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In Brief: Singapore launches taxonomy with transition category; Canada releases oil emissions cap regulation

The latest ESG policy and regulatory news

The Monetary Authority of Singapore has released its sustainable finance taxonomy and become the first jurisdiction to include transition categories in such a document. The taxonomy makes use of a traffic light system to differentiate between investments into activities considered green and those contributing to the transition but which do not fit its green definitions, and considers eight economic sectors. The regulator deems transitional those “activities that do not meet the green thresholds now but are on a pathway to net zero or contributing to net zero outcomes”. The framework also gives special attention to the early phase-out of coal power plants, which are also the key focus of MAS’s “transition credits coalition” that will aim to scale the early retirement of coal plants in Asia. In addition to energy, the other focus sectors are real estate; transportation; agriculture and forestry and land use; the industrial sector; information and communication technology; waste and circular economy; carbon capture and sequestration.

The Singaporean regulator has also finalised its code of conduct for ESG rating and data providers. The code relies on providers to “self-attest” for compliance but also suggests third-party assurance or audit “where feasible”. In the EU, members of the European parliament voted on draft rules to regulate the area. They suggested to avoid aggregating “E”, “S” and “G” scores and to seek clarity on the materiality approach chosen by rating providers so that transparency can be enhanced.

The three European Supervisory Authorities overseeing banking, insurance and pension funds, and financial markets, have published their proposed revisions to the Sustainable Finance Disclosure Regulation. These include adding more social indicators to the principal adverse impacts framework, introducing new product disclosures on greenhouse gas emissions reduction targets, and making technical amendments to the treatment of derivatives and the calculation of sustainable investments, among others.

A blog post by the European Central Bank has questioned the green credentials of banks. The blog suggests that those banks that communicate the most about their environmental policies and goals also tend to be those that lend more capital to brown industries. “We find that firms with a larger carbon footprint that obtain loans from banks with more extensive environmental disclosures do not end up decreasing their emissions or commit to voluntary emissions targets,” according to the blog’s authors.

The European Council and parliament have reached several provisional agreements on sustainability regulation. These include revisions of the Energy Performance of Buildings Directive, the ecodesign framework for sustainable products, and regulation on chemicals.

Separately, the council has formalised its position on the Net-Zero Industry Act, which seeks the acceleration of low-carbon technologies. It also adopted its official view on new rules for calculating transport emissions as well as on maritime safety.

Meanwhile, the European Commission has adopted an exclusion from EU competition rules to formalise guidance on sustainability agreements in the agricultural sector.

The commission also proposed a “one-off” extension of EU-UK trade rules on the origin of electric vehicles and batteries, until the end of 2026. The extension follows struggles with the scaling up of the European battery ecosystem, which the commission blames on supply chain issues derived from the Covid-19 pandemic, the war in Ukraine and “increased competition from new international subsidy support schemes”. The council now needs to discuss the proposal.

The UK government has launched a consultation on a network code for carbon capture and storage. The code will set out all the rules between users and operators, and provide a framework for disputes, data management and liabilities. Submissions are accepted until February 16 2024.

Failure to achieve emissions reduction targets in the UK could face no consequences when two EU regulations on air pollution are being revoked at the end of this year, The Guardian reported. The regulations involve the obligation by the secretary of state to prepare a national air pollution control programme in order to limit pollution in line with national emissions reduction commitments and to consult the public when major revisions are being made.

The UK Advertising Standards Authority has banned adverts from three international airlines for being misleading about their environmental claims. Air France, Lufthansa and Etihad Airways did not sufficiently substantiate the implied positive impact of their claim, according to the watchdog, which used artificial intelligence to detect the adverts.

The Science Based Targets initiative is developing a new oil and gas target-setting standard, after having previously stopped accepting companies’ targets submissions for validation when its methodology was questioned by critics. The standard-setter is also recruiting for candidates to join its expert advisory group on the matter, for which applications are open until December 15.

The Canadian government has published its oil and gas emissions cap, which will set a limit on emissions produced by liquified natural gas and the upstream sub-sector starting not sooner than 2026. Free allowances and carbon offsets will also be part of the scheme.

Australia has passed a nature repair market bill to restore biodiversity habitats. A new Nature Finance Council was also introduced, which will aim to mobilise private capital for nature initiatives.

The US Department of Agriculture, the US Environmental Protection Agency and the US Food and Drug Administration have jointly released for public consultation the “draft national strategy for reducing food loss and waste and recycling organics”, which aims to mitigate environmental impacts as part of a wider circular economy plan. Submissions are open until January 4.

ESG activist hedge fund Inclusive Capital Partners is shutting down and will return cash to investors, three years after launch. The founder of the fund, Jeff Ubben, is a well-known name in the hedge fund industry having previously led activist hedge fund ValueAct Capital. According to the Financial Times, the fund blamed public markets for not rewarding its mission of combining shareholder activism with environmental and social impact. However, sources told the FT that Ubben had alienated himself by betting on corporate transitions on stocks usually shunned by responsible investors, such as US oil major ExxonMobil.

Following a referendum, Nicolás Maduro’s Venezuelan government has made annexation claims on Essequibo, an oil-rich territory disputed by Venezuela and neighbouring Guyana. Despite Essequibo being run by Guyana, Maduro said in a speech that he wants Venezuelan state companies to start exploiting oil reserves and mines in the area. ExxonMobil has operations in Guyana and located more oil reserves off the coast of Essequibo in 2015, which sparked further tension between the two countries.

A service from the Financial Times