Facilitating finance for the transition to a sustainable economy

We invite you to join us for a discussion on the growing interest across the world in transition finance, with a particular focus on the current market review into transition finance in the UK. We will explore the role of financial markets in supporting companies in their decarbonisation efforts and net-zero ambitions. Learn more about the event and register here.

An overview on the Carbon market

Join us for an in-person discussion of the carbon markets in the UK and EU. We will explore what we are seeing in both the compliance and voluntary carbon markets. Learn more about the event and register here.

EU: CSDDD formally adopted by the Council

On 24 May 2024, the European Council formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) – see Council press release and the text approved by the Council. The European Parliament gave its final approval to this text on 24 April 2024 (for more details, see our previous blog post).

The Directive will now need to be published in the Official Journal of the EU. It will enter into force on the 20th day following its publication. Member states will then have two years to transpose the new rules into their national laws. Transition periods will apply based on a staged approach, with the actual entry into application of the CSDDD rules mid-2027 for the largest in-scope companies.

For more information on the CSDDD, see the related materials in our blog post.

Global: More than 20 jurisdictions in the process of adopting ISSB Standards

More than 20 jurisdictions have decided to use the ISSB standards, or are taking steps to introduce the standards in their own frameworks, with the jurisdictions representing nearly 55% of global GDP, more than 40% of global market capitalisation, and over half of global greenhouse gas emissions. They include the UK, Japan, Singapore, Australia, Canada, Brazil, Costa Rica, Bolivia, Hong Kong, South Korea, Malaysia, Kenya, Nigeria and China. ISSB Chair Emmanuel Faber has indicated that customising ISSB standards to suit local/national needs is not a problem, as long as the information reported in various jurisdictions is clearly comparable. And that the “vast majority” of the countries working on incorporating ISSB standards are moving towards full alignment. However, Mr Faber has warned that there will be a cost for companies and investors in jurisdictions that diverge substantially from the ISSB standards. The ISSB has started discussions with standard setters in Australia, Hong Kong and Singapore who had indicated in consultations that they could use the ISSB framework only partially. For more information, see our blog post.

EU CSRD: Directive allowing two-year delay for sector-specific ESRS and ESRS for non-EU companies published in the Official Journal of the EU

The Corporate Sustainability Reporting Directive (CSRD) requires the European Commission to adopt the following European Sustainability Reporting Standards (ESRS) by 30 June 2024: (i) Sector-specific ESRS, which will set out the information specific to the sectors in which a company operates; and (ii) ESRS for certain non-EU companies with business in the EU meeting certain thresholds. In October 2023, the Commission published a proposal for a legislative act to delay the adoption of these two sets of ESRS by two years, i.e. to 30 June 2026. The European Parliament formally adopted the proposal on 10 April 2024, and the Council followed suit on 29 April (for more information, see our previous blog post). On 8 May 2024, the Directive was published in the Official Journal of the European Union. It entered into force on 28 May 2024.

EU CSRD: EFRAG publishes three ESRS Implementation Guidance documents and new set of ESRS explanations

On 30 May 2024, EFRAG published a Compilation of Explanations of the ESRS under the CSRD. These explanations relate to sector-agnostic ESRS. EFRAG noted that they are intended for use by large listed and unlisted companies that are subject to the ESRS, but not by non-listed small- and medium-sized enterprises (SMEs), which may use the upcoming voluntary SME standard. The Compilation of Explanations includes 12 Explanations released by EFRAG on 5 February 2024 and 12 Explanations released on 1 March 2024, plus further explanations approved up to May 2024 on a consolidated basis. For more details, see our blog post.

On 31 May 2024, EFRAG also published the first three ESRS Implementation Guidance (IG) documents to assist in-scope companies in complying with their new obligations under the CSRD: IG 1 Materiality Assessment, IG 2 Value Chain and IG 3 List of ESRS Data Points, along with an Explanatory Note. The draft IGs were open for public feedback from 22 December 2023 to 2 February 2024. Each of the Implementation Guidance documents is accompanied by Feedback Statement that explain the main changes made to the final IGs. For more information, see our blog post.

EU: GRI launches CSRD essentials

A joint working group, including the Global Reporting Initiative (GRI), Pascal Durand, Member of the European Parliament and CSRD Rapporteur, and the Lefebvre – Sarrut Group, has launched “CSRD Essentials” - a practical and free resource addressed to policymakers and sustainability reporters that explains the CSRD in accessible language. The CSRD Essentials focuses on: (i) scope, timing and interactions with existing standards; (ii) reporting format; (iii) legal interconnections, auditing rules and internal supervision; and (iv) SMEs, implementation procedures, and penalties.

