ESG Weekly Update – September 29, 2023

29 September 2023

EU: EU Announces Planned Restrictions on Green Advertising of Consumer Products

On September 19, 2023, the European Parliament and Council announced a “provisional agreement” on rules regulating consumer advertising within the EU. The new directive, which will be incorporated into the EU’s existing rules governing banned commercial practices, is designed to reduce the “greenwashing” of consumer products through the use of overly broad or deceptive advertising claims. Lawmakers expect that the rules will incentivize manufacturers to create more durable goods, participate in more impactful environmental activities and avoid frivolous or deceptive advertising claims.

Once the rules go into effect, advertisers will be able to use green labels based only on EU-approved certifications. Generic terms such as “environmentally friendly,” “natural,” “biodegradable,” “climate neutral” or “eco” will be banned unless the product can provide proof of “recognized excellent environmental performance.” The rules also target carbon-offsetting programs; advertisers may not use such programs to claim that their product has a neutral, reduced or positive impact on the environment.

Another focus of the rules is the durability of consumer products. Advertisers must provide proof of durability and refrain from prompting users to replace consumable parts earlier than necessary or require users to install non-essential software updates. The EU will also design a special label to be added to consumer goods that are guaranteed to last beyond the legal two-year guarantee period, which it hopes will discourage early or planned obsolescence and reduce consumer waste and costs.

Parliament and the Council are expected to formally adopt the rules package in the coming months, with Parliament scheduled to vote on the measures in November. While a number of proposals under the European Green Deal initiative have faced internal pushback in recent months, these rules are expected to be approved in their current form. EU member states must incorporate the directive into law within two years of approval.

European Parliament Press Release
EU procedure file

U.S.: State AGs Send Letter to Net Zero Financial Service Providers Alliance Members

On September 13, 2023, the Tennessee State Attorney General, along with 21 other state AGs, sent a letter to Net Zero Financial Service Providers Alliance (NZFSPA”) signatories expressing concern that their NZFSPA commitments may run afoul of state and federal laws. The AGs have asked NZFSPA members to describe communications with other signatories on their NZFSPA commitments as well as with non-signatories on the importance of setting net-zero and Scopes 1, 2 and 3 emission targets, among other areas. Similar information has also been requested from members of the NZFSPA Exchange, a sub-group of NZFSPA, and the Glasgow Financial Alliance for Net Zero (“GFANZ”). Members have until October 13, 2023, to respond.

The letter asserts that many alliance members who directly compete with one another are undertaking “coordinated efforts” to align their products and services to meet the NZFSPA commitments. According to the letter, their collective market reach also pressures non-members to adopt emission targets in their value chain and may cause a boycott of energy companies that do not align with their goals.

A similar letter was issued in May 2023 to members of the Net Zero Insurance Alliance (the “NZIA”) requesting information about their efforts to advance the NZIA commitments. The Debevoise State-Level ESG Investment Developments Tracker tracks these and related developments at the state level.

State AG Letter

Global: The Task Force on Nature-Related Financial Disclosures Has Published Its Final Recommendations

On September 19, 2023, following two years of design and development, the Task Force on Nature-Related Financial Disclosures (the “TNFD”) has published its final recommendations for nature-related risk-management and financial disclosure. In developing these recommendations, TNFD benefitted from the participation of over 1,200 institutions from more than 60 countries and pilot testing by over 200 companies and financial institutions, as well as four rounds of feedback. The recommendations build on the work of the Task Force on Climate-Related Financial Disclosures and are consistent with both the global sustainability standards of the International Sustainability Standards Board as well as the impact materiality approach of the Global Reporting Initiative.

The final recommendations consist of 14 voluntary disclosures covering four key areas: (1) governance of nature-related dependencies, impacts, risks and opportunities; (2) the effects of those dependencies, impacts, risks and opportunities on strategy and financial planning; (3) the process for identifying, assessing, prioritizing and monitoring such nature-related risks and impacts; and (4) the metrics and targets used to assess and manage nature-related risks and impacts. In addition to the 14 recommended disclosures, TNFD has published guidance on implementing its recommendations and setting nature-related targets.

TNFD Press Release
TNFD’s Recommendations

U.S.: U.S. Treasury Announces Voluntary Principles for Green Finance

On September 19, 2023, the U.S. Department of the Treasury (the “Treasury”) published the Principles for Net-Zero Financing & Investment. This voluntary code aims to make financial institutions’ net zero commitments more rigorous. It is anticipated that the principles will spur greater private sector investment in the green transition.

The nine voluntary principles encourage financial institutions to actively consider transition finance when deciding how to realize their commitments. Any metrics and targets should be both credible and transparent. Financial institutions should assess client and portfolio company alignment against their own commitments, with the goal of limiting temperature increases to 1.5°C. Rigorous governance processes should also be established to monitor commitments and, where applicable, institutions should take environmental justice into consideration.

To support the implementation of these principles, the Treasury announced a $340 million commitment from philanthropic organizations, which will go toward the research and development of technical tools to help financial institutions enact robust net-zero goals.

U.S. Treasury statement