In response to growing investor demand for information concerning companies’ sustainability-related financial risks, the sustainability disclosure landscape has rapidly changed over the last decade.  In what marks one of the latest developments to the sustainability disclosure landscape, on 29 April 2022, the European Financial Reporting Advisory Group (“EFRAG“) – a private organisation that provides technical assistance to the European Commission – issued its initial draft European Sustainability Reporting Standards (“ESRS“) for public comment. The ESRS, which EFRAG were tasked with preparing by the European Commission as part of the proposed Corporate Sustainability Reporting Directive (“CSRD“), set out proposed requirements for companies to report on sustainability-related impacts, opportunities and risks under the CSRD.

Continue Reading The European Financial Reporting Advisory Group issues draft European Sustainability Reporting Standards

On June 21, 2022, an NGO filed a first-of-its-kind climate change lawsuit against an investment bank in Brazil. Among other claims, the NGO asserts that the bank allegedly maintains equity positions in sectors considered to be the most carbon-intensive, and, based on such allegation, the plaintiff asks the court to compel the bank to prepare a greenhouse gas emissions reduction plan to guide its investments in light of the Paris Agreement and the Brazilian National Policy on Climate Change (PNMC). Our Legal Update here briefly discusses this novel climate litigation case and its importance to the broader climate litigation landscape.

Climate-related litigation is increasingly being used as a tool to hold companies and governments to account over their contributions to climate change.  According to the Grantham Institute’s 2021 Global Trends in Climate Change Litigation Policy Report (the “Report”), the number of climate-related cases has more than doubled since 2015: between 1986 and 2014, approximately 800 cases were filed, but between 2015 and 2021, approximately 1,000 cases were filed.  As noted by the Intergovernmental Panel on Climate Change’s (“IPCC”) Working Group III contribution to the Sixth Assessment Report, this growth in climate-related litigation is having a profound impact on the “outcome and ambition of climate governance“. 

Although the majority of the climate-related cases identified in the Report were brought against regional and national governments, the Report also identified a marked increase in the number of climate-related cases brought against private sector actors.  Of the 193 climate-related cases identified in the Report as being filed in 2021, 38 were filed against private sector actors; a significant increase from the 22 filings in 2020.  But who were the main targets of these climate-related cases, and what is responsible for this upwards trend?

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On June 2, 2022, the US Commodity Futures Trading Commission (“CFTC”) released a request for information on how climate-related financial risk is related to the derivatives markets and underlying commodities markets (the “RFI”). The RFI is intended to inform the CFTC’s next steps in this rapidly developing area and respond to the 2021 Report on Climate-Related Financial Risk from the Financial Stability Oversight Council (“FSOC”).

However, CFTC Commissioners already have raised concerns regarding the scope of the RFI and the CFTC’s authority to take certain actions under it. Therefore, market participants should consider submitting comments that address not only the questions raised in the RFI but also the statutory limits on the agency’s authority.

Responses to the RFI are due 60 days following publication in the Federal Register, which is expected shortly. In our legal update here, we have summarized the key parts of the RFI and highlight some of the concerns raised by CFTC Commissioners.

In a previous blog post that can be read here, we provided an overview on how – for the first time – the Brazilian Supreme Court had trial sessions scheduled in connection with several climate litigation cases, starting on 30 March 2022, covering ADIs (Ação Direta de Inconstitucionalidade), ADOs (Ação Direta de Inconstitucionalidade por Omissão) and ADPFs (Ação de Descumprimento de Preceito Fundamental), all of which are types of lawsuits that seek to address Constitutional violations. Two months later, five lawsuits of the so-called Supreme Court’s “green agenda” have gone through trial and three have been ruled on.

Continue Reading Climate Litigation and the Brazilian Supreme Court: A Follow-Up on the “Green Agenda” and the Trial Sessions That Took Place in April and May

On May 19, 2022, the Brazilian Federal Government published Decree No. 11,075/2022 (“Decree”), which establishes the National Greenhouse Gas Emissions Reduction System and the related procedures for the implementation of the Sectoral Plans for Climate Change Mitigation. The Brazilian National Policy on Climate Change (Federal Law No. 12,187/2009) mentions the implementation of such plans, and the Decree seeks to establish a regulatory framework for carbon markets in Brazil. Our Legal Update here briefly discusses the novelties introduced by the Decree, its relation to the bill of law currently being debated in the Brazilian Congress and what are the expected next steps for the regulation of carbon markets in Brazil.

At an open meeting on May 25, 2022, the US Securities and Exchange Commission (“SEC” or “Commission”) approved two new proposals regarding ESG that will impact the fund and investment management industry. One of the proposals is directed solely at registered funds and business development companies (BDCs), while the other applies to registered funds, BDCs, registered investment advisers (RIAs) and exempt reporting advisers (ERAs). Our Legal Update here discusses both proposals, which are quite lengthy (coming in at over 550 pages in total). We summarize what was discussed at the open meeting (and initial reactions to what was discussed), note what was highlighted in the relevant fact sheets, take deeper dives into a few specific points of interest and provide links to the relevant materials. We will provide more in-depth analysis of these proposals in a separate publication in the coming days.