UK: Government sets out next steps on SDR implementation

The UK government has published an update setting out the next steps on implementing the UK Sustainability Disclosure Requirements (SDR). Following the assessment of the ISSB disclosure standards (IFRS S1 and S2) by the UK Technical Advisory Committee, which should conclude at the end of 2024, the government aims to make the UK-endorsed ISSB standards - known as UK Sustainability Reporting Standards (UK SRS) - available in Q1 2025. Subject to a positive endorsement decision by the government, and following a consultation process, the FCA will be able to use the UK SRS to introduce requirements for UK-listed companies to report sustainability-related information. In Q2 2025, the government will consult on disclosure requirements against the UK SRS for UK companies that do not fall within the FCA’s regulatory perimeter. The government will also consider whether to create exemptions from pre-existing requirements in the Companies Act 2006 for those companies that choose to use the standards on a voluntary basis. Any changes that may be introduced would be effective no earlier than accounting periods beginning on or after 1 January 2026. For more information, see our blog post.

Energy Charter Treaty: Council gives final approval for EU’s withdrawal

On 30 May 2024, the Council of the EU formally adopted the decision for a coordinated withdrawal of the EU and Euratom from the multilateral Energy Charter Treaty (ECT) (see Council press release), following the European Parliament’s approval in April 2024 (for more details, see the ESG Newsletter May 2024 edition).

The ECT, which came into force in 1998, was established to protect foreign investments in the energy sector. However, the treaty has increasingly been seen as a barrier to climate action, as in practice, it allows conventional fossil fuel companies to file claims against states that implement policies promoting the clean energy transition. The Council’s decision will also pave the way for modernisation of the ECT, after previous efforts to do so failed (see our previous blog post) – EU Member States that wish to remain as contracting parties to the ECT after the withdrawal will be able to vote to approve or not oppose the adoption of a modernised ECT at the next Energy Charter Conference, scheduled for late 2024.

The withdrawal will take effect one year after the treaty depositary receives the notification. However, investors will continue to benefit from the treaty’s protections for many years even after withdrawal under a sunset clause (see our previous blog post). For more information on the ECT, visit our dedicated page.

France: ADEME publishes updated version of Anti-Greenwashing Guide

In April 2024, the French Agency for Ecological Transition, ADEME, published an updated version of its Anti-Greenwashing Guide (initially published in July 2023) to help companies and brands avoid misleading advertising in relation to the environment and sustainable development, when promoting products, services or sustainable development approaches. Greenwashing represents significant risks for companies and brands, be they legal, financial, reputational or ethical. Legal actions for greenwashing have been on the rise in the past years across Europe and France is no exception. ADEME therefore acknowledges that identifying greenwashing (section 1) and defining the main steps to avoid it (section 2) is critical for companies and brands to avoid facing the risks associated with greenwashing, including litigation risk (section 3). For more information, see our blog post.

France: NGOs and individuals file a criminal complaint against major French energy company’s directors and main shareholders

On 21 May 2024, three NGOs and eight individuals filed a criminal complaint with the Paris public prosecution office, targeting the board of directors of a major energy company, including its CEO, and its main shareholders. They have accused the company of contributing to climate change. The alleged offences mentioned in the complaint include deliberate endangerment of lives, involuntary manslaughter, failure to address a disaster, and damage to biodiversity. The complaint highlights the potential criminal liability of key decision-makers in companies. The claimants are seeking to rely on scientific evidence to establish a causal link between the company’s decisions and extreme climate change events (also known as “attribution science”). If the criminal complaint eventually proves successful, the defendants could face fines and imprisonment. The Paris prosecutor has three months to determine whether to open a judicial investigation or not. For more information, see our blog post.

UK: High Court rules approval of government’s Carbon Budget Delivery Plan was unlawful

On 3 May 2024, the English High Court found, for a second time, that the process by which the government’s climate change plans were adopted was unlawful. The Court held the Secretary of State’s (SoS) decision to approve the government’s Carbon Budget Delivery Plan (CSDP) was irrational, because he assumed all proposals and policies it contained would be delivered in full (which was not justified by the evidence). Alternatively, if the SoS considered not all proposals and policies would be delivered in full, he was not provided sufficient information to assess which policies might not be delivered in full. The Court has requested further submissions on remedy before making an order. The Court may direct the current SoS to re-make the decision with the benefit of revised advice on the risks of non-delivery of policies. That could potentially result in the government revising the content of its net zero policies in the CBDP. This case is part of a broader international trend of challenges seeking to ensure that governments take effective, practical steps to implement their climate targets. For more information, see our blog post.

