ESG Weekly Update – February 15, 2022

15 February 2022

U.S.: Additional Delay Expected in SEC Climate Disclosure Rules

Last week Bloomberg reported expected further delay in the SEC’s much anticipated climate disclosure rules, citing disagreement as to approach and scope of the new rules among several SEC Commissioners. Bloomberg reports that the proposed new rules, which had been expected last year, will now be issued in March at the earliest, and quite possibly later in the year.

The report cited disagreement within the Commission over how much information companies should be required to disclose and whether the disclosures should be required to be approved by auditors. At the heart of the apparent disagreement is the extent to which the new disclosure rules should utilize the SEC’s long-standing views regarding “material” information – that is, information which a reasonable investor would likely view as important. SEC Chair Gary Gensler apparently is of the view that any new climate disclosure rules should utilize the traditional interpretation in order to survive anticipated legal challenge.

Other Commissioners believe that the traditional approach is too narrow and would be insufficient to meet the challenges posed by climate change, pointing to investors, many of whom seek more extensive disclosures on climate impact including with regard to Scope 3 emissions, as the ultimate arbiters of what constitutes “material” information.

Currently, the SEC’s goal is to have a final rule in place in 2022, with companies beginning to report next year. The first step would be issuance by the SEC of a Notice of Proposed Rule-Making, which would be followed by a comment period, likely of 30 days following publication of the proposed rule in the Federal Register.

SEC Bogs Down on Climate Rule, Handing White House Fresh Setback

India: India to Impose Standards on ESG Ratings Providers

Last month, the Securities and Exchange Board of India (SEBI) issued a consultation paper regarding the proposed regulation of ESG risk, impact and disclosure ratings, as well as carbon risk ratings and corporate transaction risk scores, among other sustainability measures. The recommended framework covers ESG ratings providers’ accreditation, infrastructure, products, rating process, prevention of conflict of interest, among other things and seeks to facilitate better understanding of the ESG value of investments and reduce the risk of greenwashing.

Specifically, the proposal suggests that listed companies should use only SEBI-accredited ratings providers and that providers that seek to rate listed companies would require accreditation.

Although the proposal did not recommend uniform rating scales, it would require providers to: follow a proper process; use consistent methodology and terminology for the various ratings; adopt a subscriber-pay business model in their scoring; engage professional rating committees with members qualified to assign a rating; and prominently disclose the rating scales applied, the data sources used, and the conflict of interest policies in place.

As global interest in ESG investing expands the International Organization of Securities Commissions and the European Securities and Markets Authority have recommended that ESG scores given to a company by different providers should be subject to oversight to promote transparency and uniformity. The Indian regulator’s proposal, a public comment period for which runs through March 10, is a first response to these recommendations.

SEBI - Consultation Paper on ESG Rating Providers for Securities Markets
ESG Investor - India to Impose Standards, Transparency on ESG Ratings Providers
Economic Times - Sebi proposes framework to regulate ESG rating providers

Russia: Russian Federal Government Issues Plans Related to “Green” Economic Development

The Russian Ministry of Economic Development recently issued its new operating plan, portions of which focus on the reduction of overall greenhouse gas emissions through various regulatory measures designed to incentivize the decarbonization of the Russian economy. Russian authorities have also announced a commitment to reimburse Russian companies for a portion of the interest paid on bonds or loans supporting the development of green technologies and have indicated the government’s intention to participate in global efforts related to carbon pricing.

These measures are part of an overall program launched by the Russian government that seeks to develop technology that addresses environmental safety and improved climate conditions. The program focuses on greenhouse gas emissions and sustainable economic development, with three main areas of focus:

  • monitoring and forecasting the state of the environment and climate;
  • mitigation of anthropogenic impact on the environment and climate; and
  • adaptation of natural systems, population and economic sectors to climate change.

The program aims to create greenhouse gas monitoring systems, including a system for monitoring “black carbon,” or soot, in the atmosphere, as well as economic and mathematical models for predicting climate change and managing the risks associated with it. The program also has a goal of developing technologies that will increase the absorptive capacity of forests and swamps.

Press Release
Press Release

EU: Companies and Investors Call for Effective EU Corporate Accountability Legislation

In a joint statement published on February 8, over 100 companies, investors, business associations and initiatives called for the European Union to publish its legislative proposal on mandatory human rights and environmental due diligence without additional delay. The legislative proposal is part of the EU’s Sustainable Corporate Governance initiative; issuance of the proposal has been delayed twice already and is now expected later this month.

The statement details concerns about the delay and urges that the proposal be aligned with the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. The statement identifies five principles for the Commission’s consideration:

1. All businesses established or active in the EU, including financial actors, regardless of size, should be covered by the legislative proposal;

2. Businesses should be required to carry out ongoing due diligence proactively and across all their operations and value chains;

3. The legislative proposal should avoid a tick-box approach;

4. All stages of the required due diligence process should be informed by robust engagement with affected groups, workers and other relevant stakeholders (including unions, human rights groups and environmental defenders); and

5. The legislative proposal should be accompanied by credible accountability mechanisms in the form of legal consequences for noncompliance, such as administrative penalties and provisions for civil liability.

Signatories include the UN Principles for Responsible Investment, Danone, IKEA, Ericsson and Hapag-Lloyd among others. The full list of signatories can be found in the joint statement linked to here: Joint Statement.

Russia: Sberbank Announces New ESG Rating Framework with Financial Benefits for Strong ESG Performance

Last week Sberbank announced a new ESG rating system for its corporate clients under which clients who perform well on various ESG factors will receive lower interest rates or other favorable financial terms. The new ESG rating is part of a larger ESG initiative at Sberbank which includes reduction of carbon emissions through, among other things, the purchase of certified green energy and the reduction of energy consumption using AI algorithms. Alexander Vedyakhin, a member of Sberbank’s executive board, noted that in addition to reduced interest rates for clients who perform well under the bank’s ESG rating framework, the bank will offer other favorable terms when financing ESG projects with the goal of helping Russian companies to transition toward carbon neutrality. As another aspect of Sberbank’s commitment to ESG, Vedyakhin highlighted its policy of tying executive team compensation to ESG performance, citing this, among other reasons, as a key driver of the banks success on ESG.

Sberbank – Sberbank forms corporate client ESG rating and reduces rates for companies with high ESG indicators