ESG Weekly Update – May 2, 2024

2 May 2024

Other Notable Developments

ISSB to Research Biodiversity and Human Capital: On April 23, 2024, the International Sustainability Standards Board unanimously voted to commence research projects regarding disclosure of risks and opportunities associated with (i) biodiversity, ecosystems and ecosystem services and (ii) human capital. The group will also consider how to build on relevant pre-existing initiatives, such as the Task Force on Nature-Related Disclosures, with the ultimate goal of determining whether standard-setting in these areas is desirable.

NZIA Relaunched: In reaction to companies exiting the Net Zero Insurance Alliance (the “NZIA”), the UN Environment Programme announced that the insurance group will be disbanded and restarted as the “Forum for Insurance Transition to Net-Zero (the “FIT”). The FIT will feature relaxed membership requirements: the members will not need to set targets and report on them annually, though they will be expected to adopt certain Principles for Sustainable Insurance that are focused on sustainability in processes.

EU: European Parliament Passes Corporate Sustainability Due Diligence Directive

On April 24, 2024, the European Parliament approved the final text of the Corporate Sustainability Due Diligence Directive (“CSDDD,” also referred to as “CS3D”). The law mandates that companies in scope integrate environmental and social due diligence into policies, mitigate any harms identified as part of that due diligence and develop and implement climate transition plans. The obligation covers companies’ own operations and those of their value chains.

The first phase of the law will apply to companies with over 5,000 employees and EUR 1.5 billion in net turnover, and by 2029, CSDDD will apply to EU companies with 1,000 employees (an increase from 500 employees in an earlier draft) and EUR 450 million worldwide net turnover (an increase from EUR 150 million worldwide net turnover), as well as to non-EU companies that generate EUR 450 million net turnover in the EU (an increase from EUR 150 million net turnover in the EU). Unlike in earlier versions of the text, there are no longer lower thresholds for high-risk sectors.

The text adopted is similar in substance to the version that was pre-approved by Member State ambassadors of the Council of the European Union on March 15, 2024. Once formally adopted by the Council, CSDDD will enter into force 20 days after its publication in the Official Journal.

For more information, please see Debevoise’s previous publications on the CSDDD, including: Debevoise In Depth, Update on the Corporate Sustainability Due Diligence Directive; ESG Weekly Update – March 15, 2024; ESG Weekly Update – February 14, 2024; and ESG Weekly Update – June 8, 2023.

CSDDD – Parliament Approved Text
CSDDD – Council Letter

EU: European Parliament Approves Ban on Products Made through Use of Forced Labor

On April 23, 2024, the European Parliament approved a ban on the sale, export or import of goods made using forced labor. Under the rules, any national authority in the EU bloc, as well as the European Commission itself, may investigate suspicious products. If an investigated product is found to have been manufactured using forced labor, it will be banned from sale in the EU market, and shipments of such product will be intercepted at the EU border.

The rules set out several factors and criteria to be considered when determining whether a product should be investigated, including verifiable information received from whistleblowers or cooperating authorities and the prevalence of state-imposed forced labor in certain sectors and geographies. If a product is found by any EU bloc national authority, or the European Commission, to be made using forced labor, the manufacturer will be required to withdraw the product from the EU market as a whole and donate, recycle or destroy it. Additionally, companies that do not comply with the rule could be fined. If a company eliminates forced labor from its supply chain, then the previously banned product may be permitted to be sold in the EU market.

The final text of the rule must receive final approval from the European Council. Once approved, the text will be published in the Official Journal, and EU countries will be required to implement the rule within three years.

European Parliament Press Release

U.S.: Oklahoma Considers Narrowing Scope of Anti-ESG Law

On April 11, 2024, the Oklahoma House of Representatives’ Rules Committee unanimously approved the advancement of SB1510, a new bill that would curtail the application of the state’s most prominent anti-ESG law, the Energy Discrimination Elimination Act (“EDEA”). Under the existing law, which was passed in 2022, contractors with Oklahoma municipalities and state agencies must provide a written verification that they do not “boycott” energy companies in order to continue doing business with the government entities. EDEA also requires the Oklahoma Treasurer to keep a list of “restricted companies” that are considered to boycott energy companies through their embrace of ESG policies, the latest version of which includes six major Wall Street financial institutions. If passed, SB1510 would limit EDEA’s requirements to state agencies, thereby freeing towns, cities and counties to once again do business with the restricted companies.

