Australia: Intermediate Appellate Court Overturns Duty of Care Right in Climate Change Litigation
On March 15, 2022, the Full Federal Court of Australia overturned a primary judge’s decision in Sharma and Others v. Minister for the Environment to impose a duty of care on the Minister for the Environment to take reasonable care in exercising duties and functions under the Australian environmental protection act, to avoid causing personal injury or death to Australian children arising from carbon dioxide emissions. The Full Court ruled that such a duty should not be imposed on the Minister.
The duty of care to prevent climate change theory had initial success in 2021, when the primary judge found that the plaintiffs had successfully established that the Minister owed a “duty to take reasonable care, in the exercise of her powers under s 130 and s 133 of the Environment Protection and Biodiversity Conservation Act 1999 … to avoid causing personal injury or death to persons who were under 18 years of age and ordinarily resident in Australia at the time of the commencement of this proceeding arising from emissions of carbon dioxide into the Earth’s atmosphere.” This was considered a landmark decision at the time in recognizing the dangers of climate change.
In the new Full Federal Court opinion, the justices accepted the existence of significant threats posed by climate change but unanimously determined that the duty should not be imposed on the Minister through findings of the court, describing the issue a matter of policy that should be determined by elected representatives. The court’s decision leaves open the possibility of legislative action imposing a duty of care on the government in climate change matters.
Primary Judge Findings
Full Federal Court Appellate Findings
UK: Transition Plan Taskforce Issues Call for Evidence for Private Sector Net Zero Transition Plan
The UK government’s Transition Plan Taskforce (TPT), launched by HM Treasury in April, has issued a call for evidence for private sector net zero transition plans. The TPT was launched to develop a “gold standard” for net zero transitions plans, and the call for evidence is the first step in this process.
The TPT will develop a Sector-Neutral Framework, Sectoral Templates and accompanying guidance for private sector transition plans. The Sector-Neutral Framework is intended to assist companies in developing standardized and meaningful transition plans. The feedback from the call for evidence will inform the development of the Sectoral Templates, which are meant to be used by companies in certain (as yet undefined) sectors alongside the Sector-Neutral Framework.
The TPT will also draw from international standards such as the TCFD and ISSB in developing the Sector-Neutral Framework, Sectoral Templates and accompanying private sector transition plans guidance.
The deadline for evidence submissions to the TPT is July 13, 2022. Following the call for evidence, the TPT will develop the Sector-Neutral Framework through the remainder of 2022, with a draft to be published for consultation near the end of the year.
TPT Call for Evidence
U.S.: BlackRock Announces It Will Vote Against a Majority of Climate Resolutions
Last week, BlackRock announced that it would vote against a majority of the climate change shareholder resolutions that have been proposed during the current proxy season, noting that many of the recent proposals are overly “prescriptive and constraining” on company management and are not “consistent with our clients’ long-term financial interests.” Last year, BlackRock supported 47% of the environmental and social proposals it voted on. This year, such proposals have increased by approximately 20% from last year.
In BlackRock’s view, set out in an Investment Stewardship guidance document, the more prescriptive proposals issued this year have sought to compel banks to align their business models to a 1.5°C warming scenario or direct the climate-related lobbying activities of the companies involved. The asset manager cited the impact the Russian-Ukraine conflict is having on the transition to a net zero economy, noting the increased need for the production of fossil fuels alongside carbon-neutral sources of energy highlights that “companies that do that effectively will produce attractive returns for our clients.”
BlackRock said it would consider climate-related resolutions on a case-by-case basis, stating that “[w]ithout exception, our decisions are guided by our role as a fiduciary to act in our clients long-term economic interests.”
BlackRock Investment Stewardship Update
EU: Recent Developments on the EU’s SFDR and Taxonomy Regime
In Europe in recent weeks, there have been two noteworthy developments regarding the Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy, both of which highlight the fact that the EU’s ESG-related regulatory framework is still a work in progress and that industry and regulators continue to address several important open questions.
A. Letters from the European Commission (EC) to the European Supervisory Authorities (ESAs) on Further Amendments to the SFDR Level 2 Regulatory Technical Standards (RTS) Published May 6, 2022
The EC recently sent a letter to the ESAs requesting further amendments to the RTS to reflect the special category of Taxonomy-aligned investments in gas and nuclear energy products, as per the Complementary Climate Delegated Regulation issued this February. This Delegated Regulation sets out the conditions under which those gas and nuclear energy activities are considered activities that contribute to climate change transition. This letter could result in a further change to the RTS and its corresponding templates.
In addition, the EC sent a separate letter to the ESAs on SFDR issues more generally. The letter invites the ESAs to review the Principal Adverse Impacts (PAI) regime, including consideration of extending the list of PAIs, and suggests that more information be provided in relation to “evidence that investments align with the standards” and that "implementation and application efforts" take place. The letter is broadly expressed but could require a full-scale review of the PAI regime, which is mostly contained in the Level 2 rules, which are more easily amended than the Level 1 rules. In addition, the letter invites the ESAs to consider including in the RTS “intermediate targets and milestones” relating to de-carbonization in the RTS templates and refers to reviewing the information given in the RTS in relation to Taxonomy alignment.
B. Publication of ESA Questions Regarding the Interpretation of the SFDR and Taxonomy, Published May 13, 2022
At the same time, the ESAs have raised a number of important questions of interpretation, the answers to which will be critically important. The ESAs questions include:
- Can a firm consider PAI for certain funds only and disclose this under SFDR Article 4 (PAI website disclosure)?
- Where a financial adviser recommends investments that are not in scope of SFDR (e.g., securities), must the financial adviser comply with the SFDR obligations relating to sustainability and investment advice?
- Do SFDR Articles 6 and 7 apply to financial products no longer available to investors?
- If an SFDR Article 8 or 9 fund does not invest in companies with good governance, is it able to continue to classify itself under Article 8 or 9?
- If an SFDR Article 8 fund does not commit to invest in environmentally sustainable investments, is the fund obliged to disclose information on Taxonomy alignment? If it then invests in environmentally sustainable investments, is the fund obliged to disclose information on Taxonomy alignment?
EC Letter 1
EC Letter 2