Global: ICMA, IsDB and LSEG publish guidance on sustainable sukuk

On 29 April 2024, the International Capital Market Association (ICMA), together with the Islamic Development Bank (IsDB) and London Stock Exchange Group (LSEG), published guidance on the issuance of green, social and sustainability sukuk (“sustainable sukuk”). The guidance has been drafted in order to provide market practitioners with practical information on how sustainable sukuk may be issued in line with the ICMA Principles. The guidance provides an overview of sukuk (including sukuk structures and a snapshot of the sustainable sukuk market) and the ICMA Principles and also provides sustainable sukuk case studies and best practice in order to help develop the sustainable sukuk market. Noting the strong synergies between Islamic finance and sustainable finance, the guidance, which focusses on use of proceeds sukuk, confirms that all green and social project categories in the ICMA Green and Social Bond Principles would be eligible for green and social sukuk.

ICMA, IsDB and LSEG plan to engage with key stakeholders, including Sha’riah boards, regulators, rating agencies, non-profit organisations and other market participants, in the coming months to embed this guidance in the sustainable sukuk market, noting that further updates may be made to the guidance once those stakeholder discussions are complete.

New EU Green Bond Regulation Hub

With just over 6 months to go before the first issuer will be able to use the EU’s new ‘gold standard’ label for green EU Taxonomy Regulation-aligned use of proceeds bonds, our cross-border team of debt capital markets experts have launched a new EU Green Bond Regulation Hub collating our key resources on the Regulation. This includes our interactive timeline and our most relevant publications and thought-leadership pieces, including our new issuer checklist. Explore our new hub here.

EU: ESMA publishes final Guidelines on funds’ names using ESG or sustainability-related terms

ESMA has published its long-awaited final report setting out its Guidelines on funds’ names using ESG or sustainability-related terms. Overall, the final guidelines broadly align with the position proposed in ESMA’s December 2023 status update, and in many ways is as we expected. The Guidelines will now be translated into all EU languages and published on ESMA’s website. They will start applying three months after that publication. The Guidelines do not apply to SFDR financial products that are not funds (and for the avoidance of doubt, do not apply to non-SFDR financial products such as bonds or shares). However, in practice EU national competent authorities may apply the same standards to other products using ESG terms in their name. For more information, see our blog post.

EU: ESMA identifies areas for improvement in firms’ sustainability claims in marketing communications

In 2023, European Securities and Markets Authority (ESMA) launched a Common Supervisory Action (CSA) and mystery shopping exercise (MSE) on the application of disclosure requirements with regard to marketing communications, which also focuses on sustainability aspects. ESMA has now published its final report setting out its analysis and conclusions on the MSE and CSA. Overall, ESMA found that investment firms generally have procedures in place that ensure compliance with MiFID II marketing requirements, including during development. However, ESMA also expressed several concerns about marketing material, including sustainability claims where several areas have been identified for improvement. For more information, see our blog post.

EU: Commission publishes summary report of consultations on the future of SFDR

In September 2023, the European Commission started its consultation on the implementation of the Sustainable Finance Disclosure Regulation (SFDR). The Commission was interested in understanding how the SFDR has been implemented and any potential shortcomings, including in its interaction with other parts of the European sustainable finance framework. For more information on the consultation, see our previous blog post.

On 3 May 2024, the Commission published the Summary Report of the Open and Targeted Consultations on the SFDR Assessment. The Summary does not mention how the Commission will use this report, the next steps or timing. Some of the key takeaways from this Summary: (i) the broad objectives of the SFDR are widely supported but 77% of respondents also highlighted key limitations of the framework such as lack of legal clarity regarding key concepts, limited relevance of certain disclosure requirements and issues linked to data availability; (ii) the need for consistency across the wider Sustainable Finance framework, including Taxonomy and CSRD; (iii) no clear consensus on relevance of entity level disclosures - a vast majority of respondents would like these disclosure requirements to be simplified and streamlined across the whole sustainable finance framework; (iv) majority of stakeholders supported uniform disclosure requirements for all financial products offered in the EU as well as additional disclosures for products making sustainability claims.

There was strong support for a voluntary categorisation system regulated at EU level (over 70% of respondents believe disclosures are not enough to achieve objectives). Commission said there is no clear preference for one of the two proposed approaches to a potential EU categorisation system. However, there are some commonly agreed principles such as: (i) importance of categories being easily understandable by retail investors; (ii) even if full alignment with third countries’ categorisation systems may not be feasible, most respondents urged the European approach to allow for international applicability; (iii) large majority of respondents indicated that integration of transition finance within the SFDR should be a top priority; and (iv) the need for underlying criteria to be asset-neutral and applicable to all types of financial products.

EU: Revised Energy Performance of Buildings Directive published in the OJEU

The revised Energy Performance of Buildings Directive seeks to decarbonise the EU's building stock by 2050 and facilitate the renovation of homes, schools, hospitals, offices and other buildings across Europe to reduce greenhouse gas emissions and energy bills, improving the quality of life of those living in the EU. It sets an ambitious target, namely, that, as of 2030, all new buildings must be zero-emission and, as of 2028, all new public buildings (i.e. those built for use by the public sector) must also be zero-emission. The Directive also includes the provisions on renovations of buildings and the setting of new EU-level minimum energy performance standards for both residential and non-residential buildings. Finally, the Directive encourages the use of solar energy in buildings and electronic communications and smart technologies to ensure that buildings are able to operate efficiently and supports the rollout of charging infrastructure for electric vehicles in residential and commercial buildings. The Directive was formally adopted by the Parliament on 12 March 2024 and by the Council on 12 April 2024. It was published in the Official Journal of the EU on 8 May 2024 and entered into force on 28 May 2024. For more information on the Directive, see our previous blog post.

