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, EU and around the world.
Read on for our June edition in which we cover the UK Supreme Court's decision in Finch requiring the assessment of Scope 3 emissions in the environmental impact assessment process, the EU's adoption of the Net Zero Industry Act and the Nature Restoration Law, and developments in the harmonisation of international sustainability standards and frameworks.
Overview of latest ESG developments
UK
General election
Sustainability reporting
Climate litigation
EU
Consumer protection – sustainability claims and greenwashing
Sustainable finance – sustainability claims and greenwashing
- European Supervisory Authorities publish reports on greenwashing in financial sector
- ESAs publish opinion on assessment of Sustainable Finance Disclosure Regulation
- EIOPA publishes feedback statement to consultation on sustainability claims and greenwashing
Climate and energy transition
Nature
Access to environmental justice
International
Sustainability reporting
- EFRAG and Taskforce on Nature-related Financial Disclosures publish TNFD-ESRS correspondence mapping
- CDP launches new sustainability disclosure platform aligned with IFRS S2
- Network for Greening the Financial System publishes second edition of guide on climate-related disclosure for central banks
- Global Reporting Initiative launches update of standards for employment practices and working conditions
Sustainable finance
Climate litigation
UK
General election
Campaigns are in full swing – what's in store for ESG?
As the general election draws near, you might be wondering what's in store for ESG. We have you covered with our Policy matters: UK election 24 hub. Take a look for perspectives on party manifestos generally and Labour's plans for green prosperity, employment, AI and more.
Sustainability reporting
Responsibility for UK Transition Plan Taskforce's disclosure-specific materials to be assumed by International Financial Reporting Standards Foundation
Responsibility for the climate transition plan disclosure materials developed by the UK Transition Plan Taskforce (TPT) will be assumed by the International Financial Reporting Standards Foundation (IFRS). The TPT published its final disclosure framework in October 2023, which is intended to act as a gold standard for companies to use to develop, disclose and deliver their climate transition plans (for more on the TPT's final disclosure framework and sectoral guidance, see our blogs here and here). The International Sustainability Standards Board's (ISSB) climate disclosure standard, IFRS S2, does not require companies to have a transition plan, but they must make certain disclosures if they do have such a plan. Taking over the TPT's disclosure materials is likely to support the IFRS' and the wider market's objective of reducing fragmentation in information and achieve greater consolidation of frameworks and standards for disclosures about transition plans. From 2024, the IFRS also took over monitoring the progress of companies' climate-related disclosures from the Task Force on Climate-related Financial Disclosures (TCFD).
According to a press release, the ISSB expects to use the TPT's materials in the near term to develop educational materials, ensuring that they do not change the requirements in IFRS S2, by tailoring them to ensure global applicability and to deliver full compatibility with the global baseline.
Climate litigation
Supreme Court issues landmark decision requiring assessment of Scope 3 emissions
The Supreme Court has delivered its highly anticipated judgment in R (on the application of Finch on behalf of the Weald Action Group) v Surrey County Council and others [2024] UKSC 20. It has held, by a majority, that emissions resulting from the eventual use of refined products from a proposed oil development, known as downstream emissions, should have been assessed in the environmental impact assessment process. The case will have a significant impact on future applications for similar developments.
Key points to note from the judgment:
- Downstream emissions can constitute a likely significant environmental effect of a project if causation can be established. Here it was "inevitable" that oil produced would be refined and burnt as fuel, producing emissions.
- The ability to estimate and quantify such emissions will be relevant to the requirement to assess these emissions as part of the EIA process.
- The question of whether such emissions constitute an effect to be assessed for EIA purposes is a matter of law, not evaluative judgment for local planning authorities.
EU
Consumer protection – sustainability claims and greenwashing
European Council adopts position on proposed Green Claims Directive
The European Council has adopted its position on the proposed Green Claims Directive, which seeks to address greenwashing and help consumers make informed decisions when buying a product or using a service (see the Council's press release). The directive sets minimum requirements for the substantiation, communication and verification of explicit environmental claims.
