Webinar: CS3D: FS Series

Carrying on our new CS3D: FS webinar series, join us for two more opportunities to explore the intricacies of this framework. On Thursday, 5 December we will focus on the CS3D transition plan requirement. On Tuesday, 17 December we will discuss how CS3D inter-relates with other due diligence regimes, both those EU-wide regimes and pre-existing national regimes. This webinar will include a dive into the latest on the EU’s Deforestation Regulation, as it impacts the financial services.

Register here

Global: COP29: what was decided and what does it mean in practice for business?

Nearly 200 countries and thousands of attendees gathered in Baku, Azerbaijan this year for COP29, the annual UN climate summit. The two-week conference closed on Sunday 24 November, two days late, after some very heated negotiations. For the key takeaways from COP29, see our blog post.

Global: The future of nuclear financing: a turning point for investment in clean energy

In the face of escalating climate challenges and the pressing need to achieve net zero emissions, nuclear energy is witnessing a resurgence in interest as a critical component of the global energy mix. To meet the International Atomic Energy Agency’s (IAEA) high case projections for nuclear capacity by 2050, a substantial increase in investment is required. For more information on the evolving landscape of nuclear financing and the potential turning points that could make nuclear projects more attractive to investors, see our blog post.

UK: Government confirms details of new Carbon Border Adjustment Mechanism

In December 2023, the UK government announced its intention to introduce a UK Carbon Border Adjustment Mechanism (UK CBAM) from January 2027 to discourage relocation of energy intensive activities out of the UK and reciprocate the imposition of an equivalent scheme on UK imports into the EU. In March 2024, the government launched a consultation on the design and administration of the proposed UK CBAM on imports of certain carbon intensive imported goods from specific sectors, and published the government’s response to the consultation on 30 October 2024. Mirroring the European Union’s approach, the proposed UK CBAM aims to ensure that imported goods bear the same cost of carbon emissions as those manufactured in the UK, levelling the playing field for energy intensive domestic industries that are vulnerable to international competition. The UK CBAM will focus on the most emissions intensive industrial goods imported to the UK from the aluminium, cement, fertiliser, hydrogen and iron and steel sectors (the UK CBAM Sectors) that are most at risk of “carbon leakage” (i.e. the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation). It aims to ensure highly traded, carbon intensive goods imported from outside of the UK face a carbon price that is comparable to what would have been payable had they been produced in the UK. Notably, the government has opted not to include electricity in the list of UK CBAM Sectors (i.e. imports of electricity are excluded), which is captured by the EU CBAM. For more information, see our blog post.

UK: NESO publishes advice to government on pathways to clean power

On 5 November 2024, the new National Energy System Operator's (NESO) published its Clean Power 2030 report, in its capacity as strategic adviser to the government and Ofgem, setting out how to achieve clean power by 2030 (CP30). NESO defines clean power as when “clean sources produce at least as much power as Great Britain consumes in total and unabated gas should provide less than 5% of Great Britain's generation in a typical weather year". Clean power sources for the report's purposes include renewables (including biomass) and other low carbon sources (nuclear, gas using CCS, low carbon hydrogen or hydrogen production with CCS).

The report sets out two possible pathways for reaching CP30: (1) Further Flex and Renewables, which envisages 50GW of offshore wind (OSW) and no new dispatchable plants; and (2) New Dispatch, which contemplates 43GW of OSW and new, clean dispatchable plants up to 2.7GW using low-carbon hydrogen or power CCS.

Ongoing planning reforms as well as grid connection reforms are acknowledged in the report as critical enablers to achieve CP30. In addition, clarity for investors in future, reformed electricity market arrangements and investment support schemes will be crucial to mobilising the £40 billion investment needed each year in energy infrastructure to deliver CP30. Both pathways are predicated on increased electrification of heat, transport and industry across Great Britain.

The government will review the pathways set out in the report and will publish its own Clean Power Action Plan, which is expected towards the end of the year.

Global / EU: Sustainability assurance: ISSA 5000 is published, European standards under development

On 12 November 2024, the International Auditing and Assurance Standards Board (IAASB) published the International Standard on Sustainability Assurance 5000 (ISSA 5000). The Standard aims to establish a framework for practitioners carrying out sustainability assurance engagements. It is up to individual jurisdictions to decide whether the assurance of sustainability information is required and whether compliance with the Standard is necessary. ISSA 5000 applies to sustainability information reported across any sustainability topic and prepared under multiple frameworks. In particular, the Standard acknowledges that some reporting frameworks, such as European Sustainability Reporting Standards (ESRS), require “double materiality” to be considered when preparing the sustainability information, and positions itself as aligning with both traditional materiality and double materiality concepts.

As a global standard, ISSA 5000 does not incorporate specific European requirements, such as green and digital taxonomies. The CSRD mandates that the European Commission adopts limited assurance standards by 1 October 2026. In the meantime, the Committee of European Auditing Oversight Bodies (CEAOB), at the request of the Commission, published non-binding guidelines. The Commission also requested CEAOB to prepare, by May 2025, technical advice for the development of EU-specific add-ons (and possible carve-outs) to ISSA 5000.

We recommend that in the meantime companies engage proactively with their chosen assurance providers to understand what standards they will be applying, whether this aligns with any requirements under their applicable law and how they will manage any deviations in approach between jurisdictions. For more information, see our blog post.

EU CSRD: status of reporting standards for non-EU companies (NESRS)

The EGRAG Sustainability Reporting Technical Expert Group (TEG) approved the sector agnostic NESRS Exposure Drafts on 21 November 2024. The EFRAG Sustainability Reporting Board (SRB) will consider the drafts during its meetings in December 2024. Public consultation on the exposure drafts is planned to start in Q1 2025 and will run for 120 days. EFRAG must deliver the draft NESRS to the Commission by the end of 2025. The NESRS Exposure Drafts were prepared by amending the ESRS to comply with the specific requirements for non-EU groups reporting. Main changes made to the ESRS include removal of the datapoints related to sustainability-related risks, opportunities and/or dependencies, meaning that NESRS requires reporting on sustainability-related impacts only and not on financial materiality. For more information, see our blog post.