EU: Critical Raw Materials Act enters into force

23 May 2024 marked the entry into force of the Critical Raw Materials Act (CRMA). At present, the EU relies almost exclusively on imports from suppliers concentrated in a limited number of countries – making it vulnerable to geopolitical risks and supply chain disruptions. The CRMA aims to secure the raw materials supply chain and sets clear priorities for the EU and Member States in order to mitigate future supply risks. As the world is increasingly realising the importance of minerals to achieve a transition to a lower carbon economy, the CRMA is part of a significant push by the EU to upscale and speed up the development of green technologies needed to meet the EU’s net-zero goals. The CRMA provides a roadmap for securing and diversifying the EU’s supply of critical raw materials and will require actions and implementation efforts from the Commission and Member States in the coming years. For more information, see our client briefing.

France: New framework for informal antitrust guidance on sustainability projects

On 27 May 2024, the French Competition Authority (FCA) published its final notice on informal guidance on sustainability. The notice aims to support undertakings wishing to carry out sustainability projects, by setting out a framework for them to seek informal guidance on the compliance of their projects with competition rules. It follows guidance released by other competition authorities in the past year (including the European Commission, UK’s Competition and Markets Authority (CMA) and the Dutch ACM). Following the FCA’s public consultation in December 2023, the draft notice has been improved and its scope broadened. It has resulted in a flexible procedural tool, dedicated to providing informal guidance on sustainability projects. Sustainability has been one of the FCA’s key priorities for several years now. This tool is part of its “open-door” policy, aimed at encouraging stakeholders to reach out to the FCA, where doubts on the compliance of their sustainability projects with competition law arise. Contrary to other competition authorities (e.g., the CMA), the FCA’s Notice only focuses on procedural elements. For more information, see our blog post.

Climate Change

Youth-led climate change litigation continues to gain traction in the U.S. On 22 May 2024, youth plaintiffs filed suit against the State of Alaka in state court to challenge a major natural gas project. The complaint alleges that the project would substantially increase state climate pollution and cause harm to the “lives, health, safety, and cultural traditions and identities of Alaska’s youth, and substantially limit their access to the vital natural resources upon which they depend” in violation of the state constitution. The plaintiffs seek declaratory and injunctive relief.

On 8 May 2024, a federal judge in the Central District of California ruled to dismiss with leave to amend a youth-led putative class action against the U.S. Environmental Protection Agency (“EPA”) for alleged "affirmative allowance of dangerous levels of climate pollution. The court agreed with the EPA’s position that the youth plaintiffs lacked redressability for their claims in federal court, stating that the plaintiffs failed “to demonstrate how a declaration regarding Plaintiffs’ rights under the Constitution and the legality of Defendants’ conduct, on its own, is likely to remedy these alleged injuries.” The plaintiffs filed an amended complaint against the EPA on 20 May 2024, noting that declaratory relief would redress the actual controversy by, inter alia, "clarifying Plaintiffs’ equal protection rights as children and resolving whether the [federal] Discounting Policies and practices are unconstitutional”.

Also, a landmark youth climate change lawsuit against the federal government was also dismissed by United States Court of Appeals for the Ninth Circuit for lack of Article III standing. For more information about the case, see January issue of the ESG Disputes Bulletin. 

Pollution and Public Health

Plaintiffs continue to pursue litigation related to pollution and related harms to public health. On 13 May 2024, an environmental NGO filed suit against an American multinational automotive company in the Northern District of California, alleging that the company’s operation at a local factory fails to comply with the Clean Air Act). The complaint further alleges that the car factory’s operations exposed residents and factory workers to extensive amounts of air pollution, threatening public health. The plaintiff seeks injunctive relief, declaratory relief, and civil penalties. 

Also in May 2024, the City of Pomona, California sued a major chemical corporation and a major oil company in the Central District of California, alleging the companies polluted certain drinking water systems, causing harm to the public. The city argued that the corporations manufactured and/or distributed products containing the highly toxic chemical 1,2,3-trichloropropane (“TCP”) and wilfully promoted and sold TCP and TCP-containing products while knowing that the chemical would threaten the public health and welfare. The city seeks compensatory damages and exemplary damages.