The Council’s approach will inform negotiations with the European Parliament on the final shape of the directive, including amendments in the following areas:
- scope – to draw a clear distinction between explicit environmental claims and environmental labels, in order to clearly specify the obligations applicable to each;
- substantiation – to require companies to use clear criteria and the latest scientific evidence to substantiate their claims and labels, with specific reference to the environmental characteristics they cover;
- exemption from third-party verification – to introduce a simplified procedure to exempt certain types of explicit environmental claims from third-party verification;
- new requirements to prove climate-related claims, including those involving carbon credits – to provide information about the type and quantity of carbon credits, and whether they are permanent or temporary.
Negotiations between the European Parliament and the Council are expected to begin in the new legislative cycle.
Sustainable finance – sustainability claims and greenwashing
European Supervisory Authorities publish reports on greenwashing in financial sector
The European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), together the European Supervisory Authorities (ESAs), have published their final reports on greenwashing in the financial sector (see ESMA's press release). Each of the EBA, EIOPA and ESMA reports provides a stocktake of the current supervisory response to greenwashing risks under their remit and notes that national competent authorities are already taking steps in the area of supervision of sustainability-related claims. In addition, the ESAs provide a forward-looking view of how sustainability-related supervision can be gradually enhanced in the coming years.
While the ESAs' reports focus on the EU's financial sector, they acknowledge that addressing greenwashing requires a global response, involving close cooperation among financial supervisors and the development of interoperable standards for sustainability disclosures.
ESMA has stated that it will continue monitoring greenwashing risks and supervisory progress, including via the ongoing Union Strategic Supervisory Priority on ESG Disclosures. Building on the preliminary regulation remediation actions identified in its Progress Report, ESMA will publish an opinion with views on how the EU regulatory framework for sustainable finance could further facilitate the investors' journey.
ESAs publish opinion on assessment of Sustainable Finance Disclosure Regulation
The ESAs have published a joint opinion on the assessment of the Sustainable Finance Disclosure Regulation (SFDR). The ESAs recommend that the European Commission considers the introduction of a sustainability indicator that would grade financial products such as investment funds, life insurance and pension products. In addition, the opinion makes recommendations in respect of:
- appropriate disclosures for products outside the two categories of environmental and social to reduce greenwashing;
- improvements to the definition of sustainable investments;
- simplification to the way in which disclosures are presented to investors;
- other technical suggestions regarding scope and disclosures; and
- consumer testing before putting forward any policy proposals to review the SFDR.
EIOPA publishes feedback statement to consultation on sustainability claims and greenwashing
The EIOPA has published a feedback statement to its consultation paper on the opinion on sustainability claims and greenwashing in the insurance and pensions sectors. The feedback statement provides the EIOPA's responses to the consultation feedback across a number of areas, including:
- misleading sustainability claims;
- achieving coherence between national and EU legislation on sustainability claims and greenwashing; and
- due diligence and proportionality considerations in determining if a sustainability claim is substantiated.
Alongside the feedback statement, the EIOPA has published a resolution table, which sets out its comments in relation to specific consultation responses received.
Climate and energy transition
European Council approves Net Zero Industry Act
The European Council has approved the Net Zero Industry Act, a regulation that provides a framework of measures aimed at boosting the industrial deployment of net-zero technologies needed to achieve the EU's climate goals. Notably, the regulation seeks to create favourable conditions for investment in green technologies by: (i) simplifying the permit-granting process for strategic projects; (ii) facilitating market access for strategic technology products; (iii) enhancing the skills of the European workforce in these sectors; and (iv) creating a platform to coordinate European action in this area.
The European Council's approval is the last step in the legislative decision-making process. Once the regulation has been signed by the president of the European Parliament and the president of the European Council, it will be published in the Official Journal of the EU and will enter into force on the day of its publication. It will become directly applicable in all member states upon entry into force.
Nature
European Council approves Nature Restoration Law
The European Council has approved the ambitious Nature Restoration Law, a key piece of legislation aimed at putting measures in place to restore at least 20% of the EU's land and sea areas by 2030, and all ecosystems in need of restoration by 2050. The regulation will require member states to meet legally binding targets and obligations to carry out nature restoration in respect of specific ecosystems – from terrestrial to marine, freshwater and urban ecosystems. Restoration, with a view to conserving and enhancing biodiversity and ecosystem resilience, will mean the process of actively or passively assisting the recovery of:
- an ecosystem to a good condition;
- a habitat type to the highest condition attainable and to its favourable reference area;
- a habitat of species to a sufficient quality and quantity; or
- a species population to satisfactory levels.