EU CSRD: Implementation of the CSRD into Belgian law

On 28 November 2024, the Belgian Parliament adopted in plenary meeting a law implementing the Corporate Sustainability Reporting Directive (CSRD), which aims to fundamentally change the approach to sustainability reporting (see Dutch and French texts). The implementation occurred without significant gold plating against the CSRD provisions and provides for additional flexibility with some options of the CSRD being exercised (such as the possibility to omit information relating to impending developments or matters in the course of negotiation). The law furthermore provides for the necessary powers to adopt amendments to the Royal Decree regarding transparency obligations, which are required to introduce into Belgian law the amendments made by the CSRD to the Transparency Directive. The law now needs to be published in the Belgian State Gazette after which it officially enters into force. The phased-in application of the CSRD has been included in the legal provisions. For more information on the current status of implementation in other EU Member States, see our CSRD Transposition Tracker.

EU CSRD: EFRAG publishes draft Transition Plan Implementation Guidance

On 4 November 2024, the European Financial Reporting Advisory Group (EFRAG) held the first public meeting of the Sustainability Reporting Technical Expert Group (TEG) to discuss the draft Implementation Guidance on Transition Plan for Climate Change Mitigation (TP IG or Guidance). The Guidance is non-authoritative and accompanies the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) but does not form part of them. According to the Cover Note for the TEG meeting, the draft reflects an early stage of the development of EFRAG’s position. The draft therefore is subject to change, both as a result of further amendments by the TEG as well following review by the EFRAG Sustainability Reporting Board (SRB). For more information, see our blog post.

EU CSRD: Final version of Commission FAQs on CSRD published in the Official Journal

On 7 August 2024, the European Commission published a draft Commission Notice with Frequently Asked Questions (FAQs) on the interpretation of certain provisions of the Corporate Sustainability Reporting Directive (CSRD). The FAQs also included explanations relating to the European Sustainability Reporting Standards (ESRS) and the Sustainable Finance Disclosure Regulation (SFDR). For the details on the FAQS, see our blog post. On 13 November 2024, the final version of the FAQs were published in the Official Journal of the EU, without major changes.

EU: ESMA consultation on amendments to Prospectus regime – ESG proposals

The EU Listing Act, which makes changes to the EU Prospectus Regulation (EU PR), has been published in the Official Journal of the EU on 14 November 2024 (see final text here) and will enter into force on 4 December 2024. However, many amendments to the EU PR will be phased in since they are reliant on delegated acts. In particular, certain key changes to required ESG disclosures for sustainable bonds will not apply until June 5 2026. For more information on the ESG proposals for sustainable bonds, see our blog post. For information about the differences between the EU and UK regimes, see our blog post.

UK: The importance of the UK Transition Plan Taskforce for pension scheme trustees

The UK Pensions Regulator recently published a blog post emphasising the importance for pension scheme trustees of improving their understanding of ESG considerations by reviewing the latest developments in transition planning and reporting. The Regulator has urged trustees to familiarise themselves with the recommendations of the UK Transition Plan Taskforce (TPT), along with the Taskforce for Nature-related Financial Disclosures (TNFD) and the Taskforce for Social Factors (TSF). Whilst at this stage, there is no legal requirement to implement those recommendations, transition planning is a developing area which is likely to become increasingly relevant for trustees. The UK government has indicated it intends to make transition plans mandatory for UK-regulated financial institutions (including pension funds) and corporates. The government has confirmed recently that it intends to consult on mandatory transition plans in the first half of 2025. For more information, see our blog post.

Global: ESG bond issuance surpasses US$800 billion as momentum builds for sustainable debt

Global sustainable bond issuance exceeded US$800 billion in the first nine months of 2024, as governments, financials and corporates looked to finance a growing number of green projects. Green bonds continue to be the most popular format, with over 1600 issuances raising over US$475 billion this year to date. Europe is the leading region for issuance value, led by Germany and France. Government issuance dominated activity across green, social and sustainability use-of-proceeds bonds, as sovereign borrowing aims to address urgent environmental and social challenges. For more information, see our briefing.

EU: Commission Publishes FAQs on EU Taxonomy

On 29 November 2024, the Commission published a draft set of FAQs on the EU Taxonomy. The Commission’s aim in doing so is to make the EU Taxonomy easier to use and “is part of the Commission’s simplification agenda and its effort to reduce the administrative burden on companies applying the EU sustainable finance framework”. The FAQs provide technical clarifications regarding various elements of the EU Taxonomy. The FAQs provide technical clarifications regarding various elements of the EU Taxonomy. Among other things this includes:

• the application of general Taxonomy requirements - including a reminder that the assessment of Taxonomy-alignment of economic activities should be performed annually for the purposes of reporting;

• the application of technical screening criteria for specific activities included in the Taxonomy Climate and Environmental Delegated Acts; and

• questions related to the generic ‘do no significant harm' (DNSH) criteria for climate change adaptation, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.

A copy of the draft notice can be found here. Its formal adoption in all the official languages of the European Union will take place later on, as soon as the language versions are available.

EU: EIOPA recommends dedicated prudential treatment for insurers’ fossil fuel assets

The European Insurance and Occupational Pensions Authority (EIOPA) has published its final report on the prudential treatment of sustainability risks within the EU’s Solvency II framework. The European Commission had asked EIOPA to assess the potential for a dedicated prudential treatment of assets and activities associated with environmental or social objectives or those that harm such objectives. EIOPA previously published a discussion paper in this area in December 2022 (see our previous briefing) and a consultation paper in December 2023 (see our previous briefing).

