UK: FCA TCFD-Based Climate Disclosure Regime Takes Effect for Large UK Asset Managers
The UK Financial Conduct Authority’s (the “FCA”) new climate disclosure rules for large asset managers took effect January 1. The new rules require UK firms with more than £50 billion in assets under management, or asset owners with £25 billion in assets under administration, to make annual disclosures at both entity and product levels. The disclosures must be published prominently on the disclosing firm’s primary website, though certain alternative investment funds that are not listed on a recognized stock exchange may instead produce “on-demand” product level disclosure reports.
Entity-level disclosures must detail how the disclosing firm accounts for climate issues in managing or advising on investments, including the firm’s governance of climate-related risks and opportunities, how these risks and opportunities are factored into product or investment strategies, how climate change risk is integrated in day-to-day risk management processes, as well as any targets set to manage climate-related risks and opportunities.
Product-level disclosures must detail firms’ core climate-related metrics, including scope 1, 2 and 3 greenhouse gas emissions, total carbon emissions, total carbon footprint and weighted average carbon intensity; methodology; and historical annual calculations of the metrics. They must also include certain disclosures made under the Task Force on Climate-Related Financial Disclosures’ (the “TCFD”) Governance, Strategy and Risk Management recommendations, where relevant. As well, additional information may be required in circumstances where a given product has concentrated or high exposure to carbon-intensive sectors.
More information on the FCA’s new disclosure rules can be found in our Debevoise In Depth briefing here: https://www.debevoise.com/insights/publications/2022/01/fcas-final-rules-on-climate-related.
FCA Policy Statement
FCA ESG Sourcebook
Hong Kong: New ESG Reporting Requirements for Listed Companies on the Hong Kong Stock Exchange
Last year, Hong Kong Exchanges and Clearing Limited (“HKEX”) made a number of noteworthy amendments to its listing rules and guidance that address ESG disclosures and implementation. These included publication of HKEX’s Guidance on Climate Disclosures to listed issuers that facilitate TCFD-aligned reporting and the publication of the conclusions in its April 2021 consultation paper wherein it examined gender diversity requirements, measures enhancing board independence and updated ESG reporting timelines.
In 2022, the amendments detailed in these publications have or will come into effect. Notably, starting this year, listed companies will be required to address:
1. Gender Diversity – HKEX noted in their conclusions to the April 2021 consultation paper that “gender diversity is an issue of particular importance to many stakeholders,” not least because “a growing number of studies have shown that gender and other aspects of diversity enable the board to better understand their diverse customers’ and stakeholders’ needs and are positively associated with the issuer’s financial performance, more effective board decision-making and better risk management.” Certain gender diversity requirements are currently in place to address the issue of single-gender boards; however, to more fully address this issue, beginning July 1, (a) listing applicants with a single-gender board must identify a director of a different gender whose appointment will be effective upon listing; (b) listed companies with single-gender boards must appoint at least one director of a different gender no later than December 31, 2024; and (c) listed companies with a commitment in their prospectus to the appointment of directors of a different gender must fulfil their commitment as disclosed.
2. Board Independence – Independent Non-Executive Directors (“INEDs”) are recognized, under the new rules, as being important contributors to good corporate governance. The rules recognize that, in order to maintain their independence, INEDs should not develop material or pecuniary interests in the company. To this end, effective January 1, HKEX is requiring listed companies to disclose a policy ensuring the independence of INEDs. The requirements for what such a policy should consist of are flexible. In order to help listed companies to navigate these issues, in December, HKEX published a Corporate Governance Guide for Board Directors.
3. ESG Reporting – ESG reports have been required by HKEX since July 2020 to be filed within five months of the conclusion of the listed company’s financial year. Under the amended rules, starting January 1, listed companies are required to publish their ESG reports consecutively with their annual reports.
In addition to HKEX, other stock exchanges in Asia are implementing new ESG reporting requirements which take effect this year: from January 1, the Singapore Stock Exchange will require listed companies to provide climate-related reporting, train directors on sustainability issues, and establish board diversity policies. As well, China’s Ministry of Ecology and Environment has issued new disclosure rules requiring domestic entities to disclose a range of environmental information on an annual basis, effective February 8, 2022.
