May 9, 2024
We are pleased to provide you with Gibson Dunn’s ESG monthly updates for April 2024. This month our update covers the following key developments. Please click on the links below for further details.
From April 23 to 29, the Intergovernmental Negotiating Committee (INC) assembled in Ottawa, Canada, to progress negotiations regarding an international legally binding instrument on plastic pollution, which is intended to address the full life cycle of plastic, including its production, design, and disposal. The session concluded with an advanced draft text of the instrument and agreement on intersessional work ahead of the fifth session, which takes place in Busan, South Korea, in November.
Global automakers and suppliers have collaborated to release the Automotive Climate Action Questionnaire, aimed at improving consistency in Scope 3 emissions reporting. Participating automakers and suppliers include Ford Motor Company, General Motors, Honda Development & Manufacturing of America, Denso and Toyota Motor North America. The questionnaire provides a standardized template to collect supplier information to measure, manage and reduce carbon emissions within their supply chains.
On April 16, the Basel Committee on Banking Supervision issued a discussion paper on how climate scenario analysis can be practically used to help strengthen the management and supervision of climate-related financial risks. This follows the principles for the effective management and supervision of climate-related financial risks which were published in 2022 and intends to harmonize supervisory expectations and comparability of results.
On April 9, the Transition Plan Taskforce (TPT) published its final set of transition plan resources. These include sector-specific transition plan guidance for asset owners, asset managers, banks, electric utilities & power generators, food & beverage, metals & mining and oil & gas, sector summary guidance and guidance on the how to undertake a transition planning cycle and paper on the opportunities and challenges of transition plans in emerging markets and developing economies. The TPT was established by HM Treasury and announced at COP26 in Glasgow in November 2021. (HM Treasury is the UK government’s economic and finance ministry, and the TPT is engaging with many countries to help inform their approaches to transition planning.)
On April 4, Bloomberg announced the launch of the Bloomberg Government Climate Tilted Bond Indices, a new benchmark family for government bond investors. The indices adjust country weights in Bloomberg Treasury and Sovereign indices based on Bloomberg Government Climate Scores (GOVS), which assess a government’s relative preparedness in the transition to a low-carbon world using transparent, data-driven indicators. The GOVS scores, provided by Bloomberg Sustainable Finance Solutions and informed by Bloomberg’s BloombergNEF (BNEF) data, comprise three equally weighted pillars: Carbon Transition, Power Sector Transition and Climate Policy.
On April 23, the International Sustainability Standards Board (ISSB) announced it will commence a project to research risk disclosures regarding risks and opportunities associated with biodiversity, ecosystems and ecosystem services and human capital. Focus of the project will be the common information needs of investors in assessing whether and how these risks and opportunities could reasonably be expected to affect a company’s prospects. Through the research projects, the ISSB will assess and define the limitations with current disclosure in these areas, identifying possible solutions and decide whether standard setting is required.
On April 17, the UN Environment Programme Finance Initiative (UNEP FI) unveiled its new Risk Centre aimed at assisting financial institutions in navigating sustainability risks. The Risk Centre, available exclusively to UNEP FI’s members, will offer access to a centralized platform of resources and guidance tailored specifically for risk professionals. Initially focusing on climate and nature risks, including support for frameworks such as the Taskforce on Climate-Related Financial Disclosures and Taskforce on Nature-Related Financial Disclosures, the Risk Centre will later expand its scope to cover other sustainability risks such as pollution and social issues.
On April 17, the Network for Greening the Financial System (NGFS) published three reports exploring the role of 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. In particular, the reports (i) explore the needs and challenges of emerging market and developing economies related to transition plans, (ii) assess the interlinkages between the transition plans of the real economy and of financial institutions and (iii) examine the credibility of financial institutions’ transition plans and processes from a micro-prudential perspective.
On April 24, the Loan Market Association (LMA) published a form of Sustainability Coordinator Letter intended to provide a starting point for negotiations where a sustainability coordinator is to be appointed on a sustainable lending transaction. The form is available to members on the LMA website.
