ESG Weekly Update – August 17, 2023

17 August 2023

Global: Latest Draft of UN Business and Human Rights Treaty Released

In July 2023, the UN Human Rights Council’s (“UNHRC”) intergovernmental working group on transnational corporations and other business enterprises with respect to human rights released a new draft of its Business and Human Rights Treaty.

In 2014, the UNHRC formed a working group, chaired by Ecuador, to develop a treaty on business and human rights – the “Legally Binding Instrument to Regulate in International Human Rights Law, the Activities of Transnational Corporations and Other Businesses.” This treaty seeks to compel states to oversee domestic and international businesses by preventing and addressing human rights abuses. The proposal clarifies states’ responsibilities in respecting, protecting, fulfilling, and promoting human rights in business. Furthermore, it aims to establish mechanisms that hold businesses accountable for human rights obligations, ensuring effective monitoring and enforcement.

The proposed treaty has undergone various revisions. One notable amendment in the latest draft is the expansion of Article 6.4 (concerning the scope of human rights due diligence) to ensure that due diligence processes ensure the protection of human rights defenders, journalists, and indigenous people, as well as others who may be subject to retaliation. Another notable amendment is the stronger emphasis in Article 7.3 on providing accessible remedies to those affected by adverse human rights events, for example, by ensuring victims are provided with information on the status of their claims.

This latest draft will serve as the basis for upcoming negotiations at the ninth session of the working group scheduled for October 2023. All state members of the UNHRC working group will eventually need to agree on the text of the treaty for it to be adopted, unless the adoption takes place at an international conference, in which case two-thirds of the states present would need to agree on it. It is currently unclear when the final text of the treaty will be finalized.

Draft Treaty

U.S.: SIFMA Launches Legal Challenge in Response to Missouri Anti-ESG Rule

On August 10, 2023, the Securities Industry and Financial Markets Association (“SIFMA”) filed a complaint against Missouri Secretary of State John Ashcroft and Missouri Securities Commissioner Douglas Jacoby.

The complaint centers around a new securities rule, issued on June 1, 2023, requiring broker-dealers and other financial agents to disclose to, and obtain written consent from, their customers if they incorporate social or other non-financial objectives into their investment decisions or recommendations (the “Rule”). SIFMA argues that the Rule is not compliant with the National Securities Markets Improvement Act, which prevents states from (i) requiring broker-dealers subject to the Act to make or keep different or additional records than those required by federal law and (ii) imposing conditions on the sale of securities subject to the Act. SIFMA further argues that the Rule is not compliant with the Employee Retirement Income Security Act (“ERISA”) – which does not allow states to make laws that relate to ERISA plans – as the rule would apply to ERISA plan assets (e.g. pension accounts). The complaint also argues that the Rule violates the First Amendment and is unconstitutionally vague.

In a statement, Ashcroft claimed instead that the new rule was about ensuring financial transparency by requiring investment advisers to disclose when they are not pursuing financial returns alone.

SIFMA is an industry body representing banks, asset managers, and broker dealers. Its complaint is one of the most significant reactions so far to the recent Republican-led series of anti-ESG policies imposed across various U.S. states.

New state rule (15 CSR 30-51.170, pp. 962-963)
SIFMA press release

U.S.: Montana Judge Rules in Favor of Plaintiffs in Landmark Climate Litigation

On August 24, 2023, a Montana District Court Judge ruled in favor of 16 young Montana residents in Held v. State of Montana.

The case centered around a provision of Montana’s constitution, which guarantees the right to a “clean and healthful” environment. The plaintiffs challenged a state law prohibiting state agencies from considering greenhouse gas emissions and associated climate impacts when conducting environmental reviews of energy projects. This law meant that state agencies could not take climate change into account when authorizing fossil fuel activities.

The judge held that greenhouse gas emissions – particularly those from fossil fuel activities – caused harm to Montana’s environment and its citizens, especially young citizens. The judge therefore held that the state law violated the plaintiffs’ right to a clean and healthful environment and declared it unconstitutional.

The Montana attorney general said the state would appeal the decision.

Similar climate lawsuits have been filed by young plaintiffs in Hawaii, Utah, and Virginia.


Global: Task Force on Nature Markets Publishes Final Recommendations

On August 10, 2023, the Task Force on Nature Markets (“TNM”) released its final report and recommendations to policy makers, financial regulators, and market actors, setting out seven recommendations to guide the development of nature markets. These recommendations are:

  1. Aligning financial and monetary policies and regulations, and trade and investment rules, with the advancement of an equitable global nature economy;
  2. Requiring central banks to ensure that actions by financial actors, markets, and systems are aligned with relevant government and international policy commitments on nature and climate;
  3. Aligning public finance with international nature commitments crystallized in the Kunming-Montreal Global Biodiversity Framework;
  4. Making food commodity markets accountable, including by mandating full traceability and enhancing transparency about impacts of food commodities on nature;
  5. Creating coalitions composed of nature-rich nations, indigenous people, and local communities to agree on prices for natural resources;
  6. Addressing the harmful impacts of nature crimes (such as illegal deforestation) by requiring investors and financiers to demonstrate a nature-crime-free value chain; and
  7. Creating a universal agreement to measure the overall state of nature and ensuring the data is publicly available to avoid greenwashing.

TNM is a global taskforce assembled in April 2022 to address the unsustainability of the global economy by pricing the value of nature into economic decision-making. Its members include representatives from the European Commission, the United Nations, industry, civil society, and academics. TNM aims to achieve this through the development of effective and equitable nature markets, such as biodiversity credit markets and ecosystem services schemes. Its work builds on a broader trend to shift the global economy towards “nature positivity” through nature-related financial disclosures and other market-based mechanisms.

Press release
Full report