In Brief: MEPs approve green bond label rules; Japan to launch Asian green transition alliance

The latest news in ESG policy and regulation

The European parliament has approved standards for companies wishing to use the “European green bond” label. The voluntary standards require issuers wanting to market their green bonds using the EU label to disclose “considerable information” on their use of proceeds, with at least 85 per cent of these being allocated to activities covered by the EU sustainable finance taxonomy. They should also explain how the green bond proceeds will contribute to the company’s overall transition plans. The regulation also establishes a registration and supervisory system for external reviewers assessing whether the standards had been respected.

Further, the European parliament has approved the appointments of Wopke Hoekstra and Maroš Šefčovič as the new commissioner for climate action and the new executive vice-president for the European Green Deal, respectively.

The parliament also approved revisions to the Urban Waste Water Treatment Directive, which will impose stricter monitoring processes inside wastewater plants and embed a stronger focus on the treatment of forever chemicals. Pharmaceutical and cosmetic companies will also be expected to help finance costs through extended producer responsibility schemes. The council still needs to formulate its position on the updated regulation.

Meanwhile, the EU parliament and the European Council reached a provisional agreement on phasing out fluorinated greenhouse gases, which are man-made and have a high global warming potential. These gases are commonly used in refrigerators, air-conditioning, heat pumps and foams, but must be cut to align with the EU’s 2050 net zero goal, the announcement stated.

The “transitional” phase of the EU carbon border adjustment mechanism has entered into force. It obliges importers of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen to report on their carbon emissions.

The European Securities and Markets Authority has said it will launch a “common supervisory action” with national regulators in the EU to assess the integration of sustainability in companies’ suitability and product governance processes and procedures. The supervisory action will take place throughout 2024 and will examine, for example, how financial firms collect clients’ sustainability preferences and how these are integrated into investments.

Esma has also published an analysis on the use of environmental, social and governance terminology in EU investment fund names and related documents. The findings reveal that ESG words are now used in the names of 14 per cent of EU mutual funds value, €974bn out of a total of about €6.8tn, from less than 3 per cent in 2013. Generic terms such as “ESG” or “sustainable” are used more often by fund managers instead of more specific words, the analysis shows, warning that generic language is less transparent for investors and makes it harder to understand the underlying assets of the portfolio.

The European Supervisory Authorities have released their joint 2024 work programme that includes plans to carry out climate risk stress-testing. The programme suggests a one-off, system-wide stress test and further guidelines on ESG stress testing for supervisory authorities. By May 2024, the ESAs should also release their final reports on greenwashing, as requested by the European Commission.

The Central Bank of Ireland reportedly intends to publish further clarifications on the domestic use of the Sustainable Finance Disclosure Regulation, after it spotted asset managers mis-categorising fund disclosures. The issue is most prominent in the classification of Article 8 funds, which are defined as promoting environmental and social factors.

The Dutch authority for financial markets, AFM, has published guidelines to assist financial institutions in making sustainability claims. The guidelines insist that three main principles should underpin any sustainability claim: they should be accurate, representative and up to date; specific and substantiated; and understandable, appropriate and easy to find. The aim of the guidelines is to prevent market participants from making misleading statements about their sustainability ambitions.

Japanese prime minister Fumio Kishida has announced the creation of an Asian consortium to attract investments in the region’s green transition activities. The consortium, set to launch by mid-2024, will seek to co-ordinate regional efforts and work alongside the Japan chapter of the Glasgow Financial Alliance for Net Zero. Speaking at a UN-backed Principles for Responsible Investment conference in Tokyo this week, Kishida also said that the Financial Services Agency of Japan will launch an initiative by the end of the year to promote ESG investment by retail and institutional investors, and confirmed plans for the issuance of the country’s ¥20tn ($130bn) transition bonds by the end of Japan’s fiscal year in March 2024.

The PRI has published a paper urging governments to pass public policy legislation and reforms jointly, rather than in isolation from each other. The paper, titled “Investing for the economic transition: the case for whole-of-government policy reform”, argues that to make up for a lack of climate action by business and government, a new effective policy approach is needed whereby climate change, biodiversity, macroeconomic stability and other social issues should be at the heart of all policy making, so to be consistent and encourage a change in business behaviour.

The Network for Greening the Financial System has published a “conceptual note” on short-term climate scenarios covering a three to five year timespan. Shorter-term scenarios should assist central banks and supervisory authorities in improving their understanding of near-term financial risks derived from transitioning to a net zero economy and the potential impacts of severe natural disasters, says the note.

A “Global Framework on Chemicals and Waste” has been agreed at an international forum organised by the UN Environment Programme. Among other things, the framework urges the phase out of hazardous pesticides in agriculture by 2035 and a transition to more sustainable chemical alternatives in several sectors.

The chief executive of the Institutional Investors Group on Climate Change has published an open letter to the president of COP28, Sultan Ahmed Al-Jaber, urging him to support a global phase-out of fossil fuels. The United Nationals climate conference will take place from 30 November till 12 December in Dubai.

A new synthesis report by the United Nations Framework Convention on Climate Change, produced to assist governments in assessing global action on climate and advance talks at COP28, has been published.