On April 30, ISS ESG Solutions, part of Institutional Shareholder Services, released its ESG Performance Chartbook. The goal of the ESG Performance Chartbook series is to provide insights into the distribution of ESG Performance Scores per industry within a sector. The charts are based on the underlying data from ISS ESG Solutions’ ratings methodology.
On March 31, the British Standards Institute (BSI) published BSI Flex 3030 – Net Zero Transition Plans – Code of Practice. The BSI Flex is designed to help small and medium-sized enterprises apply high level principles to design and deliver their transition to net zero and link their net zero transition plans with their wider sustainability or ESG reporting.
On April 23, the Financial Conduct Authority (FCA) launched a consultation process on extending the Sustainability Disclosure Requirements (SDR) and investment labels regime to portfolio management services. The consultation follows on an earlier consultation paper and corresponding policy statement (published in November 2023) on SDR and investment labels, which introduced a package of measures for fund managers. The process is open for comments until June 14.
On April 25, the UK government confirmed new targets to ensure 10% of all jet fuel in flights taking off from the UK comes from sustainable sources by 2030 through its sustainable aviation fuel (SAF) mandate. The SAF mandate will, subject to parliamentary approval, come into force in January 2025.
On April 24, the European Parliament passed the Corporate Sustainability Due Diligence Directive, meaning the directive has now passed all legislative phases. Once signed into law by the EU Council, EU member states will be given two years to transpose the directive into national laws. Under the directive, companies will need to conduct human rights and environmental due diligence on their own operations, their subsidiaries and their supply chain both within and outside the European Union.
Enforcement is scheduled to begin in 2027 for companies with over 5,000 employees and annual turnover of more than €1.5 billion, in 2028 for companies with more than 3,000 employees and €900 million in turnover, and in 2029 for companies with more than 1,000 employees and €450 million in turnover. Non-EU companies, parent companies and companies with franchising or licensing agreements in the EU reaching the same turnover thresholds in the EU will also be required to comply.
On April 10, the European Parliament voted to approve a provisional agreement with the EU member countries on a new law aimed at reducing methane emissions from the energy sector. The new regulation covers direct methane emissions from the oil, fossil gas and coal sectors, and from biomethane once it is injected into the gas network. The final act now has to be adopted by the Council of the European Union before being published in the EU Official Journal and entering into force 20 days later.
On April 9, the European Court of Human Rights (ECHR) ruled in favour of a Swiss association which had argued the Swiss government was not taking sufficient action to mitigate the effects of climate change. The ECHR found that the European Convention on Human Rights (Convention) encompasses a right to effective protection by the State authorities from the serious adverse effects of climate change on lives, health, well-being and quality of life and that there had been a violation of the right to respect for private and family life of the Convention. Further, the it held that the Swiss government had failed to comply with its duties (“positive obligations”) under the Convention concerning climate change by failing to comply with its own targets for cutting greenhouse gas emissions and to set a national carbon budget.
On April 3, the European Commission announced it had launched two in-depth investigations under the Foreign Subsidies Regulation, relating to the potentially market distortive role of foreign subsidies given to bidders in a public procurement procedure. Focus of the probe are two consortiums bidding for the development of a solar park in Romania, part-financed by EU funds. The European Commission will assess whether the economic operators concerned did benefit from an unfair advantage to win public contracts in the European Union.
According to the Foreign Subsidies Regulation, companies are obliged to notify their public procurement tenders in the European Union when the estimated value of the contract exceeds €250 million, and when the company was granted at least €4 million in foreign financial contributions from at least one third country in the three years prior to notification.
On April 24, the European Parliament voted for the European Union to withdraw from the Energy Charter Treaty (ECT). This vote follows a resolution adopted by the European Parliament in 2022 which called for the European Union to exit the ECT. The Council of the European Union can now adopt the decision by qualified majority.
This resolution follows the departure of a number of EU member states as well as the United Kingdom, as reported on in our February Edition.
