EU: European Council and Parliament Reach Agreement on ESG Rating Regulation

On February 5, 2024, the European Council and Parliament reached a provisional agreement on a proposal for a regulation on ESG rating providers.

The regulation, once finalized, will require ESG rating companies established in the European Union to obtain authorization from the European Securities and Markets Authority (“ESMA”). ESG rating providers established outside the EU looking to operate in the EU will need to obtain (i) endorsement from an EU-based rating provider, (ii) recognition based on a quantitative criterion or (iii) an equivalence decision based on an agreement between ESMA and their country of origin.

In addition, the proposal provides for the possibility of having separate ratings for the environmental, social and human rights and governance factors or, alternatively, explaining how the three are weighed in the overall ESG rating.

The regulation is now subject to approval by the European Council and Parliament before it goes through a formal adoption procedure.

Link:
Press Release

China: China Stock Exchanges Working on Sustainability Reporting Requirements

On February 8, 2024, the Shanghai Stock Exchange (“SSE”), Shenzhen Stock Exchange (“SZSE”) and Beijing Stock Exchange (“BSE”) announced that they are consulting on draft guidelines on ESG disclosures.

The requirements focus on disclosures relating to four core “content topics”: (i) governance, (ii) strategy, (iii) impact, risk and opportunity management and (iv) indicators and goals. The guidelines require companies to provide an explanation of the impact of ESG risks on the company and the company’s impact on the environment and society.

The SSE and SZSE guidelines are expected to be mandatory for certain companies, while the BSE guidelines will be voluntary. If approved, the SSE and SZSE guidelines would require companies to publish their 2025 sustainability reports before April 30, 2026.

Links:
SSE Press Release (in Mandarin)
Xinhua Press Release

UK: Financial Conduct Authority to Probe Firms on Sexual Misconduct, Bullying and Discrimination Claims

On February 6, 2024, the Financial Conduct Authority (“FCA”), the United Kingdom’s financial regulatory body, sent letters to organizations in the insurance and financial services industries requiring them to provide the number of non-financial misconduct incidents recorded since 2021.

The firms must disclose how the incidents were detected and the outcomes, including any non-disclosure agreements (“NDAs”) and employment tribunal hearings. Firms are required to respond to the FCA’s notices by March 5, 2024, with the FCA expected to complete its analysis by the summer.

The issue has come into focus in the wake of a number of high-profile cases of sexual misconduct, including allegations against Confederation of British Industry officials in 2023 and several reports that victims of misconduct have been forced to move teams, leave or been silenced with NDAs.

Link:
Notice to Lloyd’s Managing Agents & London Market Insurers (including P&I Clubs) and Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents)

House of Commons Treasury Committee minutes announcing the surveys (see page 10)

“Banks, insurers ordered to report sexism and bullying cases in Britain” - Reuters

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