Follow us

Follow us

Welcome to our monthly ESG Newsletter.

There's a lot happening in the environmental, social and governance (ESG) space, and we don't want you to get lost in the quagmire. In our newsletter, we share our latest ESG insights and identify must-know developments from the UK, EMEA and around the world.

Read on for our December edition in which we cover COP28 highlights, the UK Financial Conduct Authority's package of measures on sustainability disclosure requirements and investment labels, the end of the road for ClientEarth's shareholder litigation against Shell's board of directors, EU lawmakers' provisional agreement on clearer and tougher environmental offences, and more.

Round up of our latest ESG insights

COP28 & Climate
  • Our dedicated COP28 insights hub brings you resources and updates that chart the progress of climate negotiations, as well as insights into how negotiation outcomes might impact you
  • Our climate disputes insights hub brings you a series of articles that explore the ways climate change is triggering a new way of disputes
Sustainability
Employment

Overview of recent ESG developments

See below for summaries of the latest key ESG developments in the UK, EU and from around the world, starting with the most recent developments.

UK highlights
EU highlights
International highlights

UK highlights

CMA announces investigation into Unilever's green claims

On 12 December 2023, the CMA announced that it is investigating green claims made by Unilever for some of its household products which include certain cleaning products and toiletries. The CMA is concerned that Unilever may be exaggerating the green credentials for these products by using vague and broad claims, unclear statements and the use of misleading images.

This follows on from the CMA’s investigation into the fast-moving consumer goods sector more widely, launched in January this year, during which the CMA has uncovered a number of practices that give cause for concern. The CMA is now gathering further information in order to carry out a detailed investigation.

Read more

Government announces Forest Risk Commodities Scheme to establish deforestation due diligence requirements in supply chains

On 9 December 2023 - Nature Day at COP28 - the UK government announced the Forest Risk Commodities Scheme, which would require businesses to establish and implement a due diligence system for forest risk commodities, and any products derived from them, that they use in their UK commercial activities. This follows the government's consultation in 2021 on implementing regulations to tackle illegal deforestation in supply chains.

The scheme will be introduced as secondary legislation under the provisions in Schedule 17 of the Environment Act when "parliamentary time allows" and will cover the following regulated commodities: non-dairy cattle products (beef and leather), cocoa, palm and soy. Organisations in scope will be those using these commodities in UK supply chains with a global turnover of £50 million. Enforcement will be by way of civil sanctions with unlimited variable monetary penalties. The government's announcement does not address legislative timings so it is not yet clear when the scheme will enter into force.

Regulations made to bring Carer’s Leave Act into force

On 4 December 2023, regulations were made bringing the Carer’s Leave Act 2023 into force. The Act inserts new provisions to the Employment Rights Act 1996 to give employees a day-one right to one week’s unpaid leave (pro-rated) each year to provide or arrange care for a dependent with a long-term care need. However, further regulations are needed to implement the detail so employees will not be able to exercise the new right yet (the expected implementation date is April 2024). Employers will need to review, and where necessary amend, existing policies to reflect the new right once it is in force.

Read more

Chris Packham challenges government's net-zero policy changes

On 1 December 2023, TV nature presenter and environmental campaigner, Chris Packham, filed an application with the High Court seeking permission to apply for judicial review of the government's new approach to its net-zero policy. Rishi Sunak announced the new policy approach in September 2023, which includes delaying the sales ban on new petrol and diesel cars from 2030 to 2035, abandoning requirements on landlords and homeowners to meet energy efficiency targets, and scrapping plans to ban new oil and gas in the North Sea. Chris Packham's grounds for judicial review are that the government:

  • breached its ongoing obligation under section 13 of the Climate Change Act 2008 (CCA 2008) to have proposals and policies to meet carbon budgets to achieve net-zero greenhouse gas (GHG) emissions by 2050;
  • failed to take into account considerations listed under section 10 of CCA 2008, such as proposals and policies to meet carbon budgets to achieve net-zero GHG emissions by 2050;
  • failed to properly consult on the changes, in particular, by failing to take into account ongoing consultations dealing with off-grid heating and minimum energy efficiency in rental properties;
  • based its decisions on misinformation, for example, that the UK has over-delivered on previous GHG reduction targets and so no longer needed some measures; and
  • breached its duty to inform the public of its reasons for the decisions to change the policy.
House of Commons Environmental Audit Committee publishes report on role of financial sector in UK's transition to net zero

