposed regime and outcomes it is seeking to achieve, and it welcomes the rich, constructive feedback it has seen on some of the detail. Key points to note:

  • The FCA is carefully considering the feedback to ensure that first and foremost the regime protects consumers but also recognises and takes account of any practical challenges that firms may have. "This includes, but is not limited to, considering our approach to the marketing restrictions, refining some of the specific criteria for the labels and clarifying how different products, asset classes and strategies can qualify for a label, including multi-asset and blended strategies"
  • The Policy Statement will also clarify matters such as that primary and secondary channels for achieving sustainability outcomes are not prescribed, and that the FCA do not require independent verification of product categorisation to qualify for a label.
  • There will be a place for all in-scope products within the overall package of measures. The FCA agree it is important that consumers can navigate to those products that meet their needs and preferences. This includes products that may not qualify for a label, but nevertheless have some sustainability-related characteristics.
  • International cohesion with other regimes is in the mind of the regulator as it develops its policy.
Global: Climate Bonds Initiative launches certification scheme for corporates and sustainability-linked debt 

On 13 April, the Climate Bonds Initiative (CBI) announced a new certification scheme for corporates and sustainability-linked debt, representing a major expansion to the Climate Bonds Standards and Certification Scheme (see press release). Building on the strength of their green use of proceeds bond label, there are now two company-level certification options, helping to signpost to investors truly green issuers on a Paris-aligned pathway to 1.5C degrees. By extending the certification to an assessment at company-level, the certification extends not only to existing transition finance instruments such as sustainability-linked bonds but beyond to include general purpose bonds and equities. The new labels available are:

  • Level 1 - 1.5 degree aligned label, available to issuers, assets and debt instruments already aligned with 1.5-degree pathways (including those already near net-zero and those above net-zero but within sectoral 1.5-degree pathways with credible transition plans predicting alignment with those pathways going forward); and
  • Level 2 - transitioning to 1.5-degree, for issuers or sustainability-linked bonds with credible transition plans predicting alignment with 1.5-degree pathways by 2030, thus requiring such companies to have ambitious and deliverable transition plans. 

Corporates and SLBs from all sectors will be eligible for certification once sector-specific criteria are available.  In addition to pure-play renewable energy sectors, there are a host of other real-economy issuers in scope at launch, such as cement, steel and shipping.

Disclosure & Reporting

EU: CSRD – sector-specific reporting standards to be delayed

The European Financial Reporting Advisory Group (EFRAG) - which is developing the new European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) for the Commission - has said that drafting of the sector-specific ESRS will be delayed so that EFRAG can focus on helping companies implement the first set of ESRS standards (see press coverage). In November 2022, EFRAG submitted revised drafts of the first set of ESRS to the Commission, which is expected to adopt the final ESRSs as Delegated Acts in June. The Delegated Acts will then be subject to a scrutiny period by the Parliament and Council before they can come into force. For more information on the first set of ESRS, see our previous blog post.

Global: ISSB to consult in May on future priorities 

he International Sustainability Standards Board (ISSB) has said it will consult in May on its future priorities for the next two years (see ISSB press release). It has identified four potential projects: biodiversity, ecosystems and ecosystem services; human capital; human rights; and integration in reporting. The ISSB will also be consulting in May on changes to the SASB Standards to make these internationally applicable. The ISSB has also said that it will prioritise climate-related disclosures in its package of transitional reliefs to support companies applying its first two disclosure standards – S1 (general requirements) and S2 (climate) (see ISSB press release). So, in the first year of reporting, companies will be encouraged to prioritise information about climate-related risks and opportunities. In the second year, companies will be required to report on other sustainability-related risks and opportunities beyond climate. The ISSB has also indicated that companies that only report on climate-related risks and opportunities in the first year will not need to provide comparative information. The ISSB is aiming to adopt the final version of the first two disclosure standards, S1 and S2, towards the end of June 2023. For more information on S1 and S2, see our previous blog post