Notably, SB1510’s progress has been spearheaded by Republican lawmakers in the state Senate and House of Representatives, who have cited an apparent increase in the costs of municipal borrowing, as well as a more general desire to avoid preempting local decisions, as reasons for their support of the bill. One recent study by the Oklahoma Rural Association estimates that by blocking some of the state’s biggest municipal bond underwriters, EDEA has cost Oklahoma’s state and local governments at least $185 million in additional borrowing costs over the first 17 months of its implementation. While support of SB1510 has been strong, the bill remains under debate in the House of Representatives and could undergo further amendments before becoming law.

Bill Information for SB 1510
ORA Study: Unintended Consequences of the Energy Discrimination Elimination Act in Oklahoma

Asia: Hong Kong’s New Climate-Disclosure Requirements for Listed Companies to Take Effect in Phases Starting in 2025

In April 2023, the Stock Exchange of Hong Kong Limited (the “HKEx”) published a consultation paper proposing to amend the Listing Rules to mandate that all listed companies in Hong Kong provide enhanced climate-related disclosures under their Environmental, Social and Governance reports (the “New Climate Requirements”) from January 1, 2024 onwards. The New Climate Requirements focused on the four core pillars of the Task Force on Climate-Related Financial Disclosure: governance; strategy; risk management; and metrics and targets. These were developed based on the IFRS S2 Climate-related Disclosures (then in draft) published by the International Sustainability Standards Board (the “ISSB”) and were intended to form part of the wider Hong Kong road map for the local adoption of the ISSB standards.

In November 2023, the HKEx announced a postponement of the implementation date of the New Climate Requirements from January 1, 2024 to January 1, 2025 in order to allow listed companies time to become familiar with the new requirements.

On April 19, 2024, the HKEx published the consultation conclusions, confirming that the New Climate Requirements will come into effect in 2025 in phases. Starting in January 1, 2025, all Main Board issuers will be required to make mandatory disclosure of Scope 1 and Scope 2 GHG emissions. The remainder of the New Climate Requirements will apply to all Main Board issuers on a “comply or explain” basis and will become mandatory for LargeCap issuers (those that are Hang Seng Composite LargeCap Index constituents) on or after January 1, 2026. Meanwhile, small and medium-sized businesses, listed on the HKEx as GEM issuers, are expected to make voluntary disclosures.

Implementation relief (including proportionality and scaling-in measures) will be introduced to address concerns over current reporting challenges. The HKEx has also published a 140-page Implementation Guidance to accompany the New Climate Requirements, which contains illustrative examples, step-by-step workflows, and external frameworks and tools to assist listed issuers in preparing for disclosures.

HKEx Announcement

UK: FCA Publishes Guidance on Anti-Greenwashing Rule

On April 23, 2024, the UK Financial Conduct Authority (the “FCA”) released guidance on combatting greenwashing, which includes best practice examples to “help firms market their products in the right way.” The guidance relates to the FCA’s anti-greenwashing rule, which requires firms to ensure that any reference to the sustainability characteristics of a product or service is fair, clear and not misleading. The rule applies in relation to financial products and services that FCA authorized firms make available for clients in the UK, as well as financial promotions that authorized FCA firms communicate or approve for unauthorized persons (including for overseas products and services where the promotion is approved in the UK).

The guidance requires sustainability references to be: (i) correct and capable of being substantiated; (ii) clear and presented in a way that can be understood; and (iii) complete, in that important information is not omitted or hidden and that the full life cycle of the product or service is considered. Furthermore, comparisons to other products or services should be fair and meaningful, which requires the claim to make clear what is being compared and how a comparison is being made.

The guidance comes into force alongside the anti-greenwashing rule on May 31, 2024.

Separately, the FCA also announced that it is consulting on extending the Sustainability Disclosure Requirements regime to portfolio managers (for more on the Sustainability Disclosure Requirements, see our previous Weekly Update here).

Anti-Greenwashing Rule Guidance
Sustainability Disclosure Requirement consultation

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