On 20 May 2024, a German chemical producer announced that it reached a $316.5 million settlement with several U.S. public water systems to resolve claims that detected per- and polyfluoroalkyl substances (“PFAS”) in public water were a result of the company’s aqueous film-forming foam (“AFFF”) products. Also in May 2024, a Pennsylvania state jury found a major oil company liable for $725.5 million in a civil suit alleging that the company failed to warn consumers and the public about the health risks of the chemical benzene in its products.

Oil and Gas

On 29 April 2024, the EPA and the State of Ohio reached a settlement agreement totaling over $2.4 million to resolve claims against two pipeline companies related to the discharge of crude oil from a ruptured pipeline into a nature preserve site in 2014. The pipeline companies agreed to the payment of a civil penalty, the provision of funds to repair damages to natural resources caused by the oil spill, and reimbursement of past natural resource damage assessment costs incurred by the federal government and the state. Also, on 22 May 2024, lawmakers sent a letter to the U.S. Department of Justice (“DOJ”), sharing the results of a three-year investigation into the fossil fuel industry’s “history of making deceptive claims” and requesting the launch of an investigation into the fossil fuel industry to determine whether the entities violated any applicable federal statutes. The investigation, which was overseen by the House Committee on Oversight and Accountability and the Senate Committee on the Budget, unveiled evidence supporting the lawmakers’ claim that the fossil fuel industry engaged in a decades-long disinformation campaign to mislead the public about the climate effects of fossil fossils and their plans to reduce emissions and combat climate change.

Also in May, Oklahoma State Treasurer Todd Russ released a revised list of seven financial institutions allegedly engaging in a boycott against the fossil fuel industry. Under the Oklahoma Energy Discrimination Elimination Act of 2022 (“OEDEA”), Oklahoma state agencies and political subdivisions are not allowed to contract with a company included on the list and must divest from them unless they “cease engaging in the energy company boycott.” However, just a few days after the release of the list, an Oklahoma state court issued a temporary injunction blocking enforcement of the OEDEA, finding that the plaintiff, a beneficiary of the Oklahoma Public Employees Retirement System, established a substantial likelihood of success on the merits” regarding his arguments that the ODEA was unconstitutionally vague and resulted in a violation of exclusive benefits owed to him by the retirement system. The court’s order also reasoned that the ODEA appears to have a “political agenda” to help the oil and gas sector, which contravenes the state constitution’s requirement that retirement funds be managed for the exclusive benefit of beneficiaries.

Agency Actions

On 25 April 2024, the U.S. Environmental Protection Agency (“EPA”) announced final carbon pollution standards for existing coal-fired and new gas-fired power plants. The rule, published in the Federal Registrar on 9 May 2024, requires all long-term coal-fired plants and base load new gas-fired plants to control 90% of their carbon pollution and will significantly reduce greenhouse gas (“GHG”) emissions from existing coal-fired power plants and from new natural gas turbines. The new standards are predicted to reduce CO2 by 1.38 billion metric tons systemwide through 2047.The new standards were quickly challenged in multiple lawsuits filed in the U.S. Court of Appeals for the District of Columbia Circuit. On 9 May 2024, a lawsuit was filed by the State of Ohio and the State of Kansas petitioning for the rule to be reviewed. The same day, another petition was filed by a coalition of 25 states arguing that the final rule “exceeds the agency’s statutory authority and otherwise is arbitrary, capricious, an abuse of discretion, and not in accordance with law.”

Also in May, the U.S. Department of Energy (“DOE”) announced a preliminary list of 10 national interest electric transmission corridors as part of its plan to accelerate the development of transmission projects in areas with urgent need for additional capacity. These designations unlock federal investment and permitting tools to spur investments. On 13 May 2024, the U.S. Federal Energy Regulatory  Committee released their new transmission and cost allocation rule, Order No. 1920, also known as Building for the Future Through Electric Regional Transmission Planning and Cost Allocation. The rule adopts specific requirements on how transmission providers must conduct and finance long-term planning for regional transmission facilities. 

On 6 May 2024, in accordance with President Biden’s Inflation Reduction Act, the EPA issued a final revised rule to strengthen, expand, and update methane emissions reporting requirements for petroleum and natural gas systems under its Greenhouse Gas Reporting Program (“GHGRP”). The GHGRP requires the reporting of greenhouse gas data and other information from large emission sources, fuel and industrial gas suppliers, and CO2 injection sites in the United States. The revised rule will be the first time that the EPA allows for advanced technologies such as satellites to help quantify emissions. 

Executive and Treasury Actions

On May 2 2024, the EPA announced that $3 billion from President Biden’s Investing in America agenda would be distributed to states and territories to identify and replace lead service lines, preventing exposure to lead in drinking water. The funding will be allotted based on need, resulting in states with more projected lead service lines receiving proportionally more funding.