EIOPA’s key findings are as follows:

• Assets and transition risk exposures: EIOPA has concluded that fossil fuel-related stocks and bonds are more exposed to transition risks than assets connected to other economic activities. To ensure that European insurers set aside enough capital to withstand potential losses from investments in assets with high transition risks, EIOPA is recommending additional capital charges for these assets, as follows:

• For fossil-related stocks, EIOPA proposes raising capital requirements by up to 17% in additive terms on top of the current capital charge. EIOPA has concluded that this would lead to a “limited” impact on undertakings’ solvency ratio given their relatively low exposure to directly held fossil fuel stocks (on average about 1% of total investments).
• For fossil-related bonds, EIOPA recommends a capital charge of up to 40% in multiplicative terms in addition to existing capital requirements, instead of introducing no change at all or applying rating downgrades to fossil fuel-related bonds. EIOPA again estimates that this proposal would have a “limited” impact on undertakings’ solvency ratio due to their relatively low exposures to these kinds of assets.
• On property risk, EIOPA has been unable, at this stage, to conclude whether a dedicated prudential treatment is justified. It proposes to repeat the analysis in the future on the condition that data availability improves.
• Non-life underwriting risk and climate change adaptation: EIOPA studied the extent to which climate-related adaptation measures (e.g. anti-flood doors) could influence non-life underwriting risks in terms of premium risk. However, due to a current lack of available data, EIOPA has been unable to reach a robust conclusion as to whether a dedicated prudential treatment is justified in this area. It proposes to repeat the analysis in the future when more and better data is available.
• Social risks and impacts: EIOPA believes that social risks can be expected to translate into prudential risks. Due to the current lack of data and risk models, however, EIOPA does not recommend a specific prudential treatment of social risks at this stage. The report outlines future efforts to develop application guidance to help insurers assess social risk materiality as part of their Own Risk and Solvency Assessment.

In terms of next steps, the Commission will review the report and consider implementing the proposed additional capital requirements for fossil fuel assets.

EU: ESG ratings regulation moves one step forward

The Council of the EU adopted the proposed ESG Ratings Regulation on 19 November 2024 (see Council press release). The Regulation is designed to govern the issuance, distribution and, where relevant, publication of ESG ratings, without being intended to regulate their use. The Regulation now needs to be published in the Official Journal of the EU before it can enter into force. For more information, see our previous client briefing.

EU: Commission FAQs on KPI reporting under the Taxonomy Regulation

A Commission Notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets was published in the Official Journal of the EU on 8 November 2024. The purpose of the Commission Notice is to provide further interpretative and implementation guidance to financial undertakings in the form of replies to FAQs on the reporting of their key performance indicators under Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing the Taxonomy Regulation. For more information, see our blog post.

EU: Climate transition risks alone are unlikely to threaten financial stability, according to “Fit-for-55” climate stress test results

Climate-related transition risks alone are unlikely to threaten the financial stability of the European Union but could lead to increased losses for financial institutions and disrupt the green transition, if combined with unexpected shocks to the financial system, according to the results of the one-off “Fit-for-55” climate scenarios analysis, published on 19 November 2024 by the European Supervisory Authorities and the European Central Bank. For more information, see our blog post.

UK: Government announces package of reforms for sustainable finance in Mansion House speech

The UK Chancellor, Rachel Reeves, used her first Mansion House speech on 14 November 2024 to announce a package of reforms designed to make the UK a global leader in sustainable finance. The package includes a consultation on the UK Green Taxonomy (see more detail below), draft legislation on regulating ESG ratings providers (see more detail below), co-launching a Transition Finance Council with the City of London Corporation (which was one of the recommendations of the Transition Finance Market Review) and confirmation that the government will consult on transition plans in the first half of 2025. For more information, see our blog post.

UK: HM Treasury publishes response to its consultation on regulating ESG ratings providers

The government has responded to its 2023 consultation on regulating ESG ratings providers, noting that there is strong support for the policy. It has also released draft legislation which applies to both UK and overseas based ESG ratings providers. The draft legislation is open for technical feedback until 14 January 2025. For more information, see our blog post.

UK: HM Treasury consults on a UK Green Taxonomy

On 14 November 2024, HM Treasury launched a consultation on a UK Green Taxonomy. The Labour government has said it is committed to learning the lessons from taxonomy implementation in other jurisdictions and gathering the feedback of market participants. This will inform an assessment of the value of implementing a taxonomy in the UK, and exactly how it could be targeted to ensure it is as effective as possible, in particular in terms of helping to support “transition” activities. The consultation closes on 6 February 2025. It is not yet clear when the government will announce next steps after that. For more information, see our blog post.

EU: European Parliament votes on amendments to EU Deforestation Regulation including one-year delay

On 14 November 2024, the European Parliament voted in favour of the Commission's proposal to delay application of the EU Deforestation Regulation (EUDR) by one year - from the current date of 30 December 2024 to 30 December 2025 for large in-scope companies and 30 June 2026 for small and micro enterprises. The Council had already agreed to the one-year delay, without suggesting any other amendments. The Parliament also voted in favour of a number of other amendments to the EUDR - the most significant of which is the creation of a new category of countries posing “no risk” on deforestation, in addition to the existing three categories of “low”, “standard” and “high” risk. Countries classified as “no risk” (defined as countries with stable or increasing forest area development) would face significantly less stringent requirements. The Council and Parliament will now need to enter into negotiations ("trilogues") on the new amendments. This will need to done very quickly to ensure everything is agreed before the end of the year. For more information, see our blog post.