Mondo Visione – HKEX Year in Review
HKEX – Guidance on Climate Disclosures
HKEX – April 2021 Consultation Paper
HKEX – Conclusions to the April 2021 Consultation Paper
HKEX – Corporate Governance Guide for Board Directors
EU: EU Proposes including Nuclear and Gas as Green Investments under Taxonomy Regulation
On December 31, the European Commission opened consultations on a draft Taxonomy Complementary Delegated Act that would allow the inclusion of certain gas and nuclear activities in the EU’s Taxonomy regulation. The Taxonomy is a classification system that establishes a list of environmentally sustainable economic activities with the goal of directing private investment toward activities necessary to achieve carbon neutrality. The Commission’s position is that nuclear and gas will play a role in the EU’s transition to a predominantly renewables-based future and that inclusion of these sources of energy in the Taxonomy will serve to “accelerate the phase out of more harmful sources, such as coal, and [move the EU] towards a more low-carbon greener energy mix.” Nuclear power currently represents 25% of total EU electricity production, with gas representing approximately 13%.
While the draft Taxonomy Complementary Delegated Act has not been made public, Commission press releases and other sources have indicated that nuclear and gas activities would be subject to “clear and tight” conditions, including, for example, that gas come from renewable sources or have low emissions by 2035.
The proposed inclusion of nuclear and gas in the Taxonomy has been met with criticism from a number of member states, including Germany and Austria, as well as environmental groups, who have objected that it will serve to undermine the Taxonomy’s purpose and result in increased “greenwashing”.
The Commission is analyzing contributions from the Platform on Sustainable Finance and the Member States Expert Group on Sustainable Finance; a formal adoption of the Delegated Act would occur sometime in January. The European Parliament and Council will then have four months to review the Delegated Act and raise any objections.
EU Press Release
Nuclear electricity production data
Gas electricity production data
US: Biden Administration Pivots from Congress to Advance Clean Energy Initiatives through Agency Action
The administration of President Joseph R. Biden, in response to legislative challenges in Congress, is pivoting away from Congress in order to advance its clean energy initiatives (including a goal of achieving 100% carbon-free power by 2035) directly through federal agency action. Administrative actions announced by the administration include:
- a multiagency initiative involving the Environmental Protection Agency and the departments of Interior, Energy and Defense that would speed up review of proposals for clean energy projects on public lands;
- the “Building a Better Grid” program through the Department of Energy that seeks to catalyze the development of upgraded high-capacity electric transmission lines; and
- the creation of a partnership between the National Oceanic and Atmospheric Administration and the Interior Department’s Bureau of Ocean Energy Management that would promote the development of offshore wind energy while protecting biodiversity.
In addition, on January 12, the Interior Department announced the auction of 480,000 acres in New York and New Jersey coastal waters for purposes of offshore wind leases, the largest such parcel ever made available in the United States. The leases have the potential to generate up to seven gigawatts of wind energy and power up to two million homes. The administration’s goal is the development of 30 gigawatts of offshore wind capacity by 2030. The administration also plans executive actions that would advance clean power, industrial and vehicle technology initiatives.
White House expands clean energy push as legislation stalls
Interior Department Announces Historic Wind Energy Auction Offshore New York and New Jersey
Russia: Bank of Russia Recommends Boards of Directors of Russian Public Companies Take into Account ESG and Sustainability Factors
In order to improve corporate governance practices in Russian public joint stock companies, the Bank of Russia, the Russian financial market regulator, issued recommendations to Boards of Directors regarding consideration of ESG and sustainability factors (the “Recommendations”).
The Bank of Russia noted that ESG and sustainability factors have significant impact on companies’ long-term value, and stated that Boards of Directors, in their role as custodians of companies’ long-term strategy and business plans, must take those issues into account, including in connection with the development of company strategy.
The Bank of Russia’s Recommendations are general and are intended to be tailored based on a given company’s industry, size and other factors. The Recommendations offer a list of questions that Boards can use to evaluate their activities with respect to ESG and sustainability. In implementing the Recommendations, Boards are required to be proactive, with the Chairman of the Board taking responsibility for educating key employees and executive authorities on ESG and sustainability. Under the Recommendations, members of the Board are also required to develop additional ESG and sustainability expertise and capability, including through communication with external experts and other stakeholders.
US: Larry Fink Issues Annual BlackRock CEO Letter for 2022 with ESG Focus
Founder and CEO of BlackRock, Larry Fink, published his annual letter to CEOs on January 18, 2022. The 3,300 word letter, titled “The Power of Capitalism,” focuses significantly on BlackRock’s commitment to ESG, stakeholder capitalism and the fiduciary duty to consider sustainability. Fink writes that stakeholder capitalism is not a political or ideological issue, but that it is instead capitalism driven by mutually beneficial relationships in the market. The letter also states BlackRock’s support for a future where all investors, including individual investors, are able to participate in the proxy voting process if they so choose. The letter announces that BlackRock is launching a Center for Stakeholder Capitalism, to create a forum for research, dialogue and debate. Last year, Fink’s 2021 letter touched on similar ESG-related themes. Fink’s annual letters have come to be agenda-setting touchstones for the business community on ESG.
Larry Fink’s 2022 Letter to CEOs