Risk Management

Companies must recognise that they are subject to increased expectations in terms of effective identification and management of social issues. A failure to do so – and the resulting inequality – is increasingly seen as representing a systemic risk to the resilience of business operations and value chains. Expectations are reinforced by the wave of new due diligence regulations and reporting standards focussed on addressing both the ‘E’ and ‘S’ in ESG (see, for example, our earlier blog posts on the EU’s Corporate Sustainability Reporting Directive here, as well as on the UK Financial Conduct Authority’s Greenwashing rules here).

CFOs have a critical role in communicating how companies are addressing wider social issues linked to their business operations and ensuring companies’ compliance with related regulations and reporting standards. To help CFOs execute this role effectively, the World Business Council for Sustainable Development (the “WBCSD“) and Shift have released a primer for CFOs for advancing the ‘S’ in ESG (the “Report“). The Report aims to provide a starting point for CFOs working to address the demands and challenges associated with the ‘S’ in ESG, covering both an overview of the what, the who and the how of corporate social performance and key recommendations for improving the measurement of that performance.

Continue Reading Business and Human Rights – a “primer” for CFOs for advancing the ‘S’ in ESG
Malaysia - Kuala Lumpur

On February 17, 2023, the Securities Commission Malaysia (“SC”) published the revised Guidelines on Sustainable and Responsible Investment Funds (“Guidelines”) setting out the reporting and disclosure requirements for a fund to qualify as a Sustainable and Responsible Investment (“SRI”) Fund and, under a new chapter added to the Guidelines, an ASEAN Sustainable and Responsible Fund (“SRF”). The amendments revise the first version of the Guidelines issued in December 2017 and are effective on the date of issuance.

The Guidelines have been re-arranged to three parts:

  • Part A: SRI Fund – general requirements; disclosure and reporting requirements; and certification in respect of tax exemption for managing an SRI Fund
  • Part B: ASEAN Sustainable and Responsible Fund Standards – requirements to qualify
  • Part C: Application to Qualify as an SRI Fund and an ASEAN Sustainable and Responsible Fund

The key elements of an SRI Fund and an ASEAN Sustainable and Responsible Fund are summarised below.

SRI Fund

  • An SRI Fund is required to adopt certain strategies to achieve its policy e.g. ESG integration, ethical and faith-based investing and impact investing etc.
  • Certain matters are required to be included in the fund’s annual and interim reports including a statement that the fund has complied with the Guidelines, descriptions on the sustainability considerations adopted and actions taken in achieving the SRI Fund’s policies and strategies etc.
  • A minimum asset allocation threshold is introduced such that an SRI fund must primarily invest 2/3 of its NAV in securities that are in accordance with its policies and strategies.
  • An issuer may, on a voluntary basis, appoint a third-party to verify whether the fund’s investments are aligned with its policies and strategies but such third-party’s credential and expertise must also be disclosed in any report made available to the public.

ASEAN SRF

  • A fund that is either (a) a qualified SRI Fund; or (b) a fund seeking for the SRI Fund qualification, may apply for the qualification as an ASEAN Sustainable and Responsible Fund.
  • The issuer must ensure that the SRI Fund complies with the ASEAN Sustainable and Responsible Fund Standards issued by ACMF.

For more details, please refer to the Summary of Amendments and FAQ published by the SC.

Other developments in Malaysia

Malaysia announced several other significant ESG initiatives in the past few months including the launch of the world’s first Shariah-compliant carbon exchange, Bursa Carbon Exchange (BCX), in December 2022 and the Bursa Malaysia’s and the London Stock Exchange Group’s planned launch of a sustainability reporting platform in 2023.  These developments are positive signs of Malaysia’s progress in developing its ESG capabilities.

Sustainable Development

Mining companies are closely linked to the energy transition, both as businesses for which new requirements apply and as suppliers of critical minerals used to produce electric vehicles batteries, solar panels and wind turbines, among other products. In this Legal Update, we discuss emerging climate change-related guidelines and requirements, give examples of how mining companies are adjusting their operations in response to the energy transition, and note new forms of financing that industry participants can pursue.

Continue reading at Mayerbrown.com.

Governance

On 28 February 2023, the Judicial Court of Paris (the “Court”) issued an interim order (the “Order”) in the context of a judicial dispute concerning compliance with the French Law n°2017-399 of 27 March on the Duty of Vigilance (the “French Vigilance Law”). This decision is the result of a lengthy judicial process that started back in 2019 when the defendant was summoned by several NGOs before the Court for an alleged lack of compliance with its obligation of vigilance.