Global: TNFD publishes fourth and final draft framework on nature-related risks 

The Taskforce on Nature-related Financial Disclosures (TNFD) has published its fourth, and final, draft framework for the management and disclosure of nature-related risks and opportunities (see TNFD press release). The consultation closes on 1 June and the final version of the TNFD framework is expected to be published in September. According to the TNFD, market participants can now, for the first time, view a full representation of the framework, including the Taskforce’s proposed approach to disclosure metrics. The TNFD says it has made minor adjustments since the last release to its proposed risk and opportunity assessment process and reduced its proposed recommended disclosures from 15 to 14 based on feedback. For more information on the previous TNFD draft, see our previous blog post.  All businesses will be "strongly encouraged” by the TNFD to disclose all 14 metrics, where relevant, on a “comply or explain” basis. The metrics should enable organisations to report in line with global policy goals of the COP15 biodiversity conference (see our previous blog post).The TNFD has also released draft guidance on engagement with affected stakeholders; and draft guidance for four sectors: agriculture & food; mining & metals; energy; and financial institutions. Sector and biome guidance, including relevant disclosure metrics for each sector, are being made available through the TNFD’s online platform.  Additional sector and biome guidance will be released in the coming months on a rolling basis. The TNFD has also published a hypothetical case study with a fictional bank that is struggling to report in line with the draft recommendations. 

Climate Change & Energy

EU: Parliament adopts CBAM and EU ETS package 

The European Parliament and Council have formally adopted a legislative package that will establish a carbon bonder adjustment mechanism (CBAM) and make changes to the EU Emissions Trading System (EU ETS), which is part of the EU’s “Fit for 55” package (see EP press release and Council press release). This follows the political agreement reached by the Parliament and Council in December 2022 (see our previous blog post). The legislative package will now need to be published in the Official Journal of the EU (OJEU) before it can come into force. We will report on the final package in more detail once it has been published in the OJEU.

EU: Commission consults on 2040 climate target 

The Commission published a consultation on 31 March on the EU’s 2040 climate targets. The consultation, which closes on 23 June, is seeking views on measures to cut EU greenhouse gas emissions over the 2030s, and whether it should adopt a single net reduction target for 2040 or separate targets for carbon removals and emissions cuts. The Commission suggests a range of emissions trajectories from a “very low ambition” 65% cut to a “more than 90% emission reduction” by 2040. The intermediate goal is required under the EU’s existing Climate Law. Following the consultation, the Commission is expected to present a non-binding Communication on the 2040 target in Q1 2024. The 2040 target will lay the foundation for the EU’s post-2030 climate policy framework to ensure it is able to reach net zero by 2050.  The timing of the Communication is linked to the global stocktake under the Paris Agreement which will be held at COP28 in December. According to the EU Climate Law, the proposal for the 2040 target will be published at the latest within six months of the first global stocktake.

UK: Updated PLSA Stewardship and Voting Guidance focuses on climate, pay, workforce and diversity

The UK's Pension and Lifetime Savings Association (PLSA) has published updated Stewardship and Voting Guidelines for 2023. The guidance advises pension fund trustees, investment managers and other institutional investors on how to carry out their stewardship responsibilities, including through the exercise of their votes at annual general meetings of listed investee companies. The new guidance also states that its principles are drafted for a UK context but are globally applicable, therefore pension schemes may wish to apply the PLSA framework more broadly than just to their holdings in UK equities. As was the case last year, the new PLSA guidance is focussed on the topical issues of climate change, executive pay, and the encouragement of diversity. It emphasises the importance of planning for a climate transition and workforce considerations, in particular, the effects of the economic and cost-of-living crisis and that there is more work to be done to increase diversity within business leadership. For more information, see our client briefing

Global: Agreement to expand export credit support for climate-friendly and green projects