On 14 May 2024, President Biden released a statement announcing that the U.S. will more than double tariffs on a range of Chinese goods, including electric vehicles and their batteries, steel and aluminum, semiconductors and solar cells, and medical products in order to “[t]o encourage China to eliminate its unfair trade practices regarding technology transfer, intellectual property, and innovation.” The Biden administration predicts that these new tariffs will be applicable to approximately 18 billion USD worth of imports from China to the U.S. Two days later, on 16 May 2024, President Biden took further steps to protect domestic solar manufacturing, announcing that his administration is removing the tariff exclusion currently in place for bifacial solar panels, monitoring import surges of solar modules from southeast Asia to prevent oversaturation, and providing $70 million in research and development funding to support new technologies in the solar supply chain through the DOE. On 16 May 2024, in response to the Biden administration's new trade restrictions on solar products from China, the U.S. Treasury Department announced a new safe harbour that taxpayers can use to qualify for bonus tax credits for domestically sourcing their solar materials.

Also in May, the U.S. Department of the Treasury published final regulations for the up to $7,500 electric vehicle tax credit, including a more detailed process for automakers to trace the supply chain of minerals in their batteries in order to qualify for the credit's domestic content requirements. On 28 May 2024, the U.S. Department of the Treasury and the DOE released a Joint Statement of Policy and New Principles for Responsible Participation in Voluntary Carbon Markets (“VCMs”), alongside the Department of Energy and climate and economic advisors. The statement aims to further the utilization of VCMs to facilitate global greenhouse gas emissions reductions and removals and help to reach global net-zero emissions by 2050.

Challenges to Regulatory Actions

Regulatory agencies faced numerous legal challenges this month. For instance, the EPA On 2 May 2024, the U.S. Court of Appeals for the Third Circuit issued an opinion denying the State of Pennsylvania’s petition for review of the EPA’s federal implementation plan that establishes emission limits for coal fired power plants in Pennsylvania, finding that the EPA properly acted in accordance with the Clean Air Act. Also in May, an oil and gas trade association filed a petition for review in the U.S. Court of Appeals for the District of Columbia, challenging the EPA’s new rule entitled “Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review”. The rule finalizes new performance standards regulating greenhouse gases and volatile organic compounds emissions for the crude oil and natural gas source category and emission guidelines to establish standards to limit greenhouse gas emissions from already existing sources.On 14 May 2024, the U.S. Court of Appeals for the District of Columbia denied a petition for review of the EPA’s Final Rule implementing the Clean Air Act’s Renewable Fuel Standards Program, which was designed to promote energy independence and curb greenhouse gas emissions and requires the petroleum industry to introduce increasing volumes of renewable fuel from year to year into the nation’s transportation fuel supply. The Court disagreed with both renewable fuel producer, who claimed the standards are too low, and petroleum refiners, who argued that the standards are too high, finding that the EPA complied with the law and reasonably exercised its discretion in setting the renewable fuel requirements for the years at issue.

Other regulatory bodies also faced legal challenges this month. On 10 May 2024, the U.S. Court of Appeals for the Fifth Circuit denied a petition for review filed by four states challenging the U.S. Securities and Exchange Commission’s (“SEC”) final rule requiring funds to disclose their votes on environmental, social and governance (“ESG”) matters, finding that that the states lacked standing and the court did not have jurisdiction. On 13 May 2024, over a dozen U.S. states filed a complaint in the U.S. District Court for the Eastern District of California against the executive officer of the California Air Resources Board and the Attorney General of California, challenging the Advanced Clean Fleets regulation which bans internal-combustion engines in medium and heavy duty vehicles. The plaintiffs claim that the attempted ban contravenes controlling law and would inevitably disrupt the supply chain for all manner of goods, slow interstate transportation, raise prices on goods across the country, and impose costs on taxpayers and governments around the country. The plaintiffs are seeking declaratory and injunctive relief. Also in May, Republican attorneys general from twenty U.S. states filed a complaint in the U.S. District Court for the District of North Dakota against the Council on Environmental Quality, challenging a new rule that would change certain procedures delineated by the National Environmental Policy Act (“NEPA”). The rule, which goes into effect in July 2024, is intended to provide for an effective environmental review process, ensure full and fair public engagement, enhance efficiency and regulatory certainty, and promote sound federal agency decision making grounded in science, including consideration of relevant environmental, climate change, and environmental justice effects. The plaintiffs argue that the rule exceeds the agency’s authority, would add new delays to the NEPA process and increase costs that would impede or even preclude critically needed projects.

