ESG Weekly Update – November 1, 2023

01 November 2023

U.S.: Texas Attorney General Provides Guidance on State’s Anti-ESG Stance

On October 17, 2023, Texas Attorney General Ken Paxton issued an advisory letter providing guidance on enforcing the state’s anti-ESG laws.

Specifically, the letter clarifies that government entities are prohibited from entering into contracts worth $100,000 or more with companies that boycott energy companies or discriminate against firearm entities. Attorney General Paxton also noted a 2017 law that similarly prohibits government entities from contracting with companies that boycott Israel. Companies seeking contracts with Texas government entities must confirm in writing that they do not engage in such practices.

Attorney General Paxton further urged government entities not to rely solely on these statements. Instead, government entities should conduct their own due diligence, paying particular attention to companies that are members of the Net Zero Banking Alliance, Net Zero Insurance Alliance, Net Zero Asset Managers Initiative and Net Zero Asset Owners Alliance.

Texas has already taken enforcement action in this field, prohibiting Citigroup and UBS from underwriting municipal bonds, noting the firms’ ESG policies as the basis for doing so (check out our tracker for more details).

Attorney General Statement

U.S.: Republican Attorneys General Appeal Judgment Upholding Department of Labor ESG Rule

On October 26, 2023, 26 Republican attorneys general filed a notice of appeal in the Northern District of Texas, seeking to overturn a previous ruling in Utah v. Walsh that upheld the U.S. Department of Labor’s (“DOL”) ESG rule.

The DOL ESG rule permits ERISA fiduciaries to consider ESG factors when making investment decisions. Republican attorneys general have been working to eliminate the rule, including by filing suit against the Secretary of Labor, Martin J. Walsh. In Utah v. Walsh, Judge Kacsmaryk, a Trump appointee, allowed the DOL rule to stand. The unexpected decision was based on Chevron v. Natural Defense Council (more on this here).

The U.S. Court of Appeals for the Fifth Circuit, which has previously shown skepticism towards Biden Administration rules and regulations, is expected to rule on the matter in the coming months.

Notice of Appeal

Brazil: Brazil Joins Growing List of Jurisdictions Mandating Sustainability Reporting

On October 20, 2023, the Brazilian Ministry of Finance and the Comissão de Valores Mobiliários announced that they will incorporate the International Sustainability Standards Board’s (“ISSB”) IFRS Sustainability Disclosure Standards into the Brazilian regulatory framework. The regulators will take a phased approach. Listed companies are expected to make voluntary disclosures expected from 2024, and mandatory disclosures will be required from January 1, 2026.

Sustainability reporting is gaining momentum in Latin America. Recently, Chile and Colombia have both mandated TCFD-aligned disclosures. Earlier in October, during the Latin America and the Caribbean Climate week, the Superintendency of Banks of Panama announced its commitment to promoting the ISSB Standards.

To support the transition, the IFRS Foundation published Spanish translations of the ISSB Standards in September 2023. The Portuguese translation is expected in the coming months.

Press Release

Australia: Australia Releases Draft Climate-Related Reporting Standards

On October 23, 2023, the Australian Accounting Standards Board (“AASB”) published three draft Australian Sustainability Reporting Standards proposing climate-related financial disclosures. These draft standards follow the government’s June 2023 announcement of its plan to implement the standards as early as July 2024 for the largest listed and private companies.

The AASB standards are based on the ISSB framework, with some modifications to adapt to the Australian context. Changes include:

  • limiting the scope of disclosures to climate, rather than sustainability more broadly, and excluding reporting requirements around non-greenhouse gas emissions such as ozone-depleting emissions;
  • providing greater flexibility in reporting on scope 3 emissions, including allowing the use of data from the immediately preceding reporting period and removing certain categorization requirements;
  • omitting references to industry-specific Sustainability Accounting Standards Board standards; and
  • requiring entities that have concluded that they are not exposed to material climate-related risks or opportunities to disclose the basis for that conclusion.

The AASB’s draft standards are open for comment until March 1, 2024.

Draft Australian Sustainability Reporting Standards
Treasury Dept. Climate-related Financial Disclosures Consultation Paper (June 2023)

Europe: Switzerland to Introduce Regulations to Prevent Greenwashing in Financial Market

On October 25, 2023, Switzerland’s Federal Department of Finance (“FDF”) announced plans to propose principles-based regulations to address greenwashing in the financial sector. To date, banks and financial institutions have operated under a self-regulation regime in Switzerland.

The announcement follows a paper published in December 2022 by the Swiss Federal Council outlining its position on preventing greenwashing. The Federal Council then directed the FDF to set up a working group to assess implementation. Upon further evaluation and input from the working group, the FDF decided to propose regulations on sustainability labelling and disclosures.

The FDF’s consultation draft on the proposed regulations is expected by August 2024. However, the FDF has indicated that further regulatory efforts may be halted if the financial industry develops a satisfactory self-regulation solution.

Press Release
Federal Council Report (December 2022)