On 31 March, OECD countries reached an agreement in principle on an EU initiative to modernise the export credit rules to better support the green transition (see press release). The deal to update the ‘Arrangement on Officially Supported Export Credits’ is intended to provide streamlined terms and conditions, so that government-backed export finance can better meet the needs of exporters in an increasingly competitive landscape, while avoiding market distortions. At the same time, the agreement foresees an expansion of the scope of green or climate-friendly projects benefitting from extra incentives in the form of more flexible financial terms and conditions (i.e. eligible under a new 'Climate Change Sector Understanding' or CCSU). Such CCSU projects are to include projects related to environmentally sustainable energy production; CO2 capture, storage, and transportation; transmission, distribution and storage of energy; clean hydrogen and ammonia; low emissions manufacturing; zero and low-emission transport; and clean energy minerals and ores. The financial terms available are to be amended in several ways. The maximum repayment term will be increased from 18 to up to 22 years for CCSU related projects and from 8.5 and 10 years to up to 15 years for most other projects. Moreover, the minimum premium rates that export credit agencies are required to charge for their insurance cover will be reduced for longer repayment periods. Finally, further flexibilities regarding the schedule of repayments over the life of the financial package provided will be introduced. This reform is expected to come into effect later this year, once the participants complete their formal internal decision-making processes and agree to the new Arrangement text. We are already hearing positive feedback from our export credit agency clients that this reform could have a profound impact on the ability to further support green or climate-friendly projects.

Competition & Antitrust

UK: Linklaters response to CMA consultation on draft guidance on environmental sustainability agreements
We have submitted our response to the Competition Markets Authority’s (CMA) consultation on Draft Guidance on Environmental Sustainability Agreements. The draft guidance is intended to provide more certainty on antitrust risk for businesses that enter into agreements aimed at achieving environmental goals and reflects calls by businesses and practitioners for more clarity amid concerns that legal uncertainty could chill legitimate efforts to work together to combat climate change. In a nutshell, we welcomed the CMA’s progressive stance on the sustainability debate. We think it offers clarity on the key topics and is practically useful to businesses who want to collaborate on sustainability projects, and we made a number of suggestions. For more information on the Linklaters response, see here

Diversity, Equity & Inclusion

EU Pay Transparency Directive 

The EU Pay Transparency Directive was formally adopted by the European Parliament on 30 March  (see EP press release) and by the Council on 24 April (see Council press release). In a nutshell, the key provisions of the Directive are as follows:

  • End of pay secrecy: workers will have the right to information on pay of their colleagues in their category of work and candidates must be provided with pay ranges about prospective jobs;
  • Dissuasive penalties, including fines (potentially based on a company’s turnover), for employers that do not comply with the rules;
  • Pay reporting: companies with over 100 employees will have to report on their gender pay gap;
  • Companies will have to perform joint pay assessments if their gender pay gap is over 5%;
  • The Directive also defines intersectional discrimination for non-binary people for the first time in European legislation, and includes it as aggravating circumstances when determining penalties. 

The Directive will now be published in the Official Journal of the EU. The new rules will come into force 20 days after their publication. Member States will then have three years to transpose the Directive into national law as of its entry into force, so by 2026. While the deadline may seem far away, companies are rightfully starting to plan now for the transformational shift the new rules will bring. For more information, see our client briefings here and here

UK: UK whistleblowing laws under review

The UK government has announced that it will conduct a review of the whistleblowing framework introduced under the Public Interest Disclosure Act 1998. The announcement follows calls for reform of the law to enhance the protections available and to bring more whistleblowers within its scope. Its focus will be whistleblowing in the workplace, rather than disclosures made by journalists or third parties or in the context of business transactions. Evidence will be sought from whistleblowers, key charities, employers and regulators. The review is expected to conclude in Autumn 2023. For more information, see our client briefing

UK: New guidance on ethnicity pay gap reporting and positive action 

On 17 April, the government published its Inclusive Britain update report setting out the progress made in delivering its 2022 Inclusive Britain strategy for tackling unjust ethnic disparities. Alongside the report, it issued two sets of new guidance on: (i) ethnicity pay gap reporting; and (ii) positive action. Whilst there is no legal obligation on employers to report their ethnicity pay gap, the new guidance on ethnicity pay reporting is designed to help employers who voluntarily choose to report to collect ethnicity data, make ethnicity pay calculations, analyse and understand the results and consider evidence-based actions to address any unfair disparities. The new guidance on positive action in the workplace is intended to help employers understand how they can lawfully use the positive action provisions in the Equality Act 2010 to remove barriers to diversity and improve representation.