EU / UK: Green claims in fashion regulation, a growing trend

Driven by an increased focus on climate change and wider sustainability issues, recent years have seen a significant increase in environmental regulation across sectors and jurisdictions. Notably, governments and regulators have increased efforts to address concepts such as “greenwashing”, whereby firms overstate or are not clear about the eco-credentials of their products or services to consumers. One industry which has attracted significant scrutiny is the fashion industry with a number of European jurisdictions having taken action against large fashion retailers for alleged breaches of consumer law, and in particular, for making misleading green claims. For more information, see our blog post.

UK: FRC consults on investor stewardship and long-term sustainable value

The Financial Reporting Council (FRC) is consulting on proposed updates to the UK Stewardship Code which aim to maintain high standards, and the Code’s global standing, without saddling signatories with onerous reporting burdens. The FRC consultation stresses that there is no single approach to exercising effective stewardship and, amongst other things, proposes to define stewardship as aiming to “create long-term sustainable value for clients and beneficiaries”. This would replace the current wording which refers to value “leading to sustainable benefits for the economy, the environment and society”. The Code is relevant to a wide range of organisations, many of which are headquartered outside the UK. They include large asset owners (such as pension funds and insurers) and asset managers, as well as their service providers (such as investment consultants and proxy advisors). As the effects of stewardship activities are felt by businesses, the Code’s revised recommendations are also relevant to large investee companies and issuers. The consultation runs until 19 February 2025, with an updated Stewardship Code expected next year. For more information, see our blog post.

UK: New voluntary code of conduct for directors

The UK's Institute of Directors has published a new voluntary code of conduct to promote high levels of integrity and underpin professional ethics and standards, following a consultation earlier this year. The code aims to help improve public trust in responsible businesses of all types. While many of the recommendations are sensible and straightforward, some of the specific “undertakings” may go beyond the general legal duties of directors. For more information, see our blog post.

COP16: key takeaways from the global biodiversity summit

The 16th Conference of the Parties to the United Nations Convention on Biological Diversity (COP16) was held in Cali, Columbia from 21 October until 2 November 2024. COP16 was the first opportunity for governments to come together and collectively review their progress towards the targets and commitments established in the Global Biodiversity Framework (GBF) which was adopted at COP15 in 2022. According to the event organisers, COP16 was also intended to help make nature and biodiversity as important to governments and businesses as climate change and the energy transition. For more information on what was intended for COP16, what was in fact achieved, and what this means for clients, see our blog post.

EU: Transposition of the Women on Boards Directive into national law

France and Spain have recently adopted the European Women on Boards Directive into their national laws. This move aims to enhance gender balance on the boards of large companies, marking a significant step towards improved diversity and corporate governance in both countries. For more information, see our blog post.

EU: Platform Work Directive is published in the Official Journal

The Platform Work Directive, which aims to regulate the rapidly expanding digital platform work sector, was finally published in the Official Journal of the EU on 11 November 2024. The Directive will enter into force on 1 December 2024 and must be implemented by Member States into national law by 2 December 2026 at the latest. The Directive is expected to have far-reaching consequences for the digital platform sector, which is expected to encompass over 42 million workers by next year. For more information, see our blog post.

UK: Blowing the whistle on sexual harassment

Strengthening protection against workplace sexual harassment has been a longstanding focus on the UK’s political agenda. Action was taken by the former government to introduce a new preventative duty on employers in respect of sexual harassment which came into effect on 26 October 2024. For more information, see our guide. The current government is now seeking to sharpen the teeth of existing legislation. It plans not only to change the new duty but also the UK’s whistleblowing laws, a framework which has been largely untouched since its introduction 25 years ago. For more information, see our blog post.

UK: FCA releases findings from non-financial misconduct survey

The FCA has released the findings from its first industry-wide survey on non-financial misconduct (NFM). The survey was conducted among 1,028 firms in the wholesale financial services sector and covered the period 2021-2023. Amongst other things, the FCA found that NFM incidents increased over the three years surveyed, with bullying and harassment (26%) and discrimination (23%) being the most frequently reported types of NFM but the least likely to be upheld following investigation. The FCA has said that they expect firms to use these survey findings to reflect on their own NFM processes and procedures and discuss NFM at senior management and board levels to drive cultural improvements. The FCA intends to publish their Policy Statement on “Tackling Non-Financial Misconduct in the Financial Sector” by the end of 2024.

The Diversity Faculty: Helping businesses navigate a safe legal path in challenging times

The Linklaters Diversity Faculty is a dedicated practice advising clients on the legal, regulatory and governance aspects of diversity, equity, and inclusion (DEI). Positioned alongside the Employment & Incentives practice in London, the Diversity Faculty brings together employment lawyers and in-house diversity advisors who collaborate to provide a comprehensive service to clients. Depending on the client’s needs, the Diversity Faculty also draws specialists from other areas, including corporate governance, data protection, litigation, financial regulation and sustainability. This full-service offering, which spans both legal and business advisory, provides unparalleled integration between legal advice and practical DEI implementation, ensuring that our clients receive cohesive and actionable guidance. As a constantly evolving area, the Diversity Faculty has a strong thought leadership offering for clients, keeping abreast of trends and developments to help businesses navigate this challenging landscape. In its recent thought leadership series, DEI: Where Now?, the Diversity Faculty focuses on some of the trickiest and most complex areas of law and regulation relating to DEI, from positive action and positive discrimination, to managing conflicting beliefs in the workplace and succession planning for boards and senior leaders. For more information about the Diversity Faculty, see our dedicated webpage, and read more commentary, insights and guidance from the Diversity Faculty on DEI related topics via its dedicated blog.

