ESG Weekly Update – March 8, 2022

8 March 2022

Global: Nations Endorse Resolution to Combat Plastics Pollution

As noted in our most recent update, discussions on the terms of a new multilateral plastic waste treaty were held last week at the UN Environment Assembly’s fifth session, which concluded with representatives from 175 nations endorsing a resolution to forge an internationally legally binding agreement.

The resolution promises a wholesale review of the lifecycle of plastic, from its production through to its disposal, and will cover plastic pollution in both terrestrial and marine habitats to ensure that forms of all plastic—including microplastics and abandoned fishing equipment—are considered.

The draft agreement is expected by the end of 2024 and will cover (i) the improved design of reusable and recyclable products, (ii) sustainable alternatives to plastics and (iii) increased cooperation enabling access to relevant data and technology. The UN also foresees more prescriptive disclosure and reporting obligations for nations with respect to their plastic production, disposal and pollution.

An Intergovernmental Negotiating Committee (INC) will now be formed to engage in consultations, with stakeholders meeting to discuss proposals at the UN Environment Programme’s forum by the end of this year.

UN Environment Assembly: “End plastic pollution: Towards an international legally binding instrument”

Global: Intergovernmental Panel on Climate Change Issues Significant New Report on Climate Change Impacts, Adaptation and Vulnerability

The UN’s Intergovernmental Panel on Climate Change (IPCC) has published the second part of its landmark Sixth Assessment Report on the climate crisis. Importantly, this latest section highlights the critical importance of transition efforts to adapting to and reducing global warming but notes that current measures are insufficient to meet the challenges. The report also warns that the risks associated with lower levels of warming are greater than previously estimated.

Certain actions have been recommended to adapt to and reduce climate-related risks, but, the report notes, the efficacy of these actions reduces as global warming increases. Additionally, the report highlights concerns related to measures taken without consideration of specific climate risks in context including adverse impacts of climate change resulting from social inequalities.

IPCC Report

Singapore: Government to Raise Carbon Tax Fivefold by 2030

Singapore’s Minister for Finance, Lawrence Wong, recently delivered a speech in which he announced tiered increases in Singapore’s carbon tax, beginning now and running through 2030.

The carbon tax, originally introduced in 2019, is currently S$5 per ton of emissions. The future increases will incrementally step up, starting at S$25 per ton in 2024, followed by S$45 per ton in 2026, with an ultimate target of S$50-80 per ton by 2030. The tax will only apply to entities annually producing 25,000 tons or more of carbon dioxide to encourage emissions-intensive entities to internalize the costs of carbon by directly taxing their output.

Singapore is just one of 27 jurisdictions to levy this type of tax, with Sweden currently charging the highest rate for emissions at USD$126 per metric ton of carbon dioxide.

Emissions trading schemes (ETS) are alternatives to imposing a direct carbon tax and are widely imposed both nationally and regionally. These ETS set a cap on the maximum level of emissions and create permits (e.g. carbon credits) for each unit of emissions allowed under the cap. An example of this type of scheme is the EU’s Emissions Trading System where importers of emissions-intensive goods have to pay a charge based on what producers would have had to pay under EU regulations.

Notably, Singapore’s government will utilize ETS policies within its transition framework as a way of addressing disproportionate negative impacts of the tax increases, allowing businesses to use international carbon credits to offset up to 5% of their taxable emissions.

Singapore Budget 2022 Speech
S&P Global – Commodity Insights Analysis
Earth.Org – What Countries Have a Carbon Tax?
World Bank – Pricing Carbon

EU: PSF Unveils Report on Potential Social Taxonomy

In late February, the EU Platform on Sustainable Finance (PSF) rapporteur released its Final Report on Social Taxonomy. The taxonomy is broadly organized under three overarching objectives: (i) decent work including value-chain workers, (ii) adequate living standards and well-being for end-users, and (iii) inclusive and sustainable communities and societies. These principles seek to support the main stakeholders affected by economic activities: workers, consumers and communities.

The primary impact of the PSF is expected to be on financial institutions. Under the new taxonomy, investors and issuers would have guidance on defining social investments, as well as which criteria to employ in order to invest with social goals in mind, better identify potential social risks and avoid “social-washing.”

The report proposes a social sustainability framework that is aligned with the existing Green Taxonomy in order to address concerns related to the potential administrative burden of complying with multiple frameworks. The PSF also recommends that the European Commission coordinate the legislative processes for the Social Taxonomy with the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Reporting Directive, stressing the importance of defining a common ground for these issues and corresponding guidance.

The European Commission will review the social taxonomy report as part of its work in developing the EU taxonomy framework and is expected to publish its own report later this year.

EU Platform on Sustainable Finance – Final Report on Social Taxonomy
IPE - EC advisers adjust proposed social taxonomy structure given feedback