States and municipalities remain split on their approach to ESG issues

Several states remain committed to pursuing anti-ESG legislation. In April 2023, the Florida State Senate approved a comprehensive bill prohibiting state and local governments and financial institutions from considering ESG factors when making decisions related to, among other things, investing public funds, issuing bonds, and determining who receives government contracts. The bill also prohibits banks from discriminating against customers based on their political, religious, or ESG viewpoints. The Indiana State House of Representatives also approved an “anti-ESG bill,” amended by the Indiana State Senate, that would prevent state pension funds from considering ESG factors in investing decisions. Later in the month, the Kansas State Senate approved a similar bill that prevents Kansas state officials from using ESG factors when investing public funds or deciding who receives government contracts. While the Kansas bill was allowed to become law without the governor’s signature, the Florida and Indiana bills sit with their respective state governors for final approval.  

Meanwhile, certain institutions in pro-ESG states are making considerable strides to mitigate climate risks. In April 2023, two of the five employee pension funds in New York City, the Teachers Retirement System and the New York City Employees’ Retirement System, adopted Net Zero Implementation Plans to achieve their goal of net zero emissions in their investment portfolios by 2040. The implementation plans are based around four core strategies: (1) disclosing emissions and setting interim targets; (2) engaging portfolio companies and asset managers to be net zero-aligned; (3) investing in climate change solutions; and (4) divesting to reduce risk.

Greenwashing and ESG litigation continue to proliferate in federal and state courts

ESG issues continue to be at the center of high-profile litigation in the United States. In April 2023, a putative class action complaint was filed in a U.S. federal district court for the Eastern District of New York claiming that a laundry detergent manufacturer was engaged in greenwashing and misrepresented its laundry detergent by marketing it with environmentally friendly phrases like “Naturally Fresh” and “The Standard of Purity” despite the product containing high levels of a toxic chemical. Also in April 2023, a putative class action complaint was filed in a U.S. federal district court for the Eastern District of Wisconsin claiming that a major retailer misled customers by representing that its textile products were made from an environmentally friendly material, despite the products allegedly being made of an entirely different material that is manufactured through a process that emits hazardous air pollutants.

On 6 April, a Hawaii state judge rejected the Hawaii Department of Transportation’s motion to dismiss a lawsuit by youth plaintiffs accusing the state of violating their state constitutional right to a “clean and healthful environment” by failing to reduce greenhouse gas emissions in line with requirements under the state’s Zero Emissions Target and other laws requiring reduction of greenhouse gases and carbon from the transportation system. The case will move forward to trial in September, only the second climate case brought by youth plaintiffs in U.S. history to do so.

On 24 April, the U.S. Supreme Court declined to hear appeals from various oil and gas companies to move a growing number of climate change lawsuits from state courts to federal courts, which are often considered more friendly to corporate defendants. The lawsuits, filed by the state of Rhode Island and municipalities or counties in Colorado, Maryland, California, and Hawaii, were brought against the companies for their alleged contributions to climate change. The Court did not comment on the lawsuits, as is customary when it declines to hear a case.

EPA proposes new rules to accelerate the use of “clean vehicles”

On 12 April, the U.S. Environmental Protection Agency (EPA) proposed new federal vehicle emissions standards to encourage a more rapid transition to a “clean vehicles” future. The proposed standards would avoid nearly 10 billion tons of carbon dioxide emissions, improve air quality throughout the nation, deliver fuel savings for drivers, and reduce the country’s reliance on oil imports. The first proposed rule, the “Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light-Duty and Medium Duty Vehicles,” contains stringent emission standards for pollutants and greenhouses gases for light- and medium-duty vehicles. If the rule is adopted, the EPA projects that electric vehicles could account for 67% of new light-duty vehicle sales and 46% of new medium-duty vehicle sales by 2032. The second proposed rule, “Greenhouse Gas Standards for Heavy-Duty Vehicles - Phase 3,” applies to heavy-duty vocational vehicles and trucks typically used to haul freight, which would benefit low-income populations and communities of color that live near major roadways and are disproportionately exposed to pollution from heavy-duty vehicles. The EPA is currently requesting public comments for both proposals, which are projected to go into effect in 2027.