On 29 November 2023, the House of Commons Environmental Audit Committee (EAC) published a report, The financial sector and the UK's net zero transition. The report highlights that the UK government's position to shift the onus of responsibility to the private sector, and rely on market mechanisms, will not move the dial fast enough to address the nature and climate crises. The EAC notes that progress has been slow since the government announced its ambition to become the first net zero-aligned financial centre when it hosted COP26 in Glasgow 2021. It also emphasises that the ratio of investment capital in low-carbon energy as compared to fossil fuels needs to quadruple from 0.9:1 to 4:1 by the end of the decade. The EAC urges the government to take forward a number of initiatives, such as:

  • in its upcoming consultation on climate transition plans, consider making it compulsory to have and to disclose a transition plan;
  • introduce regulations to ensure that companies develop and disclose their transition plans in accordance with the UK's Transition Plan Taskforce's (TPT) guidance;
  • set out regulatory expectations for transition plans and establish an independent mechanism for monitoring, evaluating and verifying their effectiveness;
  • publish stakeholder guidance on how "just transition" principles should be considered within the transition plan framework;
  • set out an implementation timetable for the sustainability disclosure requirements (SDR), including making reporting mandatory under the Taskforce on Nature-related Financial Disclosures (TNFD) framework; and
  • develop a UK Carbon Border Adjustment Mechanism.
Financial Conduct Authority publishes long-awaited package of measures on sustainability disclosure requirements, investment labels and anti-greenwashing

On 28 November 2023, the Financial Conduct Authority (FCA) published a Policy Statement setting out its final rules on UK SDR and investment labels. Following the high-level structure set out in last year’s Consultation Paper, the regime comprises investment labels, consumer-facing disclosures, detailed product-level and entity-level disclosures, naming and marketing rules and a general anti-greenwashing rule. Timing-wise:

  • The anti-greenwashing rule, which applies to all FCA-authorised firms, will come into force from 31 May 2024.
  • The investment labels, consumer-facing and pre-contractual disclosures and naming and marketing rules, which apply to UK asset managers, take effect from 31 July 2024, and periodic disclosures apply a year later, from 31 July 2025.
  • For products which are not using labels but have sustainability-related terms in their names or marketing materials, the consumer-facing and pre-contractual disclosures and naming and marketing rules apply from 2 December 2024, and the periodic disclosures apply 12 months after the first use of the sustainability-related terms.
  • Entity-level disclosures will be required by asset managers with more than £50 billion in assets under management (AUM) from 2 December 2025 and by those with more than £5 billion in AUM a year later.

Separately, the UK government and FCA have been considering SDR for companies. An FCA consultation on the implementation of these requirements is expected in the first half of 2024. See our blog post here.

Read more - SDR Policy Statement

Read more - Anti-greenwashing rule

Private Members' Bill seeks introduction of duty to prevent human rights and environmental harms on companies and public authorities

On 28 November 2023, Baroness Young of Hornsey introduced the Commercial Organisations and Public Authorities (Human Rights and Environment) Private Members' Bill to the House of Lords. The Bill seeks to impose an overarching duty on companies and public authorities to prevent environmental and human rights harms in their own operations, products and services, those of their subsidiaries and throughout their value chains. Those in scope of the Bill are "relevant commercial organisations" within the meaning of section 7(5) of the Bribery Act 2010 and "any public authority" within the meaning of section 2(2) of the Procurement Act 2023.

The Bill also introduces a duty to conduct reasonable due diligence which, as a minimum, requires those in scope to:

  • integrate human rights and environmental due diligence into policies and management systems;
  • identify, assess and address actual or potential human rights and environmental harms through prevention, mitigation and remediation;
  • establish or participate in and maintain effective grievance mechanisms;
  • track, verify, monitor and assess the effectiveness of measures taken and their outcomes; and
  • communicate with stakeholders and report publicly.

Non-compliance could result in civil and criminal liabilities, including personal liability for directors, and regulatory fines of up to 10% of an organisation's global turnover.

