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In Brief: EU due diligence deal agreed; US regulator faces youth climate lawsuit

The latest ESG policy and regulatory news

The European Council and parliament have reached several provisional agreements. The main deal was a provisional agreement on the EU Corporate Sustainability Due Diligence Directive, which will partially include the financial sector. You can find a full overview of the decision-making here.

Other political agreements between the two EU institutions include a deal on reforming EU electricity markets, plans to stimulate the uptake of renewable and low-carbon gases such as green hydrogen and biomethane, and regulation on circular construction products. New rules on regulating the insurance sector, the so-called Solvency II directive, have also been provisionally agreed and include sustainability considerations.

Further, the council and parliament have endorsed the final elements of the Basel III banking regulation, which include the requirement for banks to draw up transition plans under the prudential framework consistent with other sustainability commitments under EU law. Supervisory authorities will review how banks treat ESG risks and include ESG considerations in the annual supervisory examination review.

The parliament has also formally adopted the Critical Raw Materials Act, which aims to enhance the EU’s access to strategic raw materials. Once the council endorses the legislation, it will become law across the bloc.

Meanwhile, the council said that a EU-Kenya trade deal it adopted this week is the “most ambitious economic partnership agreement the EU will have with a developing country when it comes to sustainability provisions”. Binding provisions on climate and environmental protection as well as labour rights feature in the deal. It also includes a dispute resolution mechanism.

The European Securities and Markets Authority has launched a “common supervisory action” with national regulators on environmental, social and governance disclosures under the bloc’s benchmark regulation. Benchmark administrators subject to the regulation will be assessed on their climate methodology disclosures, as well as on their disclosure of ESG factors in benchmark statements.

Separately, Esma has also announced it will postpone its guidelines on sustainability-related terms in fund names to the second quarter of 2024.

Meanwhile, the European Insurance and Occupational Pensions Authority has launched two consultations. One focuses on how the regulator should tackle greenwashing and is open until March 12. The other deals with the prudential treatment of sustainability risks and accepts submissions until March 22.

Separately, the regulator also made public its “catastrophe data hub”, which provides European-wide data on insured losses for some past events, as well as exposure data on flood and windstorm catastrophes.

The European Investment Bank has pledged €5bn to support wind energy equipment manufacturing companies under the EU’s wind power package, announced earlier by the European Commission. The capital will be used to improve the provision of commercial bank guarantees for companies investing in wind manufacturing, grid interconnection and other key components across the sector.

The US Environmental Protection Agency is facing a constitutional climate lawsuit in California filed by 18 children. Genesis B v US Environmental Protection Agency centres around the claim that the US regulator has intentionally allowed “life-threatening climate pollution to be emitted by the fossil fuel sources of greenhouse gases it regulates”. In particular, the case looks at the healthcare effects on children, whereby the claimants, aged eight to 17, argue they have been discriminated against due to the EPA “discounting the economic value of their lives and their future when it decides whether and how much climate pollution to allow”. The minors are represented by non-profit law firm Our Children’s Trust, which previously won the landmark youth case in Montana.

The UK government has given the go-ahead to 11 projects across the country that will produce green hydrogen. It also said that suppliers will receive a “guaranteed price” from the government for the energy they supply. The government will provide £2bn in funding over the next 15 years, whereas project developers will put in £400mn over the next three years.

The UK Competition and Markets Authority has confirmed it will be investigating environmental claims made by consumer giant Unilever. The formal greenwashing probe is initiated following “concerns around how Unilever is marketing certain products, within some brands, to customers”, the CMA said. The regulator will now gather more evidence. If it finds the case has merit, it might either request commitments from the company to change the way it operates or proceed through the courts.

The CMA has also published its first “informal guidance” on proposed sustainability agreements between companies. The regulator established an “open-door policy” whereby companies can approach it on proposed sustainability agreements. In this first instance, the CMA was asked to assess competition concerns regarding a group purchase agreement in a food supply chain.

Germany has been forced to cut its spending on climate initiatives, following a court ruling that said budget spending plans for 2024 broke the country’s constitutional law on borrowing limits. Subsidies for green energy, construction and transport are set to be reduced or phased out more quickly than initially planned.

The Brazilian government has been criticised for launching an oil and gas exploitation auction, shortly after signing the COP28 “global stocktake” agreement, which references a commitment to transition away from fossil fuels. Moreover, Brazil will officially join the club of oil producing Opec+ nations in January and is also set to host COP30 in the Amazon city of Belém. Since taking office, President Luiz Inácio Lula da Silva’s government has been praised for its targeted reforestation strategy, but has angered environmentalists with its ambiguous position on fossil fuels.

The International Capital Market Association has published its voluntary code of conduct for ESG rating and data providers, following a mandate by the UK’s Financial Conduct Authority and subsequent market feedback. The code aims to be applied globally, especially in jurisdictions where no local equivalent or regulation exists.

The IFRS Taxonomy Consultative Group is seeking new joiners from April 1 2024 who will advise both the International Accounting Standards Board and the International Sustainability Standards Board on digital taxonomies. Candidates based in emerging economies that are looking at developing digital financial reporting requirements are particularly welcome to apply. Submissions are accepted until January 26 2024.

The Network for Greening the Financial System has published recommendations for the development of nature-related economic and financial risk scenarios. The aim of the research is to assist central banks and supervisory authorities in assessing how economies and financial systems could be impacted by nature-related physical risks and transition policies.

Corporate boards should focus on the number of women on career pathways that are likely to lead to chief executive positions, if they want to address low levels of female senior executives, according to new research by initiative 25×25, a non-profit corporate membership association. The research suggests that the percentage of female divisional heads should increase, so that more women can progress to executive candidate positions.

 

A service from the Financial Times