Hong Kong SAR publishes consultation on voluntary code of conduct for ESG ratings and data products providers

Hong Kong is currently consulting the industry on a proposed Code of Conduct on ESG Ratings and Data Product Providers. On 17 May 2024, the Voluntary Code of Conduct Working Group (the VCWG) published a consultation paper (the Consultation Paper) on the proposed voluntary industry code of conduct for providers of ESG ratings and data products (the Code). The VCWG is an industry working group sponsored by the Hong Kong Securities and Futures Commission (SFC) to develop and promote a globally consistent, interoperable and proportionate voluntary code of conduct for ESG ratings and data products providers in Hong Kong. The International Capital Market Association (ICMA) serves as the Secretariat for the VCWG. The proposed Code covers six principles on: (i) good governance; (ii) securing quality through systems and controls; (iii) management of conflicts of interest; (iv) transparency; (v) confidentiality through systems and controls; and (vi) stakeholder engagement through systems and controls. By signing up to the Code, ESG ratings and data product providers agree to complete, make availably publicly and review at least annually a self-attestation document in the form provided. The Code is closely aligned with the “Final Report” on “Environmental, Social, and Governance Ratings and Data Products Providers” (IOSCO Report) published by the International Organisation of Securities Commissions’ (IOSCO) in November 2021, and the “Call of Action” paper published by IOSCO in November 2022 while taking into account the code of conduct developed by ICMA and the UK’s FCA’s data and ratings working group. The Code aims to enhance consistency, transparency, and accountability in the financial services industry, by introducing clear standards for ESG ratings and data product providers. This consultation closes on 17 June 2024. For more information, see our blog post.

Hong Kong Monetary Authority updates the Green and Sustainable Finance Grant Scheme

On 3 May 2024, the Hong Kong Monetary Authority (HKMA) published its updated guideline on the Green and Sustainable Finance Grant Scheme (the 2024 GSF Grant Scheme). The Green and Sustainable Finance Grant Scheme was first introduced by the HKMA in May 2021 and has since provided subsidies to eligible bond issuers and loan borrowers for the issuance of more than 340 green and sustainable debt instruments in Hong Kong totalling approximately US$100 billion. The original Green and Sustainable Finance Grant Scheme was launched in May 2021 (the 2021 GSF Grant Scheme) and expired on 9 May 2024. Accordingly, the 2024 GSF Grant Scheme took effect from 10 May 2024 and will be valid for another three years until May 2027. A bond or loan must be issued on or after 10 May 2024 in order to qualify for the 2024 GSF Grant Scheme. In line with the 2021 GSF Grant Scheme, the 2024 GSF Grant Scheme provides subsidies to cover the costs of eligible green and sustainable bonds and loans in Hong Kong, with an expansion in scope this time to cover transition bonds and loans. For further information, see our client briefing.

Hong Kong Monetary Authority publishes sustainable finance taxonomy

On 3 May 2024, the Hong Kong Monetary Authority (HKMA) published the Hong Kong Taxonomy for Sustainable Finance (the Hong Kong Taxonomy). The Hong Kong Taxonomy is to enable informed decision making on green and sustainable finance and facilitate relevant finance flows. Following its previous consultation in May 2023, the HKMA has polished and fine-tuned the taxonomy prototype based on the feedback received. The use of the Hong Kong Taxonomy is voluntary, but the HKMA is encouraging banks to use it when labelling or assessing investments, as well as making disclosures, as it is intended to provide more clarity around what can be considered “green” and, therefore, reduce the risk of greenwashing. The Hong Kong Taxonomy has been developed with reference to other significant taxonomies, such as the Common Ground Taxonomy, China’s Green Bond Endorsed Projects Catalogue and the EU’s Taxonomy as the HKMA intends to support the interoperability between different taxonomies as far as possible. The current form of the Hong Kong Taxonomy covers 12 economic activities in four sectors and covers green activities. It does not cover transition activities, which are flagged to be considered in a later iteration of the taxonomy. The Hong Kong Taxonomy is focused on the environmental objective of climate change mitigation, although there is a reference to possibly expanding the scope to include the objective of climate change adaptation in future iterations. For further information, see our blog post.

Hong Kong Monetary Authority publishes its 2023 sustainability report

The Hong Kong Monetary Authority (HKMA) published its 2023 Sustainability Report on 30 April 2024, outlining its strategic focus and priorities to strengthen the climate resilience of Hong Kong’s financial system and improve sustainability in its operations. Key priorities for 2024 include, amongst others: (i) enhancing climate resilience and risk management in the banking sector through new thematic examinations and consultative sessions on banks’ climate risk management, integrating climate considerations into HKMA’s Supervisory Review Process, completing the second climate risk stress test and providing guidance and feedback to banks; (ii) enhancing sustainability disclosures by collaborating with local authorities to align relevant requirements with the International Sustainability Standards Board (ISSB)’s global standards and preparing for the adoption of the Basel Committee on Banking Supervision’s Pillar 31 framework on climate-related financial risks; (iii) sharing guidance on best practices on transition planning; (iv) expanding the local taxonomy to include transition activities; (v) supporting the growth of green finance, as well as transition finance, through initiatives like the Green and Sustainable Finance Grant Scheme; (vi) continuing to explore synergies between green finance and technology, referencing the launch of the cloud-based platform to aid banks in assessing physical risk; and (vii) developing the Professional Level of the Enhanced Competency Framework on Green and Sustainable Finance.