How businesses in Asia are harnessing AI to meet growing ESG obligations

Artificial Intelligence (AI) – and generative AI in particular – has an interesting role to play in the net zero transition and the wider drive for improved sustainability. Faced with the increasingly complex shifting environmental, social and governance (ESG) landscape, organisations are looking to leverage AI to enhance their ESG strategies, yet the use of AI can also give rise to potential ESG litigation and regulatory scrutiny and much focus has been on the vast quantities of energy needed to power AI systems. For information on some of the issues that businesses in the region are navigating when considering the interplay of ESG and AI, see our blog post.

Common Ground Taxonomy expanded to include the Singapore-Asia Taxonomy

On 14 November 2024, at COP29, the International Platform on Sustainable Finance (IPSF) issued the Multi-Jurisdiction Common Ground Taxonomy (the M-CGT) (see MAS’ press release). The M-CGT is a comparison of the sustainable finance taxonomies of China, the EU and Singapore and builds on the EU-China Common Ground Taxonomy (CGT). Whereas the CGT covered the EU Sustainable Finance Taxonomy and the People’s Bank of China (PBOC)’s Green Bond Endorsed Project Catalogue, the M-CGT also includes the Singapore-Asia Taxonomy. The M-CGT was developed by the PBOC, the EU’s FISMA, and the Monetary Authority of Singapore (MAS) with the objective of enhancing the interoperability of taxonomies across China, the EU and Singapore. The M-CGT is a technical reference document which organisations can use to assess what could be considered “green activities” across China, the EU and Singapore taxonomies. The M-CGT is not legally binding but should enable easier comparison of the green taxonomies across these jurisdictions, facilitating cross-border green loans, green bond issuance and fund investments.

The expansion of the CGT to incorporate the Singapore-Asia Taxonomy was one of the announcements by MAS on the new green finance and capital markets initiatives to strengthen financial collaboration with China. Other key initiatives includes piloting an “over-the-counter” bond market framework to enhance international investors’ access to China’s bond market, and greater collaboration in indices and ETF product links to support the development of the regional capital markets ecosystem.

Singapore announces blended finance developments at COP29

During COP29, the Singapore Government announced up to US$500 million in concessional funding to support the Financing Asia’s Transition Partnership (FAST-P). FAST-P is the blended finance initiative launched by the Monetary Authority of Singapore (MAS) at COP28 that aims to mobilise up to US$5 billion from public, private, and philanthropic partners to finance transition opportunities in Southeast Asia (see our previous ESG newsletter). Separately, on 12 November 2024, BlackRock, MAS, IFC, MUFG, NEXI, and AIA signed a statement of intent to collaborate on a project to develop an “Industrial Transformation infrastructure debt programme”, under the FAST-P initiative, which will explore financing solutions for investors to access decarbonisation projects mainly focusing on Southeast Asia. Under the statement of intent, the parties will look at opportunities to provide debt financing to private-sector borrowers looking to decarbonise their businesses (including in hard-to-abate sectors).

Singapore: TRACTION publishes interim report on the use of transition credits to accelerate the early retirement of coal-fired power plants

The Transition Credits Coalition (TRACTION) was launched at COP28 in December 2023 by the Monetary Authority of Singapore (see our previous ESG newsletter). In November this year, during COP29, TRACTION released an interim report on using transition credits to accelerate the early retirement of coal-fired power plants (CFPPs) (the Interim Report). The Interim Report outlines TRACTION’s initial analysis and observations of the key issues to develop transition credits based on discussions among TRACTION members as well as experts. Based on these learnings, the Interim Report (i) identifies common attributes and differences across existing coal phaseout financing guidance, taxonomies, and transition credits methodologies, and maps out how they meet high integrity principles; (ii) lays the groundwork to scale the use of transition credits by identifying the key risks and possible mitigation solutions; and (iii) identifies considerations which buyers look for in purchasing transition credits. In MAS’ press release, it invites interested parties to respond to the findings of the Interim Report, with the aim that the final TRACTION report will be released at COP30 and will serve as a playbook to scale the implementation of transition credits.

Singapore: ACRA highlights climate-related considerations in guidance for directors

On 14 November 2024, the Accounting and Corporate Regulatory Authority (ACRA) issued Financial Reporting Practice Guidance No. 1 of 2024 on Areas of Review Focus for FY2024 Financial Statements (the Practice Guidance). The Practice Guidance outlines the areas of review focus for financial statements for FY2024, and serves as a guide for directors, particularly those in the Audit Committees (ACs), in fulfilling their duties as directors. ACRA's areas of review focus include the shifting macroeconomic environment, recent and upcoming amendments to accounting standards, quality control audits and, notably, climate-related considerations.

On climate-related considerations, key areas highlighted in the Practice Guidance are:

• Connectivity between sustainability reporting and financial reporting: As key climate-related assumptions involve the use of judgements and estimates, a coherent and connected reporting between the sustainability report and financial statements will enable stakeholders to understand the financial implications and their alignment with the companies’ strategies and business models.

• Accounting and disclosure of renewable energy projects and emission schemes: As companies adopt cleaner energy through Power Purchase Agreements (PPAs) to address climate change, key characteristics of PPAs, such as the terms of pricing, contracted energy volume, objectives, and duration, should be carefully evaluated by directors to determine how PPAs should be accounted for, with reference to the applicable accounting standards.

• Impairment of non-financial assets: Directors should consider climate-related risks when assessing recoverable amounts and disclose how climate-related events are taken into account when estimating future cash flows, useful lives of assets, discount rates or growth rates in cash flow projections used for value-in-use measurements. Companies significantly impacted by climate change should pay particular attention to their impairment evaluations and related disclosures.

ACRA also advised ACs to understand and assess the potential effects of climate-related risks on financial statements. In particular, the Practice Guidance states that “from FY2025, Singapore Exchange Regulation will mandate all issuers to report Scope 1 and Scope 2 GHG emissions. Issuers must start incorporating the climate-related requirements from the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, issued by the International Sustainability Standards Board (ISSB), into their climate-related disclosures. As such, companies should plan early to prepare for these new requirements, considering their connection to financial reporting.” (see our previous blog post).