On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the “Draft Directive”).  The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (“HREDD”) which, importantly, would apply to any non-EU-based company and its subsidiaries  if those group companies have aggregate annual net turnover in the EU of:

  • more than EUR 150 million (Group 1); or
  • more than EUR 40 million with at least 50% of net worldwide turnover generated in a “high-risk” sector which includes textiles, clothing and footwear, agriculture, forestry, fisheries, food & extractives (Group 2).

Notably, the HREDD applies even if a company and its subsidiaries do not have a physical presence in the EU, if the above net turnover threshold is met.

The Draft Directive requires both Group 1 and Group 2 companies to take appropriate measures to identify, and mitigate, actual and potential adverse human rights and environmental impacts arising from their own operations anywhere in the world (not just in the EU) and, where related to their value chains, from their “established business relationships”.

Colleagues from our offices throughout the world have prepared briefings which are specific to particular locations, giving insights into related matters in those jurisdictions.

Continue Reading Human Rights and the Environment – What non-EU-based companies need to know regarding the EU draft Corporate Sustainability Due Diligence Directive

Emissions reporting standards and practices in the private equity sector have been described by certain commentators as being some way behind those in the public markets; certainly the private equity asset class has, so far, received less attention in the context of Environmental, Social and Governance (ESG)-related reporting developments more generally.  That is changing, however; General Partners (“GPs“) are increasingly called upon to disclose climate-related data and establish greenhouse gas (“GHG“) emissions reduction targets across their portfolios.

There is not, at present, an agreed standard for reporting such information at a fund level, which has resulted in inconsistent approaches being adopted by different funds.  Inconsistencies, of course, potentially impair the ability of investors to make meaningful comparisons between portfolio companies, and indeed between funds.

In an attempt to address this inconsistency, the Initiative Climat International (“ICI“) — a practitioner-led group of private equity funds and investors that represents over USD $3 trillion in assets under management — in partnership with sustainability consultancy group Environmental Resources Management (“ERM“), have taken the proactive step of launching a new, non-binding standard that sets out a consistent approach to GHG disclosure across the private equity sector.  The standard, outlined in the ICI and ERM’s Greenhouse Gas Accounting and Reporting report (the “Report”), aims to better align the disclosure practices of private equity funds with the practices currently adopted by many listed companies in the public markets.

Continue Reading New standard published for Greenhouse Gas Emissions reporting in Private Equity

On May 12, 2022, Singapore’s Green Finance Industry Taskforce (GFIT) published a second consultation paper on its proposed taxonomy for Singapore-based financial institutions (“Singapore Taxonomy”), which aims to provide a common framework for classification of economic activities upon which financial products and services can be built and combat greenwashing by setting out definitive criteria for greenness in Singapore. A key purpose of developing the Singapore Taxonomy is to encourage the flow of capital to support the low carbon transition needed to avoid catastrophic climate change, as well as the environmental objectives of Singapore and the ASEAN nations, which are serviced by Singapore-based financial institutions. The Singapore Taxonomy is drafted to be consistent and compatible with other taxonomies to ensure interoperability, particularly the EU Taxonomy and the ASEAN Taxonomy (which we discussed here). The second consultation paper builds on GFIT’s earlier public consultation on the first version of the Singapore Taxonomy released in January 2021, which we discussed here.

In this second consultation paper, after considering feedback from the consultation process, GFIT proposes activity-level criteria and thresholds for three of the eight focus sectors (Energy, Transport and Buildings) outlined in the original consultation paper and for only one of the environmental objectives (Climate Change Mitigation). These three sectors were determined to have the highest environmental impact in Singapore, which collectively account for around 90% of ASEAN greenhouse gas emissions.

Further, the second consultation paper expands on the “traffic light” approach that was put forward in the original consultation paper, and adds granularity to the application and thresholds for classification, supported by science and data. Under this “traffic light” system, which is similar to the colour coding in the ASEAN Taxonomy, an economic activity can be classified as green, amber, or red, which denotes a different level of contribution to climate change mitigation as follow:

  • Green (environmentally sustainable): activities that contribute substantially to climate change mitigation by operating at net zero, or are on a pathway to net zero by 2050.
  • Amber (transition): activities that are either transitioning towards green within a certain time frame, or facilitating significant emissions reductions in the short term.
  • Red (harmful): harmful activities that are not currently compatible with a net zero trajectory.

GFIT is expected to release the criteria and thresholds for the remaining five focus sectors and the remaining environmental objectives in late 2022, and to finalise the full Singapore Taxonomy in 2023.

The consultation on the second version of the Singapore Taxonomy closes on June 23, 2022.