ESG Weekly Update – October 26, 2022 – Corporate and Firm Regulation

 

U.S.: States Investigate Banks for ESG Practices

On October 19, 2022, attorneys-general from 19 U.S. states
launched civil investigations into whether or not the ESG practices of
a few of the nation’s largest banks are dangerous to the vitality
business. The banks beneath investigation embody Bank of America,
Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and
Wells Fargo.

The investigation targets exercise associated to every financial institution’s
membership within the United Nations Net-Zero Banking Alliance
(“NZBA”), a UN-convened group of over 100 banks which can be
“dedicated to aligning their lending and funding portfolios
with net-zero emissions by 2050.”

Arizona Attorney General Mark Brnovich characterised the NZBA as
an settlement between monetary establishments to help the
local weather agenda” by “selecting to not work with
firms engaged in fossil fuel-related actions.” He
additional acknowledged that “this implies some farmers, oil leasing
firms, and different companies will likely be unable to get a mortgage
due to the alliance.”

The Texas Attorney General’s Office launched an identical
assertion and civil investigative calls for for every financial institution, together with,
for instance, requiring paperwork and communications associated to the
financial institution’s determination to hitch every local weather initiative of which it’s
a member, together with, however not restricted to, the NZBA.

Companies working within the United States are more and more going through
conflicting calls for from state regulators, a few of which search to
encourage ESG-focused funding and a few of which look like
against any consideration of ESG elements. Debevoise &
Plimpton will maintain a webinar on November 9 entitled “State
Level ESG Investment Developments – A Fast Evolving
Landscape.” An announcement of the webinar will likely be despatched
shortly. We hope you can be part of us.


UK: FCA Proposes New Rules on Sustainability Disclosure
Requirements and Investment Labels

On October 25, 2022, the UK Financial Conduct Authority
(“FCA”) printed a session on a brand new regulatory
framework for sustainability disclosure necessities and funding
labels. The key parts of this proposal are to introduce
funding labels (primarily meant for retail merchandise but in addition
out there for funds marketed to institutional traders).

The proposal introduces a regime of detailed disclosure,
together with for fund-related precontractual and ongoing
sustainability disclosures, in addition to entity-related
sustainability reviews. It additionally introduces a basic
anti-greenwashing rule, in addition to naming and advertising guidelines
proscribing the usage of sure sustainability-related phrases in
product names and advertising supplies.

Though the proposal bears similarity to—and overlaps
with—disclosure and advertising necessities beneath the EU
Sustainable Finance Disclosure Regulation (“SFDR”), the
FCA took a barely completely different strategy than the EU. The SFDR just isn’t
supposed to introduce labels, however quite requires retail and
institutional funds to offer sure minimal disclosures on ESG
dangers. It additionally requires these funds to reveal sustainability
data in a selected method and on an ongoing foundation, although
solely to the extent that the funds promote sure
sustainability-related themes. Going ahead, fund sponsors will
want to make sure that they meet the UK labeling and/or naming and
advertising guidelines, whereas additionally staying in step with their SFDR
qualification and associated EU disclosure obligations.

 

UK: HSBC Climate Advertisements Banned by the Advertising
Standards Authority

On October 19, 2022, the UK’s Advertising Standards Agency
(“ASA”) held, in what has been described as “the
first ruling of its sort,” that sustainability-focused
ads run by HSBC have been deceptive. The ASA launched the
investigation after receiving 45 complaints over HSBC’s
ads, which included statements in regards to the financial institution’s $1
trillion dedication to assist purchasers plant timber and transition to
web zero. The ASA asserted that such statements have been undermined by
HSBC’s funding of fossil fuels and deforestation.

The ASA ruling acknowledged that it “didn’t contemplate that [the
ads meant] shoppers would perceive the intricacies of
transitioning to web zero, and wouldn’t anticipate that HSBC, in
making unqualified claims about its environmentally useful
work, would even be concurrently concerned within the financing of
companies that made important contributions to carbon dioxide
and different greenhouse gasoline emissions, and would proceed to take action for
a few years into the longer term.” The ASA concluded that the advertisements
omitted materials data and have been due to this fact deceptive.