The regulation leaves it up to each member state to decide on the specific restoration measures it will apply within its own territory. To demonstrate how they will deliver on the targets, member states will be required to submit regular national restoration plans, which outline the restoration needs and measures, taking into account the local context alongside timelines for implementation.
Member states must establish and implement measures to restore at least 20% of the EU's land and sea by 2030. In the case of habitat types that are in "poor condition", the restoration requirement is at least 30% by 2030, which is set to increase incrementally to 60% by 2040 and 90% by 2050.
The regulation will now be published in the EU's Official Journal and enter into force. It will become directly applicable in all member states upon entry into force.
Access to environmental justice
European Commission issues call for evidence on new procedure for access to justice in environmental matters in relation to EU State aid decisions
The European Commission has issued a call for evidence on developing a new procedure under which access to justice in environmental matters can be guaranteed in relation to EU State aid decisions.
The EU and its member states are signatories to the Aarhus Convention on access to information, public participation in decision-making and access to justice in environmental matters. Currently, State aid decisions where the Commission acts as an administrative review body under provisions of the Treaty on the Functioning of the EU are exempt from the Aarhus Regulation. However, the Compliance Committee found this to be a contravention of the environmental justice provisions of the Convention. Following the Committee's findings, the Commission is seeking an adjustment to the existing legal framework or equivalent measures to ensure compliance. The Commission says it will also take the opportunity to make other adjustments to bring existing legal instruments in line with the Commission's practice and EU case law where necessary, including looking into simplifying administrative procedures.
The call for evidence is open until 27 June 2024.
International
Sustainability reporting
EFRAG and Taskforce on Nature-related Financial Disclosures publish TNFD-ESRS correspondence mapping
EFRAG and the Taskforce on Nature-related Financial Disclosures (TNFD) have jointly published a correspondence mapping paper, which aims to enhance understanding of the commonalities between the European Sustainability Reporting Standards (ESRS) and the TNFD disclosure recommendations and metrics. The correspondence table contained within the paper is said to:
- support stakeholders to identify which ESRS disclosure requirements contribute to meeting the TNFD recommendations and metrics; and
- enable ESRS preparers who intend to make disclosures aligned with the TNFD recommendations leverage their ESRS reporting and add a limited number of datapoints identified through the table.
The ESRS, which set out the rules and requirements for in-scope companies to report on sustainability-related risks, impacts and opportunities, was officially adopted in July 2023 under the EU's Corporate Sustainability Reporting Directive (CSRD). The CSRD started to apply for some companies from the beginning of 2024 (for more on the application and impact of the CSRD, see our corporate governance snapshot). The TNFD launched its final recommendations in September 2023. The recommendations seek to establish a global risk management and disclosure framework for organisations to report and act on evolving nature-related issues, to inform better decision making by companies and capital providers and ultimately to contribute to a shift in global financial flows away from nature-negative toward nature-positive outcomes.
The EFRAG and TNFD paper highlights that the two organisations have been collaborating since 2022 to ensure a continuous exchange in the development of the ESRS and the TNFD recommendations and guidance.
See also our biodiversity toolkit for corporates.
CDP launches new sustainability disclosure platform aligned with IFRS S2
CDP, a long-established charity that operates a global environmental disclosure system for 75,000 companies as well as cities, states and regions, has launched a new disclosure platform that is aligned with the ISSB's climate-related disclosures (IFRS S2). In its press release on the launch, CDP says IFRS S2 is the foundational baseline for CDP's climate disclosure. It also says it has progressed critical alignment with other key standards like the TNFD and the ESRS. The new platform seeks to streamline and remove barriers to high-quality reporting by combining climate, forests, water, biodiversity and plastics, and empowering organisations to better assess the environmental risks, impacts and opportunities in their operations, supply chain and financial decisions.
