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April 28, 2023

In Brief: EU committees demand binding target on methane emissions; Japan faces tough AGM season

The latest round-up of ESG policy and regulatory news.

The European parliament’s environment and industry committees are urging the European Commission to set a binding 2030 reduction target for EU methane emissions by 2025. The committees also voted to introduce a ban on methane venting and flaring and to oblige operators to repair leaks. Methane is produced across several industrial sectors and is estimated to contribute to a third of global warming. 

Separately, the environment committee also published recommendations for the recycling of textile products, with a focus on human, social and labour rights, as well as animal welfare throughout supply chains. The committee agreed to add an explicit ban on destroying unsold or returned goods in the EU ecodesign rules. 

Meanwhile, the European parliament’s legal affairs committee has voted to expand sustainability due diligence obligations to more companies and impose fines of at least 5 per cent on net global turnover of non-compliant entities. The committee is also in favour of banning non-compliant, third-country companies from public procurement and to add transition plans to due diligence practices. Negotiations on the Corporate Sustainability Due Diligence Directive are still ongoing in the parliament.

The European Council has adopted five laws related to the EU’s “Fit for 55” package, which aims to reduce emissions across the bloc by at least 55 per cent compared with 1990 levels, by 2030. The laws involve the emissions trading scheme, the Social Climate Fund, the carbon border adjustment mechanism, and reforms to the ETS Aviation Directive and the monitoring, reporting and verification shipping regulation, which were passed by the parliament earlier this month.

In the meantime, the council and parliament have reached a provisional agreement on the ReFuelEU Aviation initiative, which is also part of the Fit for 55 package. The aim of the legislation is to increase demand as well as supply for sustainable aviation fuels and to create a “level playing field” across the EU air transport market. The deal will see the share of green aviation fuels reach at least 2 per cent by 2025 and the introduction of an EU label for the environmental performance of flights, which will include the expected carbon footprint per passenger. However, the legislation’s impact on connectivity, carbon leakage, competition, and the future use of hydrogen and electricity are issues still to be addressed.

In other news, the European Council has adopted new rules to tackle the gender pay gap, following an agreement reached with the EU parliament at the end of last year. Under the new rules, pay transparency will be improved by obliging employers to disclose the starting salary or pay range when advertising job vacancies. Companies employing more than 250 people and with a gender pay gap above 5 per cent will be required to do a joint pay assessment with workers’ representatives if the gap cannot be justified in gender-neutral terms. Employers can face fines and employees can seek compensation if pay discrimination has been proved. According to the EU, women working in the bloc earn on average 13 per cent less than their male colleagues.

On a similar note, the European Banking Authority is consulting until July 24 2023 on guidelines for the benchmarking of diversity policies and the gender pay gap at investment companies based in the bloc. The guidelines will aim to increase transparency by collecting data on companies’ diversity practices and the gender pay gap at management level.

The European Insurance and Occupational Pensions Authority and the European Central Bank have proposed the introduction of an EU-wide public scheme to counter climate-related catastrophe losses. In a joint discussion paper, the two supervisors argued that the bloc suffers from a severe insurance gap, which threatens economic and financial stability. Some of the proposed policy options include increasing the use of catastrophe bonds by passing on part of the risk to capital market investors, expanding climate catastrophe insurance by providing discounts for implementing effective mitigation or adaptation measures, and setting up public-private partnerships and backstops to partly cover the costs that insurers may incur in the event of major disasters.

An alliance of nine European countries and the European Commission have committed to increase offshore wind capacity in the North Sea to 120 gigawatts by 2030, and to at least 300 gigawatts by 2050. The agreement, signed under the Ostend Declaration, sees Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway and the UK adhere to the pact. Estimates put the cost at €800bn to reach the 2050 capacity target.

Japan is facing increased investor activism over sustainability issues as several of the country’s main banks and utilities are being targeted with shareholder resolutions. Mitsubishi Corp, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Banking Corporation, Mizuho, Tokyo Electric Power Company, and Chubu Electric Power are among the companies asked to publish plans on how they intend to meet the climate goals of the Paris Agreement. The proposals were filed by investor groups Market Forces, Kiko Network, Rainforest Action Network, and Friends of the Earth Japan.

Separately, Norges Bank Investment Management has said it will start voting against all-male boards in Japan. The change in voting policy will affect approximately 300 Japanese companies. On average, only 10 per cent of board directors at Japanese companies are female. 

The US Supreme Court has declined to hear bids by several oil companies to move a range of climate lawsuits to federal courts instead of state courts. ExxonMobil, Suncor Energy, and Chevron had wanted to appeal previous decisions by lower courts stating that lawsuits filed by a number of government entities should be heard in state courts, which are often seen as more lenient to plaintiffs than defendants.

US president Joe Biden has pledged increased investments to transnational climate funds, during a meeting of the Major Economies Forum on Energy and Climate. If Congress approves the measure, the US will start contributing $500mn to the Amazon Fund to battle deforestation. The news follows a joint statement between Brazil and China to collaborate on climate change issues. Biden also pledged a further $1bn to the Green Climate Fund, which is a UN-backed initiative providing climate finance to developing countries.

A service from the Financial Times