Hong Kong Stock Exchange publishes consultation on enhanced climate-related corporate disclosure requirements

On 14 April, the Hong Kong Stock Exchange published a consultation paper seeking market feedback on proposals to enhance climate-related disclosures under the ESG framework. The consultation proposes to mandate all issuers to make climate-related disclosures in their annual ESG reports, essentially upgrading the current “comply or explain” requirement to a mandatory climate-related disclosure requirement and lifting the bar to align with the International Sustainability Standards Board (ISSB) climate disclosure standards. Under the Exchange’s proposals, issuers will have to disclose any climate-related targets they have set, and whether any climate change mitigation and adaptation efforts they undertake will change their business models and strategies. They will also have to disclose the resilience of business models to climate change impacts. In addition, quantitative disclosures on the current effects and a qualitative description of the future effects on their financial position, performance and cash flows will be needed. The metrics and targets requirements cover disclosures of Scope 1, Scope 2 and Scope 3 GHG emissions; information on any internal carbon price maintained by issuers; and how climate-related considerations are factored into executive remuneration policy. For more information, see our blog post

Hong Kong Monetary Authority publishes climate risk stress test guidelines for 2023/24

 The Hong Kong Monetary Authority (HKMA) will be running its second climate risk stress test (CRST) over the course of the year from June 2023 to June 2024, to harmonise with the cycle of the HKMA’s supervisor-driven stress testing programme. The HKMA has published a set of guidelines for the CRST and made some adjustments to this second round of stress tests in respect of climate scenarios, assumptions, assessment approaches and reporting requirements. The adjustments have been introduced with the aim of obtaining a more comprehensive assessment of Authorised Institutions’ (AIs) exposures to climate risks, as well as further strengthening their capabilities in managing them. The stress test will continue to focus on physical risk and transition risk and will feature a short-term scenario assessing impacts from both climate and economic shocks. There will also be three long-term scenarios based on the Network of Central Banks and Supervisors for Greening the Financial System scenarios. The reporting standards are being made more detailed, and the HKMA has developed two sets of reporting templates for the short-term scenario and long-term scenarios. Apart from the reporting templates, participating AIs are required to submit an overview of their assessment highlighting the key financial impacts and risk drivers, description of methodologies used in the analyses and major findings from the stress testing results. Climate risk management is a key focus area for the HKMA, and the CRST allow AIs and the HKMA to assess the climate resilience of the banking sector. The HKMA is therefore encouraging AIs to take part in the CRST to learn about their vulnerabilities to climate change. 

Monetary Authority of Singapore launches Finance for Net Zero Action Plan

On 20 April, Singapore announced the launch of the Finance for Net Zero Action Plan. The FiNZ Action Plan sets out the Monetary Authority of Singapore’s (MAS) strategies to mobilise financing to support Asia’s net zero transition and decarbonisation activities in Singapore and the region. The FiNZ Action Plan expands the scope of MAS’ Green Finance Action Plan launched in 2019 to include transition finance. The FiNZ Action Plan sets out the strategy in the following four areas: (i) data, definitions and disclosures; (ii) a climate resilient financial sector; (iii) credible transition plans; and (iv) green and transition financing solutions and markets to support decarbonisation efforts and climate risk mitigation. MAS will also expand the scope of its sustainable bond and loan grant schemes to include transition bonds and loans. MAS also emphasises its aim to scale blended finance to mobilise financing for the decarbonisation of carbon-intensive sectors (e.g. managed phase-out of coal-fired power plants). In addition, MAS stated that it will support the development of carbon services and carbon credits markets in Singapore, to channel financing towards carbon abatement and removal projects in Asia. To enable the above outcomes, MAS will continue to grow and scale green fintech solutions and continue investing to develop the skills and capabilities of the Singapore workforce. 