The ASA dominated that HSBC should take away the advertisements in query. The ASA
additional dominated that HSBC should be sure that future advertising supplies
that includes environmental claims are adequately certified and don’t
omit materials details about the financial institution’s contribution to
carbon dioxide and greenhouse gasoline emissions.

 

 

EU: Platform on Sustainable Finance Publishes Final Report
on Minimum Safeguards beneath the EU Taxonomy Regulation

On October 11, 2022, the European Commission’s Platform on
Sustainable Finance printed its Final Report on Minimum
Safeguards beneath the EU Taxonomy Regulation. The Report units out
checks for companies to find out whether or not the businesses through which they
make investments have in place “minimal safeguards” in relation to
human rights, employment rights, anti-bribery, taxation and honest
competitors.

Whilst the checks described within the Report kind a part of the
course of for qualifying an funding beneath the Taxonomy Regulation
as taxonomy-aligned, the sensible affect of the report is probably going
to be wider. The Report’s requirements signify basic standards
for due diligence on human rights and greatest enterprise practices. In
addition, there’s important overlap between the idea of
“Minimum Safeguards” within the Report and the idea of
“good governance” within the definition of sustainable
funding and sustainability necessities for funds categorized
beneath Articles 8 and 9 of the EU Sustainable Finance Disclosure
Regulation.

The Report attracts a direct line to the pending Corporate
Sustainability Due Diligence Directive (“CSDDD”) and the
pending Corporate Sustainability Reporting Directive
(“CSRD”): portfolio firms complying with the CSDDD
will likely be deemed to adjust to the Minimum Safeguards, and if a
firm is topic to the strict reporting requirements beneath the
CSRD, that can present the premise for—and make it simpler to
confirm—compliance with the Minimum Safeguard.

While the Report acknowledges a special scale of checks
relying on the dimensions of the corporate, it typically units a excessive bar
for the requirements to be met.

For extra data on the Report, please see our Client Update.


Global: Microsoft Launches Scope 3 Emissions Tracking and
Analysis Tool

On October 13, 2022, Microsoft launched a sequence of
enhancements, together with a instrument to enhance Scope 3 emissions information
recording, to its Cloud for Sustainability (the “Cloud”)
and Microsoft Sustainability Manager, which permits firms to
file, report, scale back and exchange their emissions. The software program
makes use of real-time information sources to offer extra correct carbon
accounting and administration.

The latest updates improve the capabilities of the Cloud by
incorporating instruments that present firms with the potential to
observe Scope 3 emissions, together with emissions generated in worth
chains outdoors their direct management. In addition, firms will likely be
capable of observe water and waste information, in addition to fuel- or
power-related emissions inside their operations, which will be
damaged down by exercise with a purpose to set and observe targets for future
emission reductions.

 

Global: Impact Investing Reaches over $1 Trillion for the
First Time

On October 12, 2022, the Global Impact Investing Network
(“GIIN”) launched a report—GIINsight: Sizing the
Impact Investing Market 2022—which estimated that the
worldwide affect investing market had reached $1.164 trillion,
reflecting a 40% improve within the final two years. Impact investing
is the allocation of investments that focus on not solely financial
returns but in addition particular and measurable environmental, social or
governance targets.

The report studied information collected from greater than 3,000 asset
house owners and managers. It discovered that the market reveals
“plain momentum.” It additionally spotlighted two areas of
explicit development:

    1. the inexperienced bond market, which, since launching in 2008, reached
      $578 billion in 2021; and

 

    1. company affect investing, by way of which firms deploy
      their money reserves to push for social change, usually in response to
      shareholder stress to deal with climate change and social
      inequity.

 

Amit Bouri, CEO of GIIN, acknowledged that although this market development
serves as a “very optimistic signal for affect investing, it’s
additionally a name for additional motion.” Specifically, he views
additional development of affect investing as essential to satisfy the UN
Sustainable Development Goals by 2030 and to realize web zero
emissions by 2050.