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In Brief: Australia’s taxonomy open for consultation; US releases voluntary carbon market principles

The latest ESG policy and regulatory news

EU

The European Council has given its final approval to a set of green legislation, including the Right to Repair Directive, the methane emissions regulation, new eco-design rules, the Net Zero Industry Act and the Corporate Sustainability Due Diligence Directive. The council also formally agreed for the EU to leave the Energy Charter Treaty and to impose higher tariffs on grain imports from Russia and Belarus.

Other proposals approved by the council were measures aimed at improving the interconnectedness and resilience of the EU’s electricity network. SolarPower Europe chief executive Walburga Hemetsberger said the proposals to accelerate electricity grid investments in Europe at the transmission and distribution level — including a call for regulation that facilitates anticipatory investments and by asking the European Investment Bank to step up in financing grid upgrades — were a “key milestone in the energy transition”. However, she urged EU leaders “to take the next step on clean flexibility; for example, by setting political goals for energy storage and demand response for 2030 and 2040”.

The European Financial Reporting Advisory Group is recruiting experts for its sustainability reporting team, including specialists in due diligence, labour rights and business conduct. Interested candidates can apply until June 24.

Just a fifth of green bonds rated by environmental, social and governance data and analytics provider Sustainable Fitch have at least one use of their proceeds aligned with the EU taxonomy, it said in a quarterly update. There was partial alignment in 36 per cent of Sustainable Fitch-rated green bonds, while 44 per cent had no taxonomy alignment. Bonds with proceeds financing renewable energy and clean transport have the highest alignment, with the EU taxonomy viewing these activities as making a significant contribution to reducing emissions, the provider said.

The $100bn UN-backed climate finance goal, funding by developed countries to assist climate-vulnerable countries, was met for the first time in 2022, according to an OECD report. The $100bn target is set to be replaced with a new global climate finance goal at the COP29 climate summit in Baku, Azerbaijan, in November. “While the annual goal was achieved two years later than agreed, reaching this milestone is nonetheless encouraging news coming just before climate negotiators reassemble in Bonn,” said Melanie Robinson, global climate, economics and finance director at the World Resources Institute. The annual mid-year UN climate change talks will take place in Bonn from June 3-13.

Claims by the Net-Zero Asset Owner Alliance that four-fifths of its members have adopted policies where no further financing of new coal plants is permitted and that existing plants should be phased out, have been disputed by Reclaim Finance. Analysis by the non-profit found fewer than a quarter of NZAOA members have restrictive coal policies fully aligned with the alliance’s position on coal phase-outs. The study said the NZAOA judges alignment purely on what its members say they would like their investee companies to do, and not on what policies asset owners have adopted.

The European Securities and Markets Authority has published a report on marketing disclosures under the EU’s Mifid II legislation, including a section on sustainability claims. The regulator voiced particular concern regarding advertisements featuring the supposed green nature of a product or service without supporting evidence, or when these attributes are presented in an unbalanced manner compared with other features.

The ACPR, the prudential regulation arm of the Banque de France, has completed its second climate stress-test exercise of the French insurance sector. The exercise included an assessment of how insurers performed in one short-term scenario and two long-term scenarios, building on a previous pilot assessment. It found that insurers are “significantly exposed to climate change-related shocks”, and should “promptly integrate these risks in their strategy, their governance and their respective internal models”.

UK

Edinburgh council is banning advertisements for sports utility vehicles, commercial flights and fossil fuel companies across the Scottish capital, as part of its plan to reach net zero by 2030. The rules will apply at the point of retendering advertising contracts.

The International Financial Reporting Standards Foundation has published a guide to support jurisdictions planning adoption and use of the International Sustainability Standards Board standards.

The Financial Conduct Authority’s anti-greenwashing rule entered into force on May 31. Under the rule, all FCA-authorised companies must ensure sustainability-related claims about their products and services are “fair, clear and not misleading”.

Asia-Pacific

China has published draft sustainability reporting standards for companies based in the country. It is aiming to establish an ISSB-aligned mandatory disclosure regime by 2030. The government said the standards will first be voluntary and apply to listed companies, before gradually broadening to include non-listed businesses and becoming mandatory. It expects to have “introduced basic corporate sustainability disclosure standards and climate-related disclosure standards” by 2027.

China will enforce regulations on ecological protection compensation from June 1. The legislative package includes central fiscal transfer payments, inter-regional compensation, and market mechanism compensation for the protection of environmental sites.

Corporate disclosure levels of value chain emissions and climate targets are improving in the Asia-Pacific region, said data provider MSCI. In a report that assessed disclosure levels across Apac markets in 2021, New Zealand led the way for disclosure rates for Scope 1, Scope 2 and some Scope 3 emissions, with figures of 86 per cent for large caps and 60 per cent for small and mid caps.

The Australian Sustainable Finance Institute has launched the first round of a public consultation on creating an Australian sustainable finance taxonomy. The consultation, which will run until June 30, is seeking views on the draft “headline ambitions” for the taxonomy’s environmental goals, as well as climate change mitigation criteria for three priority sectors: electricity generation and supply; minerals, mining and metals; and construction and the built environment.

Australia and the EU have signed a memorandum of understanding to increase collaboration on critical minerals needed for the green transition. The partnership will cover the entire value chain, from exploration to waste, with a concrete road map to be developed over the next six months.

Americas

Research by the UN Population Fund (UNFPA) has found that 41mn people across Latin America and the Caribbean — 6 per cent of the region’s population — are exposed to life-threatening storms and flooding. Using satellite imagery and geospatial data, the UNFPA identified coastal communities that will be most affected by changing weather. Aruba, the Cayman Islands, Suriname, the Bahamas and Guyana will be particularly at risk as more than 80 per cent of hospitals in these regions are in low-lying coastal areas.

The US government has released a set of principles for the voluntary carbon markets, which include the expectation that corporate buyers prioritise emissions reductions and only rely on credits that meet high integrity standards. The announcement was warmly welcomed by the carbon markets. “We hope such a move will reassure buyers of carbon credits that there is concerted effort by both the industry and policymakers to strengthen credibility of the industry,” said Antti Vihavainen, chief executive of carbon crediting platform Puro.earth. 

The Inter-American Court of Human Rights has held public hearings in Brazil related to its advisory opinion on clarifying states’ legal obligations with regards to climate change and human rights. The request for an advisory opinion was launched by Chile and Colombia last year.

Africa and Middle East

The African Development Bank and the IFRS have announced plans to collaborate on advancing sustainability disclosure practices in Africa. IFRS Foundation trustees chair Erkki Liikane said in a statement that the partnership will help “companies and jurisdictions develop the skills and capabilities to adopt the ISSB standards”. The two organisations signed a letter of intent committing them to providing resources and support within the next three years.

The UK government’s Climate Finance Accelerator has selected 15 South African projects to receive support to help them secure investment. The projects span the energy, transportation, agriculture, forestry, circular economy and water sectors. The £11.8mn CFA programme is funded by international climate finance through the UK’s Department for Energy Security and Net Zero and is implemented in 10 countries. Following training sessions with the CFA, 10 of the South African projects will pitch to investors in July.

A BBC investigation has found that leading perfume brands Lancôme and Aerin Beauty are sourcing jasmine picked by children in Egypt. Minors between the ages of five and 15 were found to be picking flowers across a number of smallholder farms in the early morning. In Egypt, it is illegal for children under the age of 15 to work overnight between 19:00 and 07:00. Lancôme parent company L’Oréal told the BBC it was “committed to respecting human rights”. Aerin Beauty owner Estée Lauder told reporters it had “contacted its suppliers”.

A service from the Financial Times