On April 23, the European Parliament adopted a new directive on the so-called “right to repair” which intend to clarify the obligations for manufacturers to repair goods. The new rules require manufacturers provide certain repair services and inform consumers about their rights to repair. Goods repaired under the warranty will benefit from an additional one-year extension of the legal guarantee. After the legal guarantee has expired, manufacturer would still be required to repair common household products, such as washing machines, vacuum cleaners, and smartphones. Once the directive is formally approved by Council of the European Union and published in the EU Official Journal, member states will have 24 months to transpose it into national law.
On April 30, the European Commission announced that it sent letters to 20 airlines identifying several types of potentially misleading green claims and inviting them to bring their practices in line with EU consumer law within 30 days. The letters relate to claims made by airlines that the CO2 emissions caused by a flight could be offset by climate projects or through the use of sustainable fuels, to which the consumers could contribute by paying additional fees. The European Commission is concerned that the identified practices can be considered as misleading actions/omissions, prohibited under the Unfair Commercial Practices Directive.
On April 4, the U.S. Securities and Exchange Commission (SEC) issued an Order pausing implementation of new rules adopted in March 2024 requiring public companies to disclose certain climate change-related information in their SEC filings. The Order follows legal challenges by various parties that have been consolidated for review by the Eighth Circuit. In the Order, the SEC noted: “In issuing a stay, the Commission is not departing from its view that the Final Rules are consistent with applicable law and within the Commission’s long-standing authority to require the disclosure of information important to investors in making investment and voting decisions. Thus, the Commission will continue vigorously defending the Final Rules’ validity in court and looks forward to expeditious resolution of the litigation.”
SEC rules that became final in March 2021 (available here) require additional disclosures by public companies that engage in the commercial development of oil, natural gas or minerals. Under the final rule, domestic or foreign “resource extraction issuers” are required to annually disclose information about certain payments made to foreign governments or the U.S. federal government on Form SD.
The final rule allowed for a two-year transition period after the effective date, with initial Form SD filings due no later than 270 calendar days after the end of an issuer’s next completed fiscal year (e.g., September 26, 2024 for issuers with a December 31, 2023 fiscal year end). While the adopting release specifically referred to September 30, 2024 as the due date for a company with a fiscal year end of December 31, 2023 (274 days after year end), we recommend filing the Form SD by September 26, 2024 to ensure timely compliance with the rule’s deadline. More information on these filings is available in our recent client alert.
On April 4, New York City Comptroller Brad Lander announced agreements with JPMorgan Chase, Citigroup, and Royal Bank of Canada whereby the banks will regularly disclose their ratio of clean energy supply financing to fossil fuel extraction financing and their underlying methodology. The new agreements follow the submission of shareholder proposals for 2024 annual meetings by three of New York City’s pension funds – the New York City Employees’ Retirement System, the Teachers’ Retirement System, and the Board of Education Retirement System (BERS) – at several banks asking each to disclose the new metric.
As reported on in our DEI Task Force Update, on April 25, America First Legal (AFL), the conservative organization founded and run by former Trump policy advisor Stephen Miller, announced that it had filed a federal civil rights complaint with the EEOC against Shake Shack, Inc., alleging race and sex discrimination in violation of Title VII. AFL claims that Shake Shack discriminates on the basis of race and sex by unlawfully considering the protected characteristics of applicants and employees when making employment decisions. In support of these allegations, AFL cites the company’s May 2023 Proxy Statement, in which Shake Shack outlined its “5-Year Diversity Targets” that concentrate on women and people of color. Specifically, Shake Shack set a goal for 50% of its leadership roles to be occupied by people of color by the end of 2025, and also mandated that at least two underrepresented minorities, women, or people of color be interviewed when hiring for leadership positions. AFL highlights Shake Shack’s June 2023 update on its DEI goals, as well, where the company cited a 33% increase in the representation of women and an 18% increase in people of color in leadership positions since establishing its 2025 diversity goals. AFL also sent a cease and desist letter to Shake Shack’s CEO and Board of Directors demanding that the company end its allegedly discriminatory employment practices.