Network for Greening the Financial System publishes second edition of guide on climate-related disclosure for central banks
The Network for Greening the Financial System has published the second edition of its Guide on climate-related disclosure for central banks. The latest edition calls on central banks to lead by example and disclose their climate-related risks and opportunities, in the interests of greater transparency and sound management of these risks. The guide is organised around the four thematic areas identified by the TCFD – governance, strategy, risk management and metrics, and targets.
Global Reporting Initiative launches update of standards for employment practices and working conditions
The Global Reporting Initiative has launched a public consultation seeking feedback on redrafted versions of three standards relating to labour and management relations, employment and market presence. The deadline for comments is 4 October 2024, and two further consultations regarding working life and career development, and workers' rights and protections are expected over the next 12 months.
Sustainable finance
United Nations Environment Programme Finance Initiative publishes "A Path to Net Zero: A Climate Mitigation Journey for Banks"
The United Nations Environment Programme Finance Initiative has published a paper, A Path to Net Zero: A Climate Mitigation Journey for Banks, which introduces a climate strategy framework that individual banks can adopt to assess where they stand in terms of their climate mitigation journey, and tailor their approach based on their climate maturity and context. In particular, the paper:
- presents three capability blocks outlining all the business competencies banks should develop and iterate for years to come as they are looking to advance their path to net zero;
- maps out relevant standards, methodologies, and frameworks as well as actors of the net-zero banking ecosystem that banks should engage with across each of the three capability blocks; and
- outlines how banks should consider the integration of regional or national components across each of the three capability blocks, for example, climate policy and regulatory requirements.
Climate litigation
Texas District Court dismisses Exxon shareholder emissions proposal lawsuit
The US District Court for the Northern District of Texas dismissed Exxon Mobil's lawsuit against activist investor Arjuna Capital over a contentious greenhouse gas-related shareholder proposal that Arjuna sought to include in Exxon's proxy statement. The Court accepted Arjuna's promise not to re-submit the proposal and dismissed Exxon's lawsuit as moot after finding that Arjuna had made "an unconditional and irrevocable pledge" and rejected Exxon's concerns about "abstract future possibilities". For more, see our February ESG newsletter.
Our latest ESG thought leadership round-up
UK general election
- UK election 24 – will Labour's Green Prosperity Plan make Britain a "clean energy superpower"?
- Labour's manifesto – energy and infrastructure: can they speed up consenting where so many have failed?
- UK general election – what do the manifestos promise for financial services regulation?
- Labour manifesto confirms key employment law reform proposals
- Data protection reform falls, but what does this mean for digital regulation (including AI)?
- Election may delay new pensions Funding Code
- Out with a whimper – what next as UK election stalls data protection reform?
- Podcast: Election round-up (pensions)
- See also our Policy Matters: UK election 24 hub
Governance
- International: Seeing the wood for the trees – are we at peak reporting?
- UK: General Counsel Update: June 2024
Regulation
- EU: Seeds of change: EU’s Deforestation-Free Products Regulation
- EU: Ecodesign for Sustainable Products Regulation – the essentials
- EU: Packaging and Packaging Waste Regulation – the essentials
Climate and energy transition
- International: Chasing Zero: sustainable aviation fuel update
- UK: Government seeks to plug gaps in carbon leakage policy with UK CBAM and VPS
- UK: UK notifies withdrawal from Energy Charter Treaty
- Australia: Is nuclear power the solution to Australia's energy transition?
Climate and ESG disputes
- UK: Supreme Court issues landmark decision requiring assessment of Scope 3 emissions
- Africa: Arbitration is fast becoming the frontrunner for ESG-related disputes in Africa
- Podcast: Public law podcast episode 14 (a look at Verein KlimaSeniorinnen Schweiz and Others v. Switzerland and trends in public law climate litigation)
In case you missed it last month
- We held a webinar on emerging themes in climate disclosure and diligence for securities offerings. If you missed it, you can watch the recording.
- Keeping Up with ESG in Australia – May 2024
- Monthly ESG Newsletter: UK and EU (May 2024)
Related HSF notes
Key contacts
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.