While only a small minority of Private Members' bills go on to receive Royal Assent, they nevertheless have the potential to raise the profile of particular issues. Baroness Young's Bill is likely to be closely watched, given the UK government's indication that it will not be replicating the measures contained in the EU's Corporate Sustainability Due Diligence Directive, and its failure to date to progress the Modern Slavery Bill.

Read more

FCA review finds more work needed to fully embed "guiding principles" for ESG and sustainable investment funds

On 16 November 2023, the FCA published a review highlighting that while most Authorised Fund Managers (AFMs) have made efforts to comply with the FCA's expectations on the design, delivery and disclosure of their ESG and sustainable funds, it considers that further improvement is needed, particularly around the disclosure and clarity of information being given to retail investors and consumers. The regulator published its review of AFMs' practices ahead of its final rules and guidance on the SDR and investment labels regime (see above). The review also found other examples of poor practices, including ESG branded products inconsistently aligned with their ESG and sustainability goals.

Court of Appeal rejects ClientEarth's application for permission to continue its derivative claim against Shell's board of directors

The Court of Appeal has refused ClientEarth's application for permission to appeal the earlier decisions of the High Court, in which the environmental law NGO was refused permission to continue derivative action against Shell's board of directors. ClientEarth's underlying claim alleged that the directors were in breach of their statutory duties under the Companies Act 2006 (CA 2006) to promote the success of the company and exercise reasonable care, skill and diligence. The NGO pointed to Shell's energy transition strategy and the directors' response to an order made by the Hague District Court in Milieudefensie v Royal Dutch Shell. The High Court, in both its May and July 2023 decisions, concluded that the NGO had failed to establish a prima facie case for granting permission to bring the derivative action, as required by section 261(12) of CA 2006. ClientEarth has now exhausted its appeal rights, drawing to a close this particular shareholder litigation.

Read more - ClientEarth v Shell

Read more - McGaughey v USS 

Transition Plan Taskforce launches consultation of sector-specific guidance

On 13 November 2023, TPT launched a consultation on its sector-specific guidance for preparers and users of climate transition plans. This follows TPT's release of its final disclosure framework in October 2023, intended to act as a "gold standard" for private sector transition plans. The seven sector "deep dives" cover asset managers, asset owners, banks, electric utilities and power generators, food and beverage, metals and mining, and oil and gas. The consultation is open until 29 December 2023.

Read more

Charity seeks judicial review of government's plans to promote the use of biomass fuel in its strategy to cut GHG emissions

On 10 November 2023, rewilding charity Lifescape Project filed an application for judicial review in the High Court alleging that the government’s decision to adopt its biomass strategy is unlawful under CCA 2008. According to the charity, burning forest biomass to generate power is not low carbon as the government claims but rather produces significant GHG emissions, which is contrary to the government's target of achieving net-zero emissions by 2050. It therefore seeks judicial review on the grounds that:

  • the government acted irrationally by failing to conduct an adequate analysis of the extent to which its continued support for the combustion of biomass (including forest biomass) will achieve reductions in carbon emissions or otherwise contribute to meeting its carbon budgets;
  • such failure breached the government's duty under section 13 of CCA 2008 to have proposals and policies to meet carbon budgets to achieve net-zero emissions by 2050; and
  • the consultation exercise preceding the government's decision was unfair because the underlying scientific analysis was not disclosed to consultees.

EU highlights

European Supervisory Authorities publish final report with proposed amendments to draft regulatory technical standards under Sustainable Finance Disclosure Regulation

On 4 December 2023, the European Supervisory Authorities (ESAs) - the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (ESMA) - published their final report containing proposed amendments to the draft regulatory technical standards under the EU Sustainable Finance Disclosure Regulation (SFDR RTS). The report, which is addressed to the European Commission (Commission), proposes :

  • the inclusion of additional disclosures for sustainable investments;
  • the introduction of new indicators for principal adverse impacts of investment decisions on sustainability factors and specifications to existing indicators;
  • new disclosures on GHG emission reduction targets; and
  • revisions to the disclosure templates.

The Commission now has three months to review the report and decide whether to endorse it in whole or make further amendments. Any further amendments proposed by the Commission will require another consultation from the ESAs, prolonging the process. Once adopted by the Commission, the draft delegated regulation amending the SFDR RTS will be forwarded to the European Parliament and the Council of the European Union for their scrutiny, typically within two to four months. After the end of the scrutiny period, the delegated regulation will be published in the Official Journal of the European Union and enter into force on the 20th day following publication.

