ESG Knowledge Update | July 2024

Legal and regulatory news

European Union

The Council of the EU has formally adopted the Nature Restoration Law. This law aims to put measures in place to restore at least 20% of the EU’s land and sea areas by 2030, and all ecosystems in need of restoration by 2050. The regulation will now be published in the EU’s Official Journal and will enter into force 20 days after publication when it will be directly applicable in all Member States.

The Council of the EU has also agreed its position on the Green Claims Directive, which outlines the information companies need to justify their environmental marketing claims and requires independent verification of these claims before publication. The Council's approach also includes exemptions for ecolabelling schemes registered under EN ISO 14024 type 1 and sets specific requirements for climate-related claims. Now that the Council has adopted its approach, negotiations with the European Parliament can begin during the new legislative cycle in July.

The Ecodesign for Sustainable Products Regulation was published in the Official Journal on 28 June 2024 and will enter into force on 18 July 2024. It will apply from 24 months after the entry into force.

The European Securities and Markets Authority (ESMA) has published its long-anticipated final report setting out its guidelines on funds' names using ESG or sustainability-related terms. The ESMA guidelines aim to unambiguously regulate the use of words or acronyms that are in themselves indicative (or even merely allusive) of sustainability-oriented investment strategies within the names of investment funds.

The European Supervisory Authorities (ESAs) have published a joint opinion on the assessment of Sustainable Finance Disclosure Regulation (SFDR). The ESAs' recommendations for the SFDR assessment include the introduction of a product classification system to help consumers navigate the broad selection of sustainable products, with categories that are simple and have clear objective criteria or thresholds. They also suggest that sustainability indicators could refer to environmental sustainability, social sustainability, or both, and that options for product categorisation and sustainability indicators should be consumer tested or consulted on.

United Kingdom

Following the Labour Party's victory in the general election, what ESG policy initiatives and action could be on the horizon under the UK's new government? As well as the well-publicised commitments around clean energy and infrastructure, Labour's manifesto has placed a strong emphasis on environmental commitments, promising to achieve the Environment Act targets and advocating for a shift towards a circular economy to minimise waste. Labour also supports the introduction of a carbon border adjustment mechanism to align with the UK's climate goals.

Beyond the manifesto, Labour's recent paper, "Financing Growth", outlines plans for sustainable finance, including a commitment to the Sustainability Disclosure Requirements in line with the International Sustainability Standards Board, and an exploration of nature-related finance, leveraging voluntary carbon markets and natural capital partnerships.

The Department for Environment, Food and Rural Affairs has conducted a survey for the post-implementation review of the Habitats Regulations, which protect sites designated as Special Areas of Conservation, Special Protection Areas and wetland Ramsar sites. The survey seeks evidence of the regulations' effectiveness, unintended consequences, and suggestions for refinements.

The Financial Conduct Authority (FCA) has provided updates on the sustainability disclosure and labelling regime to reflect that the anti-greenwashing rule and guidance has now come into force. A new "criteria" section has been added to the website that provides more information on the regulator's view of aspects of the regime.

Meanwhile, the Scottish Parliament has passed the Circular Economy (Scotland) Bill, which will give ministers the powers to set local recycling targets, as well as statutory targets for delivery of a circular economy to measure progress in transforming the economy, restrict the disposal of unsold consumer goods, place charges on single-use items like disposable cups and give local authorities additional enforcement powers.

International

The Network for Greening the Financial System (NGFS) has published a report on nature-related litigation and lessons learned from climate-related litigation. The report highlights that strategic nature-related litigation poses financial risks similar to climate-related litigation and recommends that central banks, supervisors and financial institutions closely monitor developments in this area.

The NGFS has also published a conceptual framework on nature-related financial risks, which aims to create a common science-based understanding of and language for nature-related financial risks. It also contains a principle-based risk assessment framework that seeks to help central banks and supervisors to identify and assess material nature-related financial risks.

The second edition of guidance on climate-related disclosure for central banks has also been published by the NGFS. The updated guide includes a new chapter on metrics and targets to align the guide’s structure with the four-pillar framework of the now disbanded Taskforce on Climate-related Financial Disclosures (TCFD).

The Taskforce on Nature-related Financial Disclosures (TNFD) and the European Financial Reporting Advisory Group have jointly published a "mapping" of the correspondence between the European Sustainability Reporting Standards (ESRS) and the TNFD’s recommended disclosures and metrics. The document aims to help companies understand the commonalities between ESRS and TNFD.

The International Financial Reporting Standards (IFRS) Foundation’s International Sustainability Standards Board, whose standards succeeded the TCFD framework, has announced further harmonisation of sustainability reporting requirements for companies. In addition, the IFRS Foundation and the World Bank Group’s International Finance Corporation have established a partnership seeking to improve sustainability reporting in emerging markets and developing economies.

Market news

An Accenture survey has found that only 22% of finance executives are ready for upcoming climate reporting…and Vodafone Business and Envoria have launched a new software designed to help businesses meet sustainability reporting requirements under the EU Corporate Sustainability Reporting Directive.

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