Europe: Swiss Referendum Approves Net-Zero Climate Law
On June 18, 2023, Swiss voters approved the referendum on the Federal Act on Climate Protection Targets, Innovation and Strengthening Energy Security (known as the “Climate and Innovation Act”). The Climate and Innovation Act introduces three objectives into national law, namely:
- Reducing greenhouse gas emissions and the use of “negative emission technologies”;
- Adapting and protecting against climate change effects; and
- Directing “financial flows in order to make them compatible with low-emissions developments capable of resisting climate change.”
As part of the first objective, the Act enshrines a carbon neutrality target – Switzerland has set targets for its economy to be net zero by 2050 and carbon negative after 2050. Each company operating in Switzerland is also required to be net zero by 2050, by reference to both direct (Scope 1) and indirect (Scope 2) emissions, and produce roadmaps for how to meet this target.
The Act refers to the use of carbon sinks, in Switzerland and abroad, and a governmental financial aid mechanism for companies to use “innovative technologies and processes” in order to meet their net zero targets.
The referendum passed with 59.1% of votes in favor.
Climate and Innovation Act
Global: Development Banks Agree How to Align Financial Flows with Paris Agreement
On June 19, 2023, 10 multilateral development banks (“MDBs”) released joint principles that will govern how they will ensure alignment of their investments with the goals enshrined in the Paris Agreement. The principles are based on six “building blocks” that the MDBs consider as core areas for alignment with the Paris Agreement objectives. These are:
- alignment with mitigation goals;
- adaptation and climate-resilient operations;
- accelerated contribution to the transition through climate finance;
- strategy, engagement and policy development;
- reporting; and
- alignment of internal activities.
The 10 MDBs include the European Bank for Reconstruction and Development, the African Development Bank Group, the World Bank Group and others.
The joint principles provide a common technical approach for a range of instruments and financing types, seeking to cover all potential financing avenues MDBs may use. The principles still allow each MDB to develop its own guidance and toolkits to tailor the principles to its own internal processes and procedures. However, the joint principles envisage that the MDBs will continue to work together, exchange best practices and troubleshoot operations to harmonize implementation of the Paris Agreement objectives.
EBRD Press Release
U.S.: Texas Anti-ESG Insurance Rate Bill Approved by Governor
On June 18, 2023, Texas Governor Greg Abbott approved Senate Bill 833 (the “Bill”), which restricts insurers doing business in Texas from accounting for ESG factors or criteria when setting insurance rates. The Bill is wide-ranging, covering most forms of insurance in Texas, but carves out insurance policies that are priced according to “ordinary insurance business purpose, including the use of sound actuarial principles, or financial solvency considerations reasonably related to loss experience for the different types of risks and coverages made available by a particular insurer.” The Bill is set to apply to insurance policies that are set or renewed on or after January 1, 2024.
The Bill is seen as part of a larger Republican anti-ESG strategy unfolding at both the state and federal levels in the United States. Its specific focus on insurance has provoked strong responses from the industry. The Reinsurance Association of America, for instance, had opposed the Bill, considering that it threatens the accuracy of actuarial analysis at company level. Representatives from the American Property Casualty Insurance Association have expressed similar concerns, alleging that the legislation will put insurers in a “Catch-22 situation” where some insurers will have to use differing models as a basis for analysis according to the state that the insurance is issued in.
Republican lawmakers in other states are considering laws that would have a similar impact on the insurance industry. Debevoise maintains an online tracker monitoring state-level ESG legislative developments, the current version of which can be accessed on the Debevoise ESG Resource Center.
Senate Bill 833
Global: United Nations Adopts Biodiversity Beyond National Jurisdiction
On June 19, 2023, a United Nations General Assembly-convened Intergovernmental Conference adopted by consensus the “Draft agreement under the United Nations Convention on the Law of the Sea on the conservation and sustainable use of marine biological diversity of areas beyond national jurisdiction,” also known as Biodiversity Beyond National Jurisdiction (“BBNJ”). BBNJ actively seeks to conserve marine biodiversity through a number of mechanisms, including establishing marine protected areas to help keep pollution out of the oceans and to manage the negative effects of climate change. To further discourage pollution, BBNJ adopts a “polluter-pays principle,” and parties also must undertake environmental impact assessments for covered activities to manage and mitigate any adverse impacts on the marine environment.
BBNJ promotes the development of marine technology, which will in part help maintain sustainable fishing levels, and recognizes the benefits that arise from fair and equitable sharing of marine resources and promotes such sharing, in part, through the transfer of marine technology. It also recognizes the traditional knowledge of indigenous peoples and the unique circumstances of small island nations and landlocked nations.
BBNJ will open for ratification on September 20, 2023 and will enter into force 120 days after 60 parties ratify the Agreement.