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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 April edition in which we cover the publication of the UK Transition Plan Taskforce's final set of climate transition plan materials, the European Parliament's vote to adopt the Corporate Sustainability Due Diligence Directive, and the European Court of Human Rights' finding of Convention rights violation in relation to climate change.

Overview of latest ESG developments

UK 

Climate and energy transition
Greenwashing and sustainability disclosures
Pensions
Employment and diversity, equity and inclusion

EU 

Climate, human rights and due diligence 
Climate and energy transition
Sustainability disclosures
Sustainable finance
Environmental crime

International 

Sustainability disclosures
Sustainable finance

UK

Climate and energy transition

UK Transition Plan Taskforce publishes final set of transition plan materials

The UK Transition Plan Taskforce (TPT) has released its final set of transition plan resources, following the release of draft resources in November 2023. The current release includes the final set of sector-specific guidance documents, guidance on undertaking transition planning cycles and exploring the disclosure recommendations as well as independent advisory pieces from TPT's working groups.

TPT's final disclosure framework and accompanying sector-neutral guidance documents were published on 9 October 2023 (see our previous blog here) and, together with the most recently published documents, form a comprehensive suite of resources to support businesses in developing effective transition plans. The disclosure framework seeks to offer practical support to UK companies already disclosing their transition plans on a voluntary basis or those preparing to do so in accordance with international sustainability standards, in particular, those of the International Sustainability Standards Board (ISSB, the TPT disclosure framework having been designed to be consistent with, and build on, these standards) and the European Sustainability Reporting Standards.

The newly published sector-specific guidance documents provide "deep-dive" guidance for preparers of transition plans operating in seven sectors, as well as a high-level summary for preparers operating in a further 30 sectors. The sector-specific guidance is intended to complement TPT's disclosure framework and aims to provide further detail to assist preparers in applying the disclosure framework and developing and implementing their transition plans.

The seven sectors are: asset managers, asset owners, banks, electric utilities & power generators, food & beverage, metals & mining, and oil & gas. These sectors were chosen by TPT based on their GHG emissions, their need for transition finance (or its provision in the case of banks) in the UK and the quality of existing guidance available in the market. TPT's sector summary guidance provides a practical guide to the key information and guidance, including decarbonisation levers and metrics and targets, for 30 additional sectors.

In its Primary Market Bulletin 45 published in August 2023, the Financial Conduct Authority (FCA) said it will consult on its expectations for listed companies' transition plan disclosures by reference to the TPT disclosure framework, as part of its implementation of the UK-endorsed ISSB standards. TPT's disclosure framework is expected to play a role in the forthcoming UK Sustainability Disclosure Standards, which are expected to be based on the sustainability reporting standards published by the ISSB and to come into force from 2025.

Department for Transport opens consultation on adapting the UK's transport system to impacts of climate change

The Department for Transport has launched a consultation to seek views on its transport adaptation strategy, including how effective the underlying policies are perceived to be and what more the government could be doing to adapt to the impacts of climate change on transport infrastructure. The strategy includes actions and policies to enhance climate adaptation planning across the sector and ensure these plans are achieved so as to bring about improved climate resilience in the transport system. The strategy also recognises that climate risk will need to be embedded into planning and operations across the sector to retain a flexible, reliable and resilient transport network.

The consultation closes on 31 May 2024.

Greenwashing and sustainability disclosures

FCA publishes finalised guidance ahead of anti-greenwashing rule

Ahead of its anti-greenwashing rule coming into force on 31 May 2024, the FCA has published Finalised Guidance 24/3 (FG24/3). The anti‑greenwashing rule, in the FCA's ESG Sourcebook (ESG 4.3.1R), requires firms to ensure that any reference to the sustainability characteristics of a product or service is consistent with the sustainability characteristics of the product or service, and is fair, clear and not misleading. The guidance is designed to assist firms understand the FCA's expectations around ESG 4.3.1R, and is structured around the following statements:

  • sustainability references should be correct and capable of being substantiated;
  • sustainability references should be clear and presented in a way that can be understood;
  • sustainability references should be complete – they should not omit or hide important information; and
  • comparisons should be fair and meaningful.

Examples of bad and good practice are also presented for each statement.