Thailand Taxonomy Board publishes draft for Phase 2 of Thailand Taxonomy

In June 2023, the Thailand Taxonomy Board (the Board) introduced the Thailand Taxonomy (Phase I), a voluntary, standardised system classifying economic activities as environmentally-sustainable (see our previous ESG newsletter). Building on this foundation, the Board has now released a draft for Phase 2 of the Thailand Taxonomy. This draft is open for public consultation until 10 January 2025. Phase 2 broadens the framework to encompass four additional critical sectors: (i) agriculture (including crop, livestock, aquaculture, and forestry), (ii) building and real estate, (iii) manufacturing, and (iv) waste management. These sectors have been identified as essential for advancing Thailand’s environmental goals. The official launch of Thailand Taxonomy (Phase 2) is expected between April and May 2025.

Thailand publishes sustainability disclosure consultation

Since 2022, the Securities and Exchange Commission (SEC) of Thailand has required public companies listed on the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI) to disclose details of their sustainability initiatives, plans, and environmental performance, such as GHG emissions data, in their respective annual “One Report”. This report is to be submitted to the SEC and made available to the public. In November 2024, the SEC released a consultation paper on guidelines for enhancing sustainability disclosures in line with the ISSB standards. The aim is to align local standards with the latest internationally accepted standards and to enhance Thai business operators’ competitiveness and adaptability. The consultation paper outlines guidelines for the adoption of the ISSB standards using a phased-in approach and transition reliefs. The paper is open for public consultation until 19 December 2024.

China’s stock exchanges consult on draft sustainability disclosure frameworks for large listed companies

On 6 November 2024, the Shanghai Stock Exchange and Beijing Stock Exchange consulted on draft sustainability disclosure guidelines for large listed companies (the Guidelines). These Guidelines, once implemented, will serve as a practical guide for the corporate sustainability reporting requirements published by the three exchanges earlier on 12 April 2024 (see our previous blog post). The Guidelines currently have two chapters, covering General Requirements and Disclosure Framework (which specifies the principles governing sustainability reporting) and Addressing Climate Change (which illustrates key disclosure points regarding climate change). Going forward, it is expected that the Guidelines will be further developed to cover other major topics under corporate sustainability reporting requirements.

Shanghai Stock Exchange unveils a three-year plan to improve ESG disclosure quality

On 6 November 2024, the Shanghai Stock Exchange published the Three-Year Action Plan  for Enhancing the Quality of ESG Information Disclosure (2024-2026) among Listed Companies on the Shanghai Market (the Plan). This Plan outlines 17 specific initiatives, including bolstering information disclosure capabilities, improving information disclosure services and regulatory oversights, enhancing capital support, and advancing ESG evaluations, ratings, and investment. In particular, the Plan seeks to amplify support for green transformation by continually innovating ESG financial services and products, expanding the range of ESG index offerings, and encouraging the issuance of various ESG-themed funds.

Hong Kong’s SFC encourages asset managers to use ESG service providers who use voluntary code of conduct

This month has seen the official launch of Hong Kong’s first voluntary code of conduct (VCoC) for environmental, social and governance (ESG) ratings and data products providers (see our previous blog post). The VCoC is intended to enhance transparency of methodologies for ESG ratings and data products and improve standards generally across the market and is based on IOSCO-recommended global baseline standards for ESG service providers. The VCoC should, therefore, improve engagement with rated entities and the ability of asset managers, asset owners and banks to better understand and utilise ESG ratings and data products. The SFC has now issued a circular to asset managers encouraging them to consider using the VCoC during their due diligence and assessment processes of third-party ESG service providers. However, asset managers are free to make reference to other similar or higher standards for their due diligence and ongoing assessments if deemed necessary and appropriate. The circular also reminds asset managers that they should carry out their ESG due diligence in a way which is proportionate to the impact it will have on their investment and risk management processes, and that they may leverage group resources and staff, and adopt group policies to satisfy SFC expectations, provided that the standards are similar to or higher than SFC expectations.

HKEX publishes its 2024 Analysis of ESG Practice Disclosure

On 25 November 2024, the Hong Kong Exchanges and Clearing Limited (HKEX) published its 2024 Analysis of ESG Practice Disclosure (the Report). The publication of the Report follows HKEX’s review of listed issuers’ latest ESG reports to assess their compliance with its ESG reporting framework. A key observation was the overall improved quality of ESG governance disclosures. With the new climate-reporting requirements coming into effect in phases starting from 1 January 2025 (see our previous blog post), the Report recommends that issuers take prompt action to prepare for the new requirements, namely (i) familiarise themselves with the new requirements by referring to the Implementation Guidance and other useful materials on the ESG Academy; (ii) consider the sufficiency of resources by planning for the allocation of internal resources,  and engage additional personnel and/or experts where appropriate; (iii) conduct a gap analysis by evaluating existing processes, controls and procedures to identify areas for upgrade or improvement; and (iv) engage with value chain entities as early as possible with a view to accelerating the development of the infrastructure necessary for data collection and verification.

Second version of the ASEAN Transition Finance Guidance is launched

On 22 October 2024, the ASEAN Capital Markets Forum released the second version of the ASEAN Transition Finance Guidance (ATFG Version 2). The ASEAN Transition Finance Guidance (ATFG) published last year (see our previous ESG newsletter) aims to provide entities with a framework for assessing and demonstrating a credible transition to facilitate access to capital market financing. Taking account of consultation feedback, Version 2 (i) provides additional guidance and clarity on different types and applications of transition finance to help unify the terminology and therefore understanding among market participants; and (ii) provides guidance on reference pathways for real economy companies to use to set their transition plans and financial institutions to use when assessing entities’ transition plans.

