Companies have a substantial impact on human rights when carrying out their business activities. The United Nations Guiding Principles on Business and Human Rights set the expectation that companies conduct human rights and environmental due diligence (“HREDD“) with respect to their business activities, which includes assessing and responding to actual and potential human rights issues.

The expectation for companies to conduct HREDD is increasingly becoming mandated by legislators across the globe. For example, in Germany the Supply Chain Due Diligence Act will enter into force on 1 January 2023. It is arguably the most comprehensive law in this area to date, since in-scope companies will have to comprehensively analyse their global supply chains, assess the risks within their supply chains and act accordingly. Further, in the European Union an equivalent directive is upcoming. The European Commission’s draft corporate sustainability and due diligence directive (the “Draft Directive“) – which is anticipated to be adopted in 2023 – sets out a proposed HREDD standard, under which companies will be obliged to identify actual and potential adverse human rights and environmental issues arising from their operations or those of their subsidiaries and, where related to their value chains, from their “established business relationships” (for more information on the Draft Directive, read our earlier blog posts here and here). Involving and engaging stakeholders in a meaningful way will be critical for in-scope companies to successfully implement HREDD processes and ensure compliance with these obligations.

To help companies engage with stakeholders, the UN Global Compact Network Germany (“GCNG“) – an organisation created to assist companies in meeting their human rights-related responsibilities – has recently published its “What makes stakeholder engagement meaningful? 5 insights from practice” report (the “GCNG Report“). The GCNG Report highlights five “selected success factors” that companies can adopt to help ensure their engagement with stakeholders is effective and meaningful.

Continue Reading Business and Human Rights: meaningful stakeholder engagement in due diligence

In a timely episode of Tools of the Trade, Mayer Brown Chair Jon Van Gorp and Management Committee member Sally Davies take on a topic of increasing importance: environmental, social and governance principles, commonly referred to as ESG. Their primary guest, David Carpenter, is one of three co-leaders (with Mark Uhrynuk and James Whitaker) of the firm’s ESG product group.

At the Summer 2022 National Meeting of the National Association of Insurance Commissioners (“NAIC”), the Innovation, Cybersecurity, and Technology (H) Committee and its Big Data and Artificial Intelligence (H) Working Group held their first Collaboration Forum session on the topic of algorithmic bias. The Collaboration Forum was established at the Spring National Meeting as a platform for multiple NAIC committees to work together to identify and address foundational issues and develop a common framework that can inform the specific workstreams in each group. 

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On 25 August, 2022, the Australasian Centre for Corporate Responsibility (“ACCR”) expanded its case against the Australian gas company, Santos Ltd. (“Santos”), with new and more detailed allegations around greenwashing.

Last year, ACCR filed a consumer protection lawsuit with the Federal Court of Australia regarding certain misleading or deceptive statements Santos made relating to its clean energy claims and net-zero representations in the 2020 Annual Report (which we reported here).  This was the first lawsuit in the world challenging the veracity of a company’s net-zero emissions target, and it raises important questions about the viability of carbon capture and storage and the environmental impacts of hydrogen as an alternative energy source to gas companies.

Following disclosure in the discovery process of the lawsuit, the Environmental Defenders Office (“EDO”), on behalf of ACCR, filed to expand the case to include alleged greenwashing in Santos’ 2020 Investor Day Briefing and 2021 Climate Change Report. The EDO also added allegations regarding blue hydrogen and net zero plan representations, and asserts such representations lacked reasonable basis and sufficient detail to be put into the market.

ACCR’s case is an example of activists commencing litigation to bring pressure to bear on corporates and their climate-related commitments and public disclosures.  As corporates globally have increasingly made public claims regarding their own clean energy and zero emission targets, the progress of this case will continue to be closely followed well beyond Australia’s shores.

**A Chinese version of this blog post follows the English version.**

On 19 August 2022, the National Development and Reform Commission (“NDRC”), the National Bureau of Statistics (“NBS”), and the Ministry of Ecology and Environment (“MEE“) of the People’s Republic of China (“PRC”) jointly issued the “Implementation Plan on the Accelerating the Establishment of a Unified and Standardised Carbon Emission Statistical Accounting System (the “System”)” (the “Plan“).

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On August 24, 2022, Texas’ comptroller of public accounts released the list of financial companies subject to divestment by Texas state governmental entities unless the companies cease boycotting energy companies. This Legal Update provides further detail on this action and other states’ anti-ESG provisions and notes the risks for the investment industry and investors.