Read more

ESMA publishes explanatory notes on fundamental concepts under the EU sustainable finance framework

On 22 November 2023, ESMA published three explanatory notes in an attempt to pull together guidance for the financial services industry on key topics that come under the EU's sustainable finance framework. These are:

  • the use of estimates;
  • the relationship between sustainable investments and investment in taxonomy-aligned economic activities; and
  • the "do no significant harm" principle.

These explanatory notes are likely to be welcomed by the industry, which has been inundated with Q&As, briefings, guidelines and statements issued by European authorities since the SFDR came into force in March 2023.

Read more - ESMA explanatory notes

Read more - EU sustainable finance

European Parliament adopts set of demands ahead of COP28

On 21 November 2023, the EU Parliament formally adopted its negotiating position ahead of COP28 in Dubai. The 127 resolutions emphasise the goal of limiting global warming to 1.5°C in line with the 2015 Paris Agreement and the importance of effective mitigation and adaptation measures. The European Parliament is urging all countries to redirect investments to renewable energies and support sustainable climate finance. It is also calling for the end of all direct and indirect fossil fuel subsidies by no later than 2025 and for support for the phasing-out of fossil fuel altogether. The resolutions, which also recap international obligations and targets with respect to biodiversity, will be presented to the countries participating in COP28 negotiations by the Parliament delegation (the EU having no direct seat at the negotiations).

MEPs vote to broaden coverage of draft Net Zero Industry Act

On 21 Novembers 2023, the European Parliament adopted its position on the proposed Net Zero Industry Act. In particular, it has proposed to broaden the scope of technologies to be covered by the draft Act to include nuclear fission and fusion technologies, sustainable aviation fuels and specific industrial technologies. If adopted, the draft legislation would set a target for the EU to produce 40% of its annual deployment needs in net-zero technologies by 2030 and to capture 25% of the global market value for these technologies.

EU lawmakers provisionally agree on protecting the environment through criminal law

On 16 November 2023, the European Parliament and Council of the European Union reached a provisional agreement on the protection of the environment through criminal law. Proposed by the Commission in December 2021, the directive is intended to improve the effectiveness of criminal investigations and enforcements and support European Green Deal objectives by addressing the most serious environmental offences. It will replace the existing Environmental Crime Directive, which has been criticised for failing to clamp down on growing rates of environmental crimes, resulting in lasting damage to habitats, species, people's health and the revenues of governments and businesses.

The new directive broadens and clarifies the type of conduct prohibited due to its environmental harms. Up from a list of nine to 18, new environmental offences include timber trafficking, illegal recycling of ships, and illegal trade and handling of chemicals or mercury. Also introduced is a "qualified offence" comparable to ecocide, intended to sanction intentional criminal offences that cause irreversible or long-lasting, widespread and substantial environmental damage.

The directive establishes minimum rules on the definition of criminal offences and seeks to harmonise the level of penalties for natural and legal persons across all EU member states. It must be formally adopted by the European Parliament and the Council before it can be published in the Official Journal of the EU. Once adopted, member states will have to transpose the directive into national laws, likely within 18 to 30 months of entry into force.

Commission to fund climate, nature and circular economy projects

On 14 November 2023, the Commission announced its approval of over EUR 396 million in funding for climate and environmental sustainability projects. The new investments are being made under the LIFE Programme, the EU's funding instrument for the environment and climate action. Investments will include:

  • EUR 140 million for nature and biodiversity projects focused on restoring ecosystems, habitats and animal conservation;
  • EUR 94 million for circular economy and improved quality of life projects in areas including water use, electrical waste, chemicals, air and noise pollution, as well as to enhance environmental governance and information;
  • EUR 65 million for climate mitigation and adaptation and climate governance projects; and
  • EUR 97 million for projects to improve market and regulatory conditions in the EU for the clean energy transition, notably promoting and rolling out energy efficiency and small-scale renewable energy solutions.
EU lawmakers provisionally agree on new Nature Restoration Law