Asia GX Consortium is launched to advance transition finance in the region

On 2 October 2024, the Asia Green Transformation Consortium (Asia GX Consortium) was launched in Tokyo (see FSA’s press release). The Asia GX Consortium includes representatives from regulators, private financial institutions, and public and multilateral institutions, including the Financial Services Agency of Japan (FSA), the ASEAN Capital Markets Forum and ASEAN Working Committee on Capital Market Development, the Asian Development Bank, GFANZ, Mizuho Financial Group, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, the Development Bank of Japan Inc., the Japan Bank for International Cooperation and the Japan International Cooperation Agency.  The FSA will serve as the initial Secretariat. Given the crucial importance of scaling transition finance for the region, the aim of the Asia GX Consortium is to “develop a practical and common approach to transition finance by facilitating discussions while considering Asian context”.

Changes to California climate disclosure rules

We have updated our client briefing on the Californian climate disclosure rules to reflect that fact that on 27 September 2024, California Governor Newsom signed into law Senate Bill 219 (SB219) which modifies the state’s recent climate disclosure laws (SB253 – the Climate Corporate Data Accountability Act – and SB261 – Climate-Related Financial Risk Reporting), and that the rules have survived their first legal challenge. These laws require that U.S. public and private companies doing business in California make unprecedented climate disclosures regarding scope 1, 2, and 3 emissions in the coming years. While the amendments do not substantively change the climate disclosure requirements in the laws, they do provide for additional flexibility for both the Board and the companies to which the laws apply. See our updated client briefing, California Legislature Passes Landmark Climate Disclosure Laws.

Pollution litigation

On 30 October 2024, a Mexican shipping company pled guilty to claims brought by the U.S. Department of Justice (DOJ), alleging that it violated the Act to Prevent Pollution from Ships (APPS) by creating and providing false records to the U.S. Coast Guard to conceal illegal discharges of oily bilge waste into the ocean. The Court sentenced the company to pay a US$1.75 million fine, serve a four-year term of probation and commit to developing and implementing an environmental compliance plan that will be in effect during the probationary period.

On 11 November 2024, a chemical company settled with the Illinois Attorney General’s (AG) Office to resolve a 2022 lawsuit filed after Danville, IL residents living near the chemical company’s plant discovered dead or damaged vegetation for a quarter mile south of the facility. The AG had alleged that the damage was caused by the facility’s hydrogen fluoride emissions. The settlement includes a consent order that will halt operations at the Danville facility and US$126,000 in fines.

Also in November, the New York Supreme Court dismissed the New York Attorney General’s case against an international beverage company criticizing the case as a “predatory lawsuit[].” The complaint alleged that the beverage company had caused seventeen percent of the plastic pollution in and near the Buffalo River and deceived the public about its efforts to combat plastics pollution. The court agreed with the defendant company that no law or rule prohibited the company’s use of plastic, and suggested that the public, not the company, was violating laws prohibiting littering.

Also in November, fifteen employees filed suit in the U.S. District Court for the Northern District of California against their employer, a large landfill company. The plaintiffs claim that managers of the landfill intentionally diverted “leachate” – untreated liquid wastewater often containing heavy toxins – into the Napa River and other area waterways for decades to avoid costs of safe waste disposal. The plaintiffs seek declaratory relief and civil penalties.

Regulatory litigation

On 12 November 2024, the U.S. Court of Appeals for the District of Columbia issued an opinion that may reshape how federal agencies implement environmental reviews under the National Environmental Policy Act (NEPA). The D.C. Circuit issued a 2-1 decision in Marin Audubon Society, et al., v. Federal Aviation Administration, et al., invalidating a plan jointly developed by the Federal Aviation Administration and the National Park Service that regulated tourist flights over national parks due to failure to comply with NEPA. More importantly, the D.C. Circuit sua sponte addressed the White House Council on Environmental Quality’s (CEQ) rulemaking authority and ultimately held that the CEQ – an entity within the Executive Office of the President that has overseen NEPA policy and implementation through regulations for over five decades – has no statutory authority under NEPA to promulgate binding regulations. For more information on this decision, see our article.

Climate litigation

On 12 November 2024, the U.S. Supreme Court denied a petition for a writ of mandamus filed by a group of twenty-one youth climate activists, declining to revive their complaint, which had been dismissed by the Ninth Circuit Court of Appeals. The complaint alleged that the U.S. national energy system has resulted in negative climate impacts, causing injury to their fundamental constitutional rights of life and liberty. The Ninth Circuit had previously ruled that supervision of remedies meant to address climate change was outside the purview of the judiciary, and in May 2024 dismissed the case on the basis that the plaintiffs did not have the right to amend their complaint.

On 5 November 2024, a U.S. federal district court denied a motion for summary judgment filed by the U.S. Chamber of Commerce and other business groups seeking to overturn the state’s climate disclosure laws on the basis that they violate the First Amendment of the U.S. Constitution by compelling speech. The court determined that the motion was not appropriate because discovery was still necessary to develop a factual record to evaluate whether the laws violate the First Amendment.

Legislative action

On 13 November 2024, the U.S. Senate and House of Representatives introduced legislation entitled “Targeting Environmental and Climate Recklessness Act of 2024”, that would authorize the imposition of government sanctions on foreign companies and individuals with respect to significant actions that exacerbate climate change. The legislation encourages action against, and in deterrence of, any egregious behaviors that “undermine efforts to limit the increase in global average temperature to 1.5 degrees Celsius above preindustrial levels; contribute to deforestation; or present specific harm to environmental defenders.”

