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September 22, 2023

In Brief: CSRD thresholds could be amended for SMEs; SBTi under US congress scrutiny

The latest news in ESG policy and regulation

A German proposal is reportedly seeking to alleviate the burden of small and medium-sized enterprises with regards to requirements under the EU Corporate Sustainability Reporting Directive. By raising the threshold of what constitutes an SME, fewer companies would fall under the scope of green reporting rules and hence face fewer compliance costs.

Meanwhile, the European Financial Reporting Advisory Group has opened a call for tender to assist the group in developing a cost benefit analysis for the draft European sustainability reporting standards for listed SMEs. It is also looking for new participants to help draft sector-specific ESRS in the following industries: agriculture, farming and fishing; food and beverage; mining, coal and quarrying; motor vehicles; oil and gas; power production and energy utilities; road transport; textiles, accessories, footwear and jewellery.

The European parliament and Council have reached a provisional agreement on new rules to ban generic environmental claims such as “environmentally friendly”, “natural”, “biodegradable” and “carbon neutral” without further proof. Once the agreement becomes law, member states will have two years to implement the rules.

The European Court of Auditors has warned that the fast expansion of offshore renewable energy poses a “green dilemma”. The watchdog said “much more needs to be done to make offshore renewable energy socio-economically and environmentally sustainable”, given concerns that a speedy development may harm marine life.

The European Investment Bank has said on the sidelines of this week’s UN General Assembly that it is developing a methodology to assess the exposure of its clients and promoters to nature-related impacts and risks at the asset, company and portfolio level. The aim is to finalise a biodiversity risk screening system in 2024 to understand the financial risk posed by biodiversity loss and ecosystem degradation. The EIB is also working on a definition of “nature-positive” that can easily be applied to operations.

Little happened at this week’s UN Climate Ambition Summit to suggest leaders of the world’s biggest economies are ready for radical action at COP28 in November, though climate think-tank E3G highlighted “rallying calls to phase out fossil fuels from nearly all leaders present, including Chile, Colombia, Canada, Germany and the EU — a major change since the last summit in 2019”.

Spain stepped up its commitments at the summit, pledging to phase out coal by 2025, (Romania and Germany suggested they would achieve a phase-out by 2030), and offering an additional €225m to the Green Climate Fund. Meanwhile, Brazil updated its nationally determined contribution in an effort to show it is serious about climate action under President Luiz Inácio Lula da Silva.

The Science Based Targets initiative has come under scrutiny in a hearing by the committee on science, space and technology of the US Congress. The meeting examined a proposed regulation by the Biden administration that would require federal contractors to disclose their greenhouse gas emissions to the global UN-backed organisation, which is comprised of people from partner organisations CDP, UN Global Compact, World Resources Institute and WWF.

Questions asked during the meeting included: “What are the national security implications of allowing a foreign-based company to validate science-based targets for US contractors?”, and “What legal questions are implicated by this proposed rule and the no-bid selection of a single source vendor?”

California attorney general Rob Bonta has filed a lawsuit against big oil, alleging that Exxon Mobil, Shell, Chevron, BP, ConocoPhillips and the American Petroleum Institute had prior knowledge of the impact of their products on climate change and actively engaged in denial and deception campaigns. While similar lawsuits have been filed against the oil industry in the past, this one is considered to be the most significant yet.

California governor Gavin Newsom confirmed during Climate Week in New York he will sign a bill passed last week that will require large companies, public and private, operating in the state, to gradually disclose their Scope 1, 2 and 3 emissions. California is ahead of the Securities and Exchange Commission in finalising climate disclosure rules.

Meanwhile the SEC has adopted new rules to prevent deception and greenwashing in investment fund names. Under the new framework, 80 per cent of a fund’s assets must correspond with the fund’s name and label. Maria Lettini, CEO of US SIF, said: “While not limited to funds with sustainable investing names, industry observers suggest the rule could be instrumental in addressing concerns about ‘greenwashing.’”

ClientEarth has said that a French judge has ordered a mediation process between the NGO and consumer group Danone. ClientEarth sued the French consumer group at the beginning of this year over its plastics footprint. An independent mediator will guide the parties in aiming to find a workable solution, says the statement.

Canadian environmental law charity Ecojustice has filed an appeal on behalf of Sierra Club Canada Foundation and Mi’gmawe’l Tplu’taqnn Incorporated in their quest to stop the approval of a fossil fuel project. In June, Canada’s federal court dismissed the group’s case against the government’s approval of oil and gas project Bay du Nord, located off the coast of Newfoundland and Labrador.

The Taskforce on Nature-related Financial Disclosures has published its final recommendations, which mirror the same four pillars of the Taskforce on Climate-related Financial Disclosures: governance; strategy; risk and impact; metrics and targets. The aim of the TNFD disclosures is to stimulate a shift of capital towards nature-positive investments. Companies have been encouraged to start using the framework as soon as possible.

The Glasgow Financial Alliance for Net Zero has opened a consultation to expand its work on transition finance strategies and better assess their impact on reducing real world emissions. Gfanz has previously categorised transition finance in four strategies: supporting the development and scaling of climate solutions; assets or companies already aligned to a 1.5C pathway; assets or companies committed to transitioning in line with 1.5C-aligned pathways; and the accelerated managed phase-out of high-emitting physical assets. The consultation is open until November 2.

Norges Bank Investment Management, which manages Norway’s sovereign wealth fund — the world’s largest, with $1.4tn in assets — has said it will ask investee companies to adhere to six core expectations. Establishing key performance indicators to measure the delivery of transition plans, setting interim targets to reach net zero by 2050 or sooner, and seeking “reasonable” assurance on Scope 1 and 2 greenhouse gas emissions are some of the requirements embedded in the new climate expectations.

Despite the UK government announcing delays to certain climate policies it had previously established, including postponing a ban on new petrol and diesel cars to 2035 (instead of 2030), manufactures are still obliged to meet mandatory electric vehicle sales targets, reporting by the Financial Times shows.

Separately, the UK government has initiated the equity raise process for private investors to participate in the construction of the Sizewell C nuclear power station. It has also opened a consultation on increasing the amount of hydrogen used in the UK’s gas network. Proposals suggest blending the volume of hydrogen with natural gas gradually over time, up to a maximum of 20 per cent. The consultation closes on October 27.

Sweden’s government is also in the firing line after unveiling a budget that includes a SKr259mn (£19mn) reduction in funding for climate and environmental measures next year, and tax cuts on petrol and diesel. Reports suggest decisions made by the government between 1 July 2022 and 1 July 2023 will increase greenhouse gas emissions by 5.9mn-9.8mn tonnes of carbon dioxide equivalents by 2030.

Meanwhile, Australia is consulting on a scheme to track emissions from hydrogen and hydrogen energy carriers. The scheme would assist the country in producing and exporting hydrogen at scale, according to the announcement.

A service from the Financial Times