On 9 November 2023, the European Parliament and Council of the European Union reached a provisional agreement on the Nature Restoration Law, a new regulation aimed at putting measures in place to restore at least 20% of the EU's land and sea by 2030, and all ecosystems in need of restoration by 2050. Originally proposed by the Commission in June 2022, the regulation is a key component of the European Green Deal contributing to the EU’s climate mitigation and climate adaptation objectives under the EU Biodiversity Strategy. Its significance stretches beyond the EU since the regulation also seeks to deliver on the EU's commitments under the Kunming-Montreal Global Biodiversity Framework agreed in December 2022. If formally adopted, member states are likely to pass on their obligations to the private sector, impacting the way in which businesses are allowed or required to interact with their natural surroundings.

Read more

International highlights

US Securities and Exchange Commission delays climate disclosure rules again

The US Securities and Exchange Commission (SEC) has once again delayed adoption of its climate disclosure rules that would require public companies to make climate-related disclosures. Such information would include climate-related risks that are reasonably likely to have material impact on their business, results of operations or financial conditions, in addition to certain climate-related financial statement metrics in a note to their audited financial statements. The proposed rules would also require disclosures of GHG emissions, including Scope 3 emissions, a particularly controversial aspect of the rules. Originally expected in April this year, adoption of the rules has now been pushed back to April 2024. The SEC revealed a separate delay to rules on ESG disclosures by asset managers. Adoption of these rules, also pushed until April 2024, is intended to facilitate the creation of a consistent, comparable and decision-useful regulatory framework for the benefit of investors.

Read more

South African Cabinet approves Just Energy Transition Implementation Plan

South Africa’s Cabinet has approved the Just Energy Transition Implementation Plan (JET IP). For the period 2023-2027, it sets out interventions and investments deemed necessary to support the decarbonisation commitments made by the South African government in its Nationally Determined Contribution (NDC), updated in 2021 ahead of COP26 in Glasgow. Its focus is on tackling the country’s systemic challenges of poverty, inequality, and unemployment. With goals of supporting energy security, a just transition and economic growth, JET IP seeks to clarify South Africa's priority investment requirements in the electricity, new energy vehicle and green hydrogen sectors.

A working definition of a "just energy transition" is proposed as building "resilient economies and people to meet [South Africa's] NDC targets. It does so by (i) accelerating affordable, decentralised, diversely owned renewable energy systems; (ii) restoring previous and future ecosystems and natural resources impacted by coal mining and energy production; (iii) reskilling present workforces and educating future ones in green and other new and viable development pathways; (iv) building new productive models for comprehensive economic transitions; and (v) supporting various impacted constituencies to play an active role in decisions and implementation of energy transition programmes (be it government or non-government actors)".

Read more

International Organization of Securities Commissions publishes final report on supervisory practices to address greenwashing

On 4 December 2023, the International Organization of Securities Commissions (IOSCO) published a final report on supervisory practices to address greenwashing. The report, supplementing IOSCO's 2021 recommendations on sustainability-related practices, policies, procedures and disclosure in asset management, seeks to map regulatory and supervisory approaches and practices (current and planned) in various jurisdictions to address greenwashing in the areas of asset managers and ESG ratings and data product providers. Main findings of the report include that:

  • there is no global definition of greenwashing, but many authorities have guidance on the identification of, and risks associated with, greenwashing;
  • while the ESG ratings and data products market remains largely unregulated, a few jurisdictions are developing mandatory or voluntary frameworks for ESG ratings and data products providers; and
  • enforcement measures in relation to greenwashing cases are on the rise - these include infringement notices, monetary fines, revocation of licenses, suspension of business, and even potential civil or criminal liability depending on the severity of the greenwashing case.

IOSCO announced its endorsement of the sustainability disclosure standards of the International Sustainable Standards Board, IFRS S1 and IFRS S2, in July 2023.

In case you missed it

Related HSF notes

Silke Goldberg photo

Silke Goldberg

Partner, London

View profile

Article tags

climatechange disclosures due diligence esg esgnewsletter sustainability esg disclosures

Related categories

Business and Human Rights Climate Change Disputes ESG Europe Governance Sustainable Finance UK Uncategorized US

Key contacts

Silke Goldberg photo

Silke Goldberg

Partner, London

View profile

Disclaimer

The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.

Silke Goldberg