UK and Singapore strengthen collaboration on sustainable finance

On 8 May 2024, the UK and Singapore held the 9th UK-Singapore Financial Dialogue, where both countries discussed collaboration opportunities in priority areas such as sustainable finance and fintech and innovation. In particular, the UK and Singapore reaffirmed their commitment to scale financing in support of the net zero agenda and shared on: (i) developments in transition planning; (ii) disclosure standards and ESG ratings and data product providers; and (iii) sustainable infrastructure and investment.

Singapore and China advance collaboration in green and transition finance

At the 2nd China-Singapore Green Finance Taskforce (GFTF), the Monetary Authority of Singapore (MAS) and the People’s Bank of China (PBC) discussed initiatives to advance cooperation in green and transition finance between the two countries. The discussion broadly covered the alignment of taxonomies, facilitation of green finance flows (e.g. by encouraging green panda bond issuances), and the development of a decarbonisation rating platform.

China releases draft energy law for public consultation

On 26 April 2024, the Standing Committee of the National People’s Congress (NPC) of China released the draft Energy Law (in Chinese only) calling for public comments to be submitted within 30 days. The Draft Energy Law seeks to address challenges in the Chinese energy market, including inadequate levels of clean and efficient energy utilisation and the lack of energy technological innovation, etc. China has published two other versions of the draft Energy Law during the past 18 years in 2007 and 2020, with the current 2024 version being more concise than previous version (containing 69 articles). The Draft Energy Law supports the development of renewable energy and the replacement of fossil and high-carbon fuels with non-fossil and low-carbon alternatives. In particular, the Draft Energy Law mentions that a minimum proportion of renewable energy in energy consumption will be formulated and implemented In terms of strengthening the development of the energy market, the Draft Energy Law sets out that China will promote the separation of natural monopoly businesses and competitive businesses in the energy sector, and coordinate and promote the development of a nationwide unified energy trading market. The Draft Energy Law also encourages research, development and application of key, fundamental and cutting-edge technologies, and equipment in the fields of energy conservation and energy storage. Though the Draft Energy Law has been published by the Standing Committee of NPC for consultation, it may still take another 2 – 2.5 years to be finally approved and issued. Currently, China's legal and policy framework in the energy sector consists of six laws: the Coal Law; the Electricity Law; the Oil and Gas Pipeline Protection Law; the Nuclear Safety Law; the Energy Conservation Law; and the Renewable Energy Law; and other administrative regulations, rules, local legislation and normative documents. The Energy Law will be the comprehensive and foundational legislation of the energy sector and will play a pivotal and irreplaceable role in coordinating and guiding other laws.

China’s regulation on voluntary carbon emissions trading came into effect

On 1 May 2024, China’s first regulation governing voluntary carbon emissions trading titled Interim Regulations on the Management of Carbon Emissions Trading, released on 4 February 2024, came into effect. The regulation provides a legal framework for the operation of China’s voluntary carbon emissions trading market. For more information, see our ESG Newsletter March 2024 edition.

Japan’s METI approves the establishment of GX Promotion Organisation

On 19 April 2024, METI approved the establishment of the GX Promotion Organisation. The GX Promotion Organisation aims to start its operation in summer 2024 and will provide financial support, such as debt guarantees, in relation to loans for GX-related projects at its early stage of business. Subsequently, it will deal with the operation of CO2 emission trading system and collection of fossil fuel charge, etc. The initial budget for FY 2024 is JPY 120 billion. 

Japan proposes a timeline to introduce mandatory sustainability standards and disclosures

Japan Financial Services Agency’s Working Group on Disclosure and Assurance of Sustainability-related Financial Information have proposed a timeline for introducing mandatory disclosure and assurance requirements for the local sustainability standards (the Japan Standards). The Japan Standards, which are modelled on those of the International Sustainability Standards Board (ISSB), are currently under public consultation until 31 July 2024 (see our previous blog post). It is reported that the Japan Standards may start applying on a voluntary basis from the year ending 31 March 2024, and certain Japanese listed companies will be required to disclose against them from the year ending 31 March 2027 or 2028.

Deal on the EU CSDDD – A game changer for business and human rights – Watch our recording

How companies can get to grips with ESG demands – Read our article

Nimble and pragmatic regime” needed to unlock transition finance – Read our article

ESG podcast series for clients in France – Listen to our podcasts

Scope 3 Climate Capital and Linklaters pioneer a first-of-its-kind Sector Transition Acceleration Contract – Read about the project

China finalises the mandatory sustainability reporting requirements for listed companies – Read our blog post

Hong Kong Stock Exchange introduces new climate-related disclosure requirements – Read our client briefing