In conjunction with FG24/3, the FCA has published Consultation Paper 24/8 on extending the Sustainability Disclosure Requirements (SDRs) and investment labels regime to portfolio management services  provided to clients on a discretionary (and/or advisory in relation to private markets) basis, including where the portfolio management offerings are model portfolios, customised portfolios and/or bespoke services. The FCA proposes to use the same definition of portfolio management as introduced for its Taskforce on Climate-related Financial Disclosures (TCFD)-aligned disclosure rules. The proposed scope does not include services where the clients are based overseas.

Responses are requested by 14 June 2024. The FCA will consider all feedback and plans to publish its final rules in the second half of 2024. The FCA proposes that the labelling and naming and marketing requirements, and the associated consumer-facing and pre-contractual disclosures, come into force on 2 December 2024.

For more information on the FCA's anti-greenwashing rule, see our blog post here. For more information on the SDRs and investment labels, see our blog post here.

CMA issues open letter to fashion retailers regarding greenwashing and accepts formal undertakings from ASOS, Boohoo and Asda

On 27 March 2024, the UK Competition and Markets Authority (CMA) published an open letter to all businesses in the fashion retail sector highlighting the need to consider obligations under consumer protection law when making environmental claims. The letter draws attention to the CMA’s Green Claims Code guidance (published in September 2021, see our previous blog post here) and emphasises that promoting environmental sustainability remains a priority for the CMA.

At the same time, the CMA announced that it has agreed formal undertakings with fashion retailers ASOS, Boohoo and Asda to change the way they display, describe and promote their green credentials when marketing their products to consumers. This brings to a close the CMA’s investigation into environmental claims made by these retailers, without any finding of infringement of consumer law. The investigation was originally launched by the CMA in July 2022 following a more general review of such claims in the fashion retail sector as part of its ongoing wider investigation into potentially misleading environmental claims in various sectors (see our previous blog post here).

The CMA has also stated that it plans to build further on its Green Claims Code to include additional information that will be tailored to the fashion sector.

Read more

Pensions

Pensions Regulator publishes findings of review into climate-related disclosures

The Pensions Regulator (TPR) has published its findings in relation to a review of climate-related disclosures by occupational pension schemes. Under the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021, trustees are required to identify, assess and manage climate-related risks and opportunities and report on what they have done. These requirements were developed from the recommendations of the TCFD. TPR's review included considerations such as:

  • the quality and consistency of reporting against the regulations, as well as the Department for Work and Pensions' statutory guidance;
  • how well trustees understood the range of climate-related risks and opportunities for their scheme, and explained the results of their analysis; and
  • how trustees intend to address the risks and opportunities they have identified, proportionate to the scheme's circumstances and other risk exposures.

For each section of schemes' climate reports (governance, strategy, scenario analysis, risk management, metrics and targets), the Regulator sets out its feedback on good practice, issues and ways to improve future reports. It also notes a range of actions trustees have taken to address climate risks and opportunities, such as updating defined contribution default lifestyle strategies to include sustainable funds, increasing allocation to low-carbon tracker funds, exploring climate opportunities such as forestry and green bonds, and articulating stewardship priorities on climate change mitigation and adaptation and avoiding biodiversity loss.

Employment and diversity, equity and inclusion

New minimum wage rate takes effect from 1 April 2024

The National Living Wage in the UK (the legal minimum wage for workers 21 years old and over) has increased to £11.44 per hour. This increase, recommended by the Low Pay Commission, is the largest increase in the minimum wage in cash terms and the first time it has increased by more than £1. However, the government has faced criticism that this increase still falls short of the voluntary real Living Wage, as calculated by the Living Wage Foundation charity. Almost half a million workers in the UK whose employers are signed up to the real Living Wage are receiving an increase in pay to £12 per hour across the UK and £13.15 in London.

For more information on employment law changes that have come into force, see our April 2024 HR checklist here.

New law comes into effect on right to request flexible working

The Flexible Working (Amendment) Regulations 2023 has come into force, and update the Flexible Working Regulations 2014 by removing the requirement for an employee to be continuously employed for at least 26 weeks to make a flexible working application. The new change in the law will make this a right that applies from the first day of employment for employees across England, Wales and Scotland. Additional reforms to the law on flexible working that are outlined in the Employment Relations (Flexible Working) Act 2023 will come into force at the same time. Acas has prepared a Code of Practice on requests for flexible working, which addresses the changes and sets out good practice on flexible working requests.

For more information on employment law changes that have come into force, see our April 2024 HR checklist here.