Continue Reading Business and Human Rights: first French case-law on the Duty of Vigilance – judges adopt a cautious approach to avoid judicial interference in corporate management
Governance

The age-old debate over the purpose of for-profit corporations has reignited, with two rival theories on offer: shareholder primacy and stakeholder parity. The first posits that the primary purpose of corporations is to maximize shareholder value, while the second urges the equal interests of all other constituents, especially employees, customers, and communities.

While the debate can seem complex and polarizing, the reality for corporate directors is simple and subtle: directors’ legal duties run to shareholders, but directors may promote the interests of others when those are rationally related to shareholder interests. If prevailing debate sometimes suggests a stark choice between shareholders and other stakeholders, the reality is that their interests are more aligned than it may seem and directors continue to operate accordingly.

Continue reading at Mayerbrown.com.

MOSS and glass globes

Hong Kong’s Financial Secretary, Paul Chan, delivered the 2023-24 budget on 22 February 2023 with the promotion of a green economy, sustainable development and China’s “3060 Dual Carbon Targets” at the forefront.

He laid out his vision to establish Hong Kong as a leading global green technology and financing hub.

Continue reading at Mayerbrown.com.

China - Hong Kong

In the Hong Kong government’s 2023-2024 budget, the Financial Secretary, the Hon Paul MP Chan, unveiled various measures to bolster Hong Kong’s economy following the Covid-19 epidemic, with a strong focus on promoting green and sustainable finance and technology and advancing the virtual assets sector (also reported here). 

The following initiatives were announced, amongst others:

  • Setting up of a Green Technology and Finance Development Committee which will partner with representatives from green technology, green finance and green standard certification to formulate an action agenda for the promotion of Hong Kong as an international hub.
  • An International Greentech Week at the end of 2023 to gather representatives, enterprises and investors from green technology industries around the world.
  • Further expansion of the existing Government Green Bond Programme, to cover sustainable finance projects (more details to be announced in due course by the HKMA).
  • Establishment of a task force on virtual assets development, to review recommendations by financial regulators and market participants on the sustainable and responsible development of the sector.
  • Setting up of a Digital Economy Development Committee which will undertake research on digital infrastructure, cross-boundary data transfer, digital transformation of enterprises and human resources support.

The Hong Kong government’s resolve to be a leader in green finance and innovation is demonstrated by its inaugural issuance of a HK$800 million tokenised green bond on 16 February 2023, the first in the world issued by a government. In addition, in October 2022 the Hong Kong Exchanges and Clearing Limited launched Core Climate, an international carbon marketplace (reported here).

The Securities and Futures Commission of Hong Kong (SFC) has said that it supports the establishment of a virtual assets task force and also welcomes the Government’s measures to develop Hong Kong as an international green technology and financial centre.  In connection with virtual assets, the SFC has, on 20 February 2023, launched a public consultation on the proposed regulatory requirements for operators of virtual asset trading platforms.  This follows the new licensing regime, taking effect on 1 June 2023, that requires all virtual asset trading platforms conducting business in Hong Kong or actively marketing to investors in Hong Kong to be licensed by the SFC (see our legal update).  As part of the consultation, the SFC is seeking views on whether to allow licensed platform operators to serve retail investors, and if so, what measures need to be in place to ensure a robust framework.  Interested parties are invited to submit their comments to the SFC by 31 March 2023.

Lightbulb is located on the soil, and plant are growing.Renewable energy generation is essential in the future.

On 28 February 2023, the Council of the European Union and the European Parliament reached a provisional agreement on the creation of the European Green Bond Standard (“EU GBS“).

Continue Reading Alert – Council of the EU and European Parliament reach provisional agreement on European Green Bond Standard
modern-slavery

In what marks its latest move to tackle modern slavery, on 10 February 2023, the UK Government published its new guide for commercial and procurement professionals, entitled “Tackling Modern Slavery in Government Supply Chains” (the “Guidance”). The Guidance is aimed at helping procurement and commercial practitioners at all levels who are operating in government comply with their statutory obligations in respect of modern slavery. It builds on the UK Government’s “Slavery and human trafficking in supply chains: guidance for businesses” and its modern slavery statement Progress Report.

Continue Reading Business and Human Rights – the UK Government publishes new guidance on tackling modern slavery in Government Supply Chains
Products

The Pensions Regulator has launched a campaign to ensure that trustees are meeting their ESG and climate change reporting obligations.

Trustees of occupational pension schemes with 100+ members are required to prepare:

  • A statement of investment principles (“SIP”) which, among other things, must include the trustees’ policy in relation to financially material ESG and climate change considerations.
  • An annual implementation statement setting out how certain aspects of the SIP have been followed during the scheme year.

Both documents must be published on a website that is accessible free of charge by the general public. Trustees must report on compliance with this obligation in the scheme return.

Continue Reading ESG and climate change – new Pensions Regulator campaign