On 14 November 2024, Massachusetts Governor Maura Healy signed new legislation that aims to advance clean energy development in the state. Senate Bill 2967 expands permits for offshore wind contracts from twenty to thirty years, updates the approval criteria for the Department of Energy Resource’s (DOER) review of new energy projects, and requires DOER to issue technical guidance for municipalities to enter into long-term clean-energy contracts. The bill also accelerates the review process for new clean energy projects and requires the state Energy Facilities Siting Board to accept or reject projects in fifteen months.

On 18 November 2024, the U.S. Senate Agriculture, Nutrition, and Forestry Committee introduced the Rural Prosperity and Food Security Act which would utilize resources from the Inflation Reduction Act to enhance the U.S. Department of Agriculture’s (USDA’s) conservation programs and incentivize voluntary conservation practices among farmers and ranchers to sequester carbon in the soil. The Senate proposal would also implement various climate mitigation practices including enhancements to forest management, investments in public water and wastewater systems and increased focus on greenhouse gas reduction.

SEC action

On 4 November 2024, the U.S. Securities and Exchange Commission released a risk alert for registered investment companies, detailing examples of deficiencies or weaknesses observed by the staff related to funds’ disclosure issues in the past four years. As part of the examples, the SEC had observed various discrepancies between the funds’ marketing materials and their actual investment practices, specifically noting that they had mischaracterized the use of environmental, social, and governance (ESG) factors in their decision-making processes.

On 8 November 2024, the SEC settled with an investment company to resolve charges that it violated the Investment Advisers Act of 1940 by making misleading statements about the integration of ESG considerations into its investment processes. As part of the agreement, the company will pay a US$17.5 million penalty and will cease and desist from committing or causing any similar violations related to its ESG investments in the future.

EPA action

On 12 November 2024, the EPA announced a final rule to help reduce methane emissions from the oil and gas sector. The rule facilitates implementation of Congress’ directive in the Inflation Reduction Act to EPA to collect a Waste Emissions Charge (WEC) on methane emissions from oil and gas facilities, and includes calculation procedures, flexibilities, and exemptions related to the WEC. In particular, the rule requires that oil and gas facilities that report emitting more than 25,000 metric tons of CO2 equivalent per year under subpart W of the EPA’s Greenhouse Gas Reporting Program must pay the following WEC annually for the subset of that facility’s methane emissions that exceed applicable levels set by Congress: (i) US$900 per metric ton for 2024 reported methane emissions, (ii) US$1,200 per metric ton for 2025 reported methane emissions, and (iii) US$1,500 per metric ton for 2026 and later reported methane emissions. Facilities in compliance with EPA’s recently finalized Clean Air Act standards for oil and gas operations would be exempt from the WEC after certain criteria set by Congress are met.

On 13 November 2024, the EPA announced a settlement with a medical equipment supplier, resolving claims of air emissions standards violations at the company’s facility located in Irvine, California. The violations observed included a failure to follow hazardous waste storage tank rules, failure to implement a proper leak detection and secondary containment system and failure to record daily inspections of a hazardous waste tank. Under the settlement, the company will pay a civil penalty of US$250,000 and certify it is in full compliance with the Resource Conservation and Recovery Act.

On 18 November 2024, the EPA announced it has entered into an agreement with the City of Salem, West Virginia to resolve alleged Clean Water Act violations at its wastewater treatment plant that involved its failure to comply with the effluent limits contained in its National Pollutant Discharge Elimination System permit. As part of the agreement, the City of Salem will pay a US$25,000 penalty and has agreed to conduct an engineering evaluation of the wastewater treatment plant, develop and implement a corrective action plan, and update its operations and maintenance manual to improve the procedures at its wastewater treatment plant and correct all effluent exceedances.

On 21 November 2024, the EPA announced a settlement with a cast iron soil pipe manufacturer, resolving claims of Clean Air Act violations at its iron foundry in Oakland, CA. The settlement was the result of a notice that the EPA issued in 2022 for a series of violations observed between 2018 and 2020, which prompted the company to cease operations at the foundry later that year. The violations included excess particulate emissions due to failed performance tests, inadequate monitoring of emissions from the foundry operations, and the use of non-compliant emission detection systems. As part of the settlement, the company will pay a US$274,000 penalty.

Greenwashing litigation

On 5 November 2024, the U.S. District Court for the Northern District of Illinois granted a motion to dismiss filed by a water bottle distributer in a case alleging that it had violated state consumer fraud statutes by labeling one of its spring water bottle lines as “natural”, despite the bottles containing microplastics that can enter into the water. The Court stated that the governing regulation defines “natural” as a descriptor of the water’s source and not its content, finding that any claim that imposes a requirement beyond the identification of the water’s source in order to properly label “spring water” as “natural” is preempted.

On 14 November 2024, the U.S. District Court for the Southern District of New York reversed its prior ruling to partially deny a water bottle distributer’s motion to dismiss claims alleging it had falsely advertised one of its water bottle lines as “carbon neutral.” While initially ruling that the term “carbon neutral” was too ambiguous to consumers, the Court now found that a reasonable consumer would look beyond the front label, including visiting the company’s website where it explains that the company’s interpretation of “carbon neutral” means their contribution to reduce emissions day by day as well as offset any remaining emissions. The Court dismissed plaintiffs’ claims, finding that the defendant’s representations are technically true and relevant disclosures are made available to consumers.

Also in November, Los Angeles County filed suit in California State Court against an international beverage company, alleging that the company misled the public about the recyclability of their plastic bottles. The complaint argues that the company failed to disclose the environmental impact of their plastic bottles and that the bottles have largely contributed to the plastic pollution of their county. Plaintiffs are seeking restitution, injunctive relief, and civil penalties of up to US$2,500 per violation.

IN CASE YOU MISSED IT

EU CS3D: Financial services webinar on due diligence obligations and the value chain - watch the recording

Data centres as real estate: not just humming sheds – read our briefing

Beyond the field: ESG in sport – listen to our podcast