EU

Climate and human rights

European Court of Human Rights finds first violation of Convention rights based on climate change

The European Court of Human Rights (ECtHR) has delivered three highly anticipated judgments on the application of the European Convention on Human Rights (Convention) in the climate change context. While two of the cases were ruled inadmissible on procedural grounds, in the third case the ECtHR has for the first time found a violation of Convention rights in relation to climate change and outlined positive obligations on all Convention states, including the UK. This decision marks a significant development in the approach of the ECtHR and how the Convention can be used in climate change litigation going forward. Some key points to note are:

  • Article 8 includes a right for individuals to effective protection by state authorities from serious adverse effects on their life, health, well-being and quality of life arising from the harmful effects and risks caused by climate change.
  • This gives rise to positive obligations on states to adopt, and to effectively apply in practice, regulations and measures capable of mitigating the existing and potentially irreversible, future effects of climate change.
  • The nature and gravity of the threat posed by climate change, and the general consensus concerning the overarching goal of greenhouse gas reduction targets, justifies a reduced margin of appreciation, or discretion, for states in relation to their commitment to combating climate change and its adverse effects.
  • Although climate change is a global phenomenon for which all states must share responsibility, this does not justify an extension of extraterritorial jurisdiction so as to hold states responsible for alleged impacts on individuals outside their territory.

Read more

European Parliament votes to adopt Corporate Sustainability Due Diligence Directive

Lawmakers in the European Parliament have voted to adopt the Corporate Sustainability Due Diligence Directive (CS3D) (see press release here). This means the directive has likely cleared the last major hurdle, as the next stage in the legislative process (formal approval by the EU Council) is expected to take place without political discussion.

CS3D faced a host of challenges in recent months. Although a provisional political agreement had been reached on an earlier version of the directive last December, two failed votes in February this year compelled further political negotiations and significant revisions to the legislation. Last month, the EU Council approved a revised text, limiting the scope of the directive to apply to fewer businesses and delaying its application (see our March ESG newsletter).

Under CS3D, in-scope businesses must conduct and report on risk-based due diligence processes. This ensures businesses:

  • integrate due diligence into their policies and risk-management systems;
  • identify, assess and (where necessary) prioritise potential and actual adverse impacts;
  • prevent and mitigate potential adverse impacts; and
  • bring actual adverse impacts to an end.

The directive places the onus on companies to remediate actual adverse impacts, carry out meaningful engagement with stakeholders, and establish and maintain a notification mechanism and complaints procedure. It also requires a transition plan for climate change mitigation to be put into effect, ensuring alignment between organisational strategies and climate neutrality targets emerging from the Paris Agreement.

Failure to comply carries significant consequences. It could result in fines up to 5% of net worldwide turnover and potential claims for damages from any person affected by adverse impacts, as well as public naming and shaming.

The EU Council is expected to formally approve CS3D on 23 May 2024. The directive will then be published in the EU Official Journal and enter into force 20 days later.

For more information on the directive, see our blog post here.

Climate and energy transition

European Parliament adopts new EU-wide certification scheme for carbon removals

The European Parliament has voted to adopt the provisional political agreement with EU countries on a new voluntary EU-wide certification framework for carbon removals. The legislation covers different types of carbon removals, namely permanent carbon storage through industrial technologies, carbon storage in long-lasting products and carbon farming. It aims to boost high-quality carbon removals to help achieve EU climate neutrality by 2050, and improve the EU’s capacity to quantify, monitor and verify such activities to counter greenwashing. The new rules will enable farmers to get paid to remove carbon. A public EU registry will also be created to ensure transparency of the scheme and to avoid the risk of fraud and double counting of carbon removals.

The law now has to be adopted by the EU Council, before being published in the EU Official Journal and entering into force 20 days later.

Sustainability reporting

European Parliament approves delay of sector-specific reporting standards for some companies

The EU Parliament has approved a proposal by the EU Commission to delay the deadline for drafting and approving certain reporting standards under the EU Corporate Sustainability Reporting Directive (CSRD) from 30 June 2024 to 30 June 2026. It is expected that the EU Council will approve the proposals before the end of April and that the proposed delay will therefore take effect.

Under the CSRD, the Commission is responsible for adopting delegated regulations setting out the detailed standards to be applied by companies when making the sustainability disclosure required under the Directive (from more information on the CSRD, see our snapshot here). The first of these, the general standards, were adopted in July 2023.