Singapore and Mainland China establish Green Finance Taskforce

On 21 April, the Monetary Authority of Singapore (MAS) and the People’s Bank of China (PBC) announced the establishment of the China-Singapore Green Finance Taskforce (GFTF). The GFTF aims to deepen bilateral cooperation in green and transition finance between the two countries and facilitate greater public-private sector collaboration to better meet Asia’s needs in its transition to a low carbon future. The GFTF will establish three initial workstreams to focus on the following priority areas: (i) Taxonomies and Definitions: MAS and PBC will collaborate under the International Platform on Sustainable Finance (IPSF) to achieve interoperability between their respective taxonomies, while also work towards enhancing the use of the IPSF’s Common Ground Taxonomy (which puts forward areas of commonality and differences between the EU and China’s green taxonomies) and deepen understanding of transition activities defined by China and Singapore; (ii) Products and Instruments: The Singapore Exchange and China International Capital Corporation will establish a workstream to strengthen sustainability bond market connectivity between the two countries, including the issuances of and mutual access to green and transition bond products; and (iii) Technology: Metaverse Green Exchange and Beijing Green Exchange will establish a workstream that leverages technology to support sustainable finance, including piloting of digital green bonds with carbon credits.

Japan: Supervisory guidelines related to ESG funds have been finalised

On 31 March, the Financial Services Agency of Japan published the final version of the amended “Comprehensive Supervisory Guidelines for Financial Instruments Business Operators, etc.” (the Amended Supervisory Guidelines) with respect to publicly offered ESG investment trusts (ESG Funds) and the result of the public consultation on the draft Amended Supervisory Guidelines. Although the final version of Amended Supervisory Guidelines is substantially the same as the draft version that was published on 19 December 2022, there have been some updates based on the feedback to the public consultation. By way of example, the Amended Supervisory Guidelines now make it clear that: (i) an existing non-ESG Fund will be expected to change its name if the name contains ESG-related words; and (ii) the guidelines related to organisational resources and use of ESG rating and data providers are applicable to the non-ESG Funds as well as the ESG Fund. The Amended Supervisory Guidelines have been promulgated and come into effect as of 31 March 2023. For more information, see our previous blog post.

Japan: GX League publishes Basic Guidelines for Disclosure and Evaluation of Climate-related Opportunities

GX League (GX: green transformation) published the “Basic Guidelines for Disclosure and Evaluation of Climate-related Opportunities” (the Guidelines). GX League was established by the Ministry of Economy, Trade and Industry as a forum for cooperation between a group of companies, academic institutions and the government focused on carbon neutrality and economic growth. The aim of the Guidelines is to raise the awareness of the importance of climate-related “opportunities” and the assessment, evaluation and disclosure of such opportunities, and to lay the groundwork for discussions on climate-related opportunities and relevant metrics.

Mainland China and France publish joint declaration touching upon ESG topics

On 7 April, China and France published the Joint Declaration between the People’s Republic of China and France. Among others, the Joint Declaration touches upon topics in relation to carbon neutrality and sustainable investment. Major highlights include the statements on joint support to the development of green finance and sustainable capital markets, collaboration on civil nuclear energy to achieve the common aspiration of low-carbon energy transformation, cooperation with respect to urban sustainable development and carbon reduction on buildings, protection and sustainable management of forestry ecologic systems, etc.

Mainland China emphasises social responsibilities in draft measures for generative AI services management 

On 11 April, the Cyberspace Administration of China issued the Management Measures for Generative Artificial Intelligence Services (Exposure Draft) (the Draft Measures). The Draft Measures emphasise the social responsibilities that generative artificial intelligent providers should assume. Notable examples include, among others: (i) no discrimination during algorithm design, training data selection, model generation and optimisation, and provisions of services; (ii) no unfair competition through algorithm, data or platform; and (iii) suspension or termination of services to users who are in violation of business ethics or social morals. Service providers must also take appropriate measures to prevent users from overindulging in generated content. For more information, see our blog post

Middle East

UAE: Securities and Commodities Authority issues decision on regulation of green and sustainability-linked sukuk and bonds
The Securities and Commodities Authority (SCA) of the UAE issued a decision on the regulation of green and sustainability-linked sukuk and bonds. The decision applies to bonds and sukuk which are offered publicly in the UAE and requires that sustainable sukuk and bonds must comply with International Capital Markets Association (ICMA) principles and issuers are required to obtain a second opinion report to verify that its sustainable instrument complies with the ICMA principles. The decision also requires issuers to clearly disclose their criteria and methodology for identifying eligible green projects, their exclusion criteria and their risk management approach. The decision is considered a positive move in standardising the sustainability metrics in the region. 

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