ESG Weekly Update – September 13, 2023

13 September 2023

Asia: Hong Kong Monetary Authority Issues Principles for Banks’ Net-Zero Transition Planning

In a letter dated August 29, 2023 to the chief executives of all institutions under its purview (called “authorized institutions”), the Hong Kong Monetary Authority (the “HKMA”) articulated principles to assist in planning for a net-zero transition (the “Principles”). The Principles state that authorized institutions should set targets aligned with the 2015 Paris Agreement, namely, to limit the increase in the global average temperature to less than 2°C above pre-industrial levels and ideally less than 1.5°C. While many financial institutions voluntarily have committed to net-zero targets (primarily through international frameworks such as the Glasgow Financial Alliance for Net Zero), regulators have stopped short of requiring them to adopt such goals.

Although the Principles acknowledge that international practices on transition planning are still evolving, the HKMA nevertheless expects authorized institutions to start planning for a net-zero transition. As described in the Principles, effective transition planning includes: (1) setting clear objectives and targets; (2) creating a robust governance framework and integration into internal processes; (3) undertaking initiatives and actions in line with the objectives; (4) engaging with clients; (5) conducting reviews and updates from time to time; and (6) supporting transparency. The HKMA will survey authorized institutions’ transition planning practices and enhance the Principles based on further guidance from the international community, including the Basel Committee on Banking Supervision.

HKMA Letter

U.S.: California’s Rigorous Reporting Requirements Advance in State Legislature, Go to Governor for Signature

On September 11, 2023, California’s Climate Corporate Data Accountability Act was passed by the California Legislature. The bill, if signed into law by Gavin Newsom, would require annual reporting on carbon emissions by businesses in the state with revenues of $1 billion or greater. It also directs businesses to pay an annual fee toward the Climate Accountability and Emissions Disclosure Fund to cover the costs of implementing and administering the program.

The California law would subject businesses to the most rigorous corporate disclosure requirements in the country, exceeding those contemplated in the proposed climate-related disclosure rule of the U.S. Securities and Exchange Commission (the “SEC”). It follows the widely accepted emissions categorization of the Greenhouse Gas Protocol: Scope 1 emissions are direct greenhouse gas emissions occurring from sources controlled or owned by an organization; Scope 2 emissions are indirect greenhouse gas emissions linked to an organization’s purchase of electricity, steam, heat or cooling; and Scope 3 emissions result from assets not owned or controlled by an organization, but that such organization indirectly affects.

The SEC’s rule as currently proposed does not require reporting of Scope 3 emissions in all cases. Further, while the SEC’s proposed rule would apply only to public companies, California’s law would apply both to private and public companies alike.

California Corporate Data Accountability Act
SEC Press Release
Debevoise Update – February 8, 2023

Global: G20 Members Lack Mandatory Nature-Related Corporate Disclosures

On September 5, 2023, the Carbon Disclosure Project (the “CDP”), a leading international nonprofit, released a report indicating that G20 members are lagging in their requirements for nature-related corporate disclosures. At the recent COP15 meetings, the 2022 United Nations Biodiversity Conference, 19 members of the G20 committed to requiring the disclosure of biodiversity-related risks, dependencies and impacts by 2030. However, as of today, only Brazil, the European Union and Indonesia have implemented or are in the process of implementing such disclosure requirements.

The CDP recognizes that nations have made significant progress toward mandating other climate-related disclosures but emphasizes that climate and nature must be “tackled together” to create meaningful impact. To assist in developing effective disclosures, the CDP advises the G20 to adopt the CDP’s 10 principles for high-quality mandatory disclosure that address key gaps and considerations for a regulatory scheme.

The CDP announcement came ahead of the G20 meeting in New Delhi, which took place on September 9 and 10.

CDP Announcement
CDP Report
Debevoise Update – Biodiversity in the Balance: Key Takeaways from COP15

U.S.: House Republicans Introduce Four Bills Limiting ESG Investing

On September 6, 2023, House Republicans introduced four new bills to limit ESG investing by rolling back or blocking the inclusion of ESG factors in retirement plans.

The bills seek to amend the Employee Retirement Income Security Act of 1974 (“ERISA”) to, as stated by the Education and the Workforce Committee, “ensure financial institutions are focused on maximizing returns in retirement plans rather than on woke environmental, social, and corporate governance factors.”

The four bills – introduced by GOP Members Rick Allen, R-Ga., Erin Houchin, R-Ind., Subcommittee on Health, Employment, Labor, and Pensions Chairman Bob Good, R-Va., and Jim Banks, R-Ind. – are:

  • H.R. 5339, the Roll Back ESG to Increase Retirement Earnings (RETIRE) Act, which provides that financial institutions must base investment decisions on economic factors only;
  • H.R. 5337, the Retirement Proxy Protection Act, which clarifies that the decision to exercise a shareholder right is subject to the duties of prudence and loyalty under ERISA and, further, that proxies held by ERISA plans must be voted in the economic interest of the plan, not in order to advance other policies;
  • H.R. 5338, the No Discrimination in My Benefits Act, which would prohibit race, color, religion, sex or national origin from being considered in the selection of a fiduciary, counsel, employee or service provider of an ERISA plan; and
  • H.R. 5340, the Providing Complete Information to Retirement Investors Act, which incorporates a notice requirement for defined contribution plans that will explain how choosing from investments selected by ERISA fiduciaries differs from doing so through a brokerage window.