On April 22, the FAR Council (U.S. Department of Defense, General Services Administration, and National Aeronautics and Space Administration) published final rules amending the Federal Acquisition Regulation (FAR) to focus on current environmental and sustainability matters and to implement a requirement for agencies to procure sustainable products and services to the maximum extent practicable. Draft rules had previously been published in August 2023 and the final rules include a number of clarifications to the FAR.
On April 4, the Biden administration announced its selection for $20 billion in grant awards under two competitions within the $27 billion Greenhouse Gas Reduction Fund (GGRF), which was created under the Inflation Reduction Act. The GGRF consists of a series of programs designed to finance clean technology deployment that also includes building the capacity of community lenders to provide financing for clean energy projects. Over 70% of the new awards will be directed to low-income and disadvantaged communities.
On April 5, 2024, the Sustainability Standards Board of Japan (SSBJ) announced the release of new drafts for proposed reporting standards regarding sustainability and climate-related information, which are intended to align with the sustainability disclosure standards by the IFRS Foundation’s International Sustainability Standards Board (ISSB).
The SSBJ has released the standards as three exposure drafts, as opposed to the ISSB’s two standards, by dividing IFRS 1 (general sustainability) into two standards. A summary of the differences between its exposure drafts and the ISSB standards has been provided by the SSBJ. The SSBJ is currently soliciting feedback on the exposure drafts.
On April 17, 2024, the Monetary Authority of Singapore (MAS) and Institute of Banking and Finance (IBF), supported by Workforce Singapore (WSG), launched the “sustainable finance jobs transformation map”, which lays out the impact of sustainability trends on jobs in Singapore’s financial services sector and the emerging skills that are predicted to be required to serve sustainable financing demand in the region. The MAS also set aside S$35 million in funds to support upskilling and reskilling, and develop specialists in sustainable finance over the next three years.
On April 19, 2024, the Stock Exchange of Hong Kong (HKEX) published the conclusions of its consultation on the enhancement of climate-related disclosures under its environmental, social and governance (ESG) framework. Following the feedback received, the HKEX will adopt its consultation proposals, modified to reflect IFRS S2 Climate-related Disclosures (IFRS S2) more closely.
The amended listing rules will come into effect on January 1, 2025 and a phased approach for the implementation of the new climate requirements has been laid out by HKEX.
In March 2024, the ASEAN Taxonomy Board (ATB) released Version 3 of the ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy), part of its overarching taxonomy to advance sustainable finance practices across the region. The ASEAN Taxonomy adopts a multi-tiered framework which allows assessment of sustainable activities through either the principles-based Foundation Framework, or the Plus Standard with a more detailed methodology using application of technical screening criteria (TSC). Having published TSC for Electricity, Gas, Steam and Air Conditioning Supply (Energy) sector in ASEAN Taxonomy Version 2, the ASEAN Taxonomy Version 3 introduces TSC for two more focus sectors, namely Transportation & Storage and Construction & Real Estate, which covers activities including construction and renovation of buildings and acquisition and ownership of buildings, as well as urban and freight transport, and infrastructure for land, water, and air transport, among others.
Warmest regards,
Susy Bullock
Elizabeth Ising
Perlette M. Jura
Ronald Kirk
Michael K. Murphy
Selina S. Sagayam
Chairs, Environmental, Social and Governance Practice Group, Gibson Dunn & Crutcher LLP
For further information about any of the topics discussed herein, please contact the ESG Practice Group Chairs or contributors, or the Gibson Dunn attorney with whom you regularly work.
The following Gibson Dunn lawyers prepared this update: Elizabeth Ising, Patricia Tan Openshaw, Selina S. Sagayam, and Theresa Witoszynski.
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Environmental, Social and Governance practice group:
Environmental, Social and Governance (ESG):
Susy Bullock – London (+44 20 7071 4283, [email protected])
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, [email protected])
Perlette M. Jura – Los Angeles (+1 213.229.7121, [email protected])
Ronald Kirk – Dallas (+1 214.698.3295, [email protected])
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, [email protected])
Patricia Tan Openshaw – Hong Kong (+852 2214-3868, [email protected])
Selina S. Sagayam – London (+44 20 7071 4263, [email protected])
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