U.S.: Democrats Urge Gensler to Stand Strong on Climate Rule
On March 5, 2023, more than 50 U.S. lawmakers sent SEC Chair Gary Gensler a letter urging him to enact a strong climate-risk disclosure rule. Reports have indicated that Chair Gensler may be considering scaling back certain aspects of the proposed rule, reportedly due to concerns about significant legal challenges to the proposed rule once it is finalized.
Revisions to the proposed rule could include changes to its Scope 3 reporting requirement, which entails, under certain circumstances, the disclosure of upstream emissions generated by the production of what companies buy and downstream emissions from the use of what they sell.
Opponents of the proposed rule argue that the SEC, in issuing the proposed climate disclosure rule, has overstepped its authority. They also cite practical challenges relating to the ability to obtain quality data, as well as limitations on the ultimate value of such disclosures. In contrast, supporters of the proposed rule argue that the disclosures are essential to providing investors with material information and encourage a strengthening of the requirements in the proposed rule.
In particular, the lawmakers’ letter cautions the SEC Chair against preemptively watering down the rule’s scope in the face of litigation, calling any weakening “deeply misguided” and adding that the SEC “would be failing its duty to protect investors” given that Scope 3 emissions represent nearly 90% of many companies’ emissions, and omitting them would not provide investors with an accurate view.
For more information about the SEC-proposed rule, please see our Debevoise In Depth article on the subject.
Canada: Banking Regulator Issues New Climate-Risk-Management Guideline
On March 7, 2023, Canada’s Office of the Superintendent of Financial Institutions (“OSFI”) announced the publication of Guideline B-15: Climate Risk Management (“Guideline”), the first OSFI prudential framework responsive to the risks climate change poses to Canada’s financial system.
The Guideline has two chapters, one on governance and one on financial disclosures. The first chapter sets forth risk-management expectations including requirements for covered financial institutions to incorporate climate-related risks into internal monitoring and reporting systems. Specifically, the Guideline requires covered financial institutions to incorporate physical risks from climate change and risks associated with the transition to a low-greenhouse gas economy in their business models and strategies, as well as to undertake climate scenario analysis and stress testing. Furthermore, covered financial institutions are required to incorporate climate-related risks into their capital adequacy assessments and liquidity risk profiles.
The second chapter sets forth principles for effective disclosure of climate-related risks and accompanying expectations for financial institutions, including that the information disclosed should be “specific and comprehensive,” “reliable and verifiable” and “appropriate for [the financial institution’s] size, nature, and complexity.”
The Guideline will come into effect by fiscal year-end 2024 for larger financial institutions – officially designated Domestic Systemically Important Banks and Internationally Active Insurance Groups – and by fiscal year-end 2025 for all other in-scope federally regulated financial institutions.
Full Text of the Guideline
France: CCFD Submits Recommendations on Climate-Related Shareholder Resolutions to the French Markets Authority
On March 8, 2023, the French Climate and Sustainable Finance Commission (“CCFD”) submitted its recommendations on climate-related shareholder resolutions to the French Financial Markets Authority (“AMF”). The CCFD is a coalition created to advise the AMF on sustainable finance matters, with members coming from finance, business, academia and civil society.
The Say on Climate initiative works with companies to establish net-zero transition plans. Although the content of these plans varies, they require annual emissions disclosures and a plan to manage these emissions, which is subject to shareholder approval. The CCFD noted that shareholders are increasingly urging the adoption of transition plans and inquiring as to such plans’ alignment with the Paris Agreement.
The CCFD also notes a growing frustration among shareholders regarding the difficulty of making shareholder proposals for French public companies due in part to French company law provisions that give boards the power to determine the company’s direction in taking into account ESG factors. In order to require a board to include a draft shareholder resolution in an annual general meeting (“AGM”) agenda, a shareholder must petition the Commercial Court and demonstrate why the resolution should be included. In light of these difficulties, the CCFD argues, it is necessary to “evolve” the French legislative and regulatory framework in order to facilitate the filing of climate-related shareholder resolutions.
To that end, the CCFD proposes the following:
- Climate resolutions tabled by shareholders: Climate-related shareholder proposals should not be rejected on the basis of interference with the company’s strategy. In the event of such a refusal, the board should be required to refer the matter to the AMF. Furthermore, the burden of proof should be reversed in the Commercial Court such that the board would be required to prove why the shareholder resolution should not be included in the AGM agenda.
- Say on Climate resolutions: Companies subject to the EU’s Corporate Sustainability Reporting Directive (“CSRD”) should be required to submit Say on Climate resolutions and be required to present updated transition plans for shareholder approval at least every three years. At a minimum, transition plans should include:
- Emissions disclosures for Scopes 1, 2 and 3 as well as greenhouse gas reduction targets;
A target to reach net zero by 2050 at the latest;
- Disclosures about capital expenditures and operating expenses (in value and proportion) and their breakdown by activity;
- Disclosures about reference scenarios used to determine the greenhouse gas reduction and net-zero targets;
- Disclosures about the contribution of “captured” GHG emissions in assessing the progress towards targets;
- Explanations about how carbon offsets could be used in addition to reduction targets; and
- Explanations about the company’s governance, strategy, risk management, metrics and climate-related objectives in line with standards contained in the Task Force for Climate-Related Financial Disclosures (“TCFD”).
The CCFD recommendations do not bind the AMF. It remains to be seen whether the AMF will choose to adopt these recommendations.
Global: UN Negotiations Conclude on Agreement on Biodiversity of Areas Beyond National Jurisdiction
On March 4, 2023, after almost two decades of discussions, the Intergovernmental Conference on Marine Biodiversity of Areas Beyond National Jurisdiction (“BBNJ”) concluded negotiations on a draft agreement under the United Nations Convention on the Law of the Sea (“UNCLOS”) on the conservation and sustainable use of marine biodiversity of areas beyond national jurisdiction.
The BBNJ agreement enables the international legal regime to protect the High Seas against exploitation and to ensure the conservation and sustainable use of biological diversity. The draft provisions cover access to and use of marine genetic resources, the adoption of conservation and sustainable use measures and the conduct of environmental impact assessments in the maritime areas beyond national jurisdiction as well as capacity-building and the transfer of marine technology. Once ratified, the agreement has as a goal the protection of 30% of the world’s oceans by 2030, reflecting what was agreed upon in the Kunming-Montreal Global Biodiversity Framework in December 2022.