Under the proposals, the Commission would not be required to adopt the sector-specific standards, nor the general reporting standards for third-country parent consolidated reporting, until 30 June 2026.  Companies fall within the scope of the third-country parent consolidated reporting obligation where they are EU subsidiaries or branches of non-EU entities which meet certain size thresholds and where the parent entity's group has significant turnover in the EU. The obligation on the EU subsidiary/branch to report in line with the standards adopted by the Commission will still apply from financial years beginning on or after 1 January 2028.

Sustainable finance

European Securities and Markets Authority consults on amendments to Credit Rating Agencies Regulation in respect of ESG factors

The European Securities and Markets Authority (ESMA) has published a consultation on proposed amendments to Commission Delegated Regulation (EU) No 447/2012 and to Annex I of the Credit Rating Agencies Regulation.

The proposals aim to:

  • ensure that the relevance of ESG factors within credit rating methodologies is subject to systematic documentation;
  • enhance disclosures on the relevance of ESG factors in credit ratings and rating outlooks; and
  • deliver a more robust and transparent credit rating process through the consistent application of credit rating methodologies.

Responses to the consultation are requested by 21 June 2024. ESMA will submit its technical advice to the European Commission by the end of December 2024.

Environmental crime

EU Council adopts new Environmental Crime Directive

The EU Council has adopted new rules on the protection of the environment through criminal law. Proposed by the European Commission in December 2021, the new 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 replaces 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 rules broaden and clarify the types of conduct prohibited due to their environmental harms. There are now 20 environmental offences (up from nine under the previous directive), including 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 members states.

The directive has been adopted under the ordinary legislative procedure. As the European Parliament voted to adopt the same final text in February this year, this means the directive will now be published in the EU Official Journal and will enter into force 20 days later. Member states then have two years to transpose the rules into national laws.

International

Sustainability disclosures

ISSB to focus on risks and opportunities related to nature and human capital

The ISSB has announced it will commence projects to research disclosure about the risks and opportunities associated with:

  • biodiversity, ecosystems and ecosystem services; and
  • human capital.

The announcement follows ISSB's public consultation last September, which sought feedback on research priorities and standard-setting projects for the next phase of its work plan. ISSB will now look at how to build on pre-existing initiatives (including the Sustainability Accounting Standards Board standards, the Climate Disclosure Standards Board guidance, and the recommendations of the Taskforce on Nature-related Financial Disclosures) to determine the common information needs of investors in assessing whether and how risks and opportunities related to nature and human capital could reasonably be expected to affect a company's prospects.

Sustainability Standards Board of Japan publishes exposure drafts of sustainability disclosure standards

The Sustainability Standards Board of Japan (SSBJ) has published exposure drafts of its sustainability disclosure standards for comment. Modelled on the standards established by the ISSB, the SSBJ standards consist of:

  • universal sustainability disclosure standard exposure draft (application of the sustainability disclosure standards);
  • theme-based sustainability disclosure standard exposure draft number 1 (general disclosures); and
  • theme-based sustainability disclosure standard exposure draft number 2 (climate-related disclosures).

The comment period for the exposure drafts closes on 31 July 2024. According to the SSBJ, the exposure drafts were developed under the assumption that the standards would eventually become mandatory for listed companies under Japanese securities laws and regulations.

Sustainable finance

Network for Greening the Financial System publishes reports on role of climate transition plans

The Network for Greening the Financial System (NGFS) has published a suite of reports and a cover note, which explore the role of climate transition plans in enabling the financial system to mobilise capital, manage climate-related financial risks, and the relevance of transition plans to micro-prudential supervision. NGFS, a network of 114 central banks and supervisors committed to contributing to the development of climate- and environment-related risk management in the financial sector, began analysing the role of transition plans in 2022.

The reports are:

The reports identify three key actions that can support the global adoption of transition plans:

  • integrated international guidance – development of international guidance for transition planning and corresponding, and interacting frameworks for the disclosure of transition plans;
  • holistic transition plans and processes that integrate both transition and physical aspects of climate change while considering the ongoing loss of nature; and
  • enabling conditions for adopting transition plans – this includes clarity about policy directions, such as national climate frameworks, and economy-wide incentives for developing and disclosing transition plans to broaden adoption and close information gaps.

An accompanying cover note highlights the key findings of the work and formulates cross-cutting recommendations.

See above for more on TPT's final set of transition plan materials.

Our recent ESG thought leadership round-up

In case you missed it last month

Related HSF notes

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Jannis Bille

UK Head of ESG, London

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Partner, London

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Jannis Bille

UK Head of ESG, London

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Silke Goldberg

Partner, London

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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.

Jannis Bille Silke Goldberg