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On 17 August 2022, the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, “BAFA”) has issued its first handout to provide guidance to companies currently implementing a risk management system to comply with the German Supply Chain Due Diligence Act (“SCDDA”). The document is aptly titled “Identifying, Weighing, and Prioritizing Risks” – as this is essentially what the risk analysis needs to do. Overall, the handout includes what has already been stated in the SCDDA, summarizes the essential requirements for a risk analysis, and gives a little more background on the requirements and a few practical examples with respect to the implementation.

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In response to known challenges concerning ESG evaluation and data provision, including transparency and fairness of evaluation, and the expanding  role of organizations which provide these services, Japan has compiled a draft Code of Conduct for ESG Evaluation and Data Providers. The draft Code was published in July 2022 and can be read here.

Japan is currently seeking public comments regarding the draft Code. The comment period will end on September 5, 2022. 


Japan’s Financial Services Agency (FSA) decided to make headway with the draft Code, which is the first of its kind in the world to be issued by a national regulator.  It follows discussions by the FSA’s Technical Committee for ESG Evaluation and Data Providers and the FSA’s “Report by the Expert Panel on Sustainable Finance” which recommended the FSA to promote discussions on expected codes of conduct for ESG evaluation and data providers.

The draft Code also responds to a report published in 2021 by the International Organization of Securities Commissions (IOSCO) which called for greater attention on the use of ESG ratings and data products.

Framework & Application

The aim of the draft Code is to ensure that ESG evaluation and data is used reliably throughout the investment chain.   It is intended to encourage “…further improvements in ESG evaluation and data provision services based on their own initiatives and ensuring flexibility in response to future business model changes.” As such, the draft Code of Conduct is principles-based and designed to be a voluntary code that applies on a ‘comply or explain’ basis.  Japanese financial market participants can decide appropriate ways to implement the “Principles” and “Guidelines” with due consideration to the “Concepts” according to their own situation.

Currently, there are no specific statutory regulations or definitions for ESG evaluation and data providers in Japan. However, the draft Code sheds some light on the coverage of these terms. Specialist institutions that do not provide data directly to investors as part of their business are not covered by the draft Code. However, organizations that provide ESG data may be covered by the draft Code if, for example, their service adds information to corporate data.

The draft Code outlines 6 principles with associated guidelines and concepts for application.  The 6 principles are:

  • securing quality: ensure the quality of ESG evaluation and data provided with basic procedures are established;
  • human resources development: secure necessary human resources to ensure the quality of the evaluation and data provision services provided;
  • ensuring independence and managing conflicts of interest: including identifying activities and situations that could undermine the independence or neutrality of the ESG evaluation and data provider’s business;
  • ensuring transparency: publicly clarify the philosophy and methodology for evaluations;
  • confidentiality: establish policies and procedures to protect non-public information; and
  • communication with companies: including responding to important or reasonable issues related to information source raised by companies subject to evaluation.

The draft Code provides an integrated description of the roles expected of the two types of ESG evaluation and data providers, namely the subscriber pay model and the issuer pay model.

Finally, the draft Code annexes excerpts from the Technical Committee’s report on recommendations to institutional investors that use ESG evaluation and data for their investment decisions  and companies that are subject to ESG evaluation and data collection. However, it is unclear how the investor recommendations would be implemented or enforced.

It is noted that there is no specific statutory or regulatory authorities which directly mandate such investor recommendations, which appears to be inconsistent with the FSA’s general approach to regulate asset managers.

Global Context

While Japan is the first country to make headway with a Code of Conduct, measures to improve the quality of ESG data and evaluations, including introducing regulations, are actively being discussed in other regions. For example, as noted in our blog article here, the European Securities and Markets Authority published a letter to the European Commission in June 2022 providing findings from the call for evidence to gather information on the market structure for ESG rating providers in the EU.  Proposals to regulate the quality of ESG ratings or other data products will continue to emerge in response to the increase in ESG products and focus on ESG investment.

On August 11, 2022, the Climate and Resiliency (EX) Task Force (“C&R Task Force”) and the Special (EX) Committee on Race and Insurance (“R&I Committee”) met at the Summer 2022 National Meeting of the National Association of Insurance Commissioners (“NAIC”). While the C&R Task Force and R&I Committee did not announce any major new developments or expose any substantive items for review or comment, they reported on the progress of several important initiatives that they have been overseeing over the past few years.

For further information on the C&R Task Force’s initiatives, read our legal update here.

For further information on the R&I Committee’s initiatives, read our legal update here.

**A Chinese version of this blog post follows the English version.**

China’s State Council-backed think tank, China Enterprise Reform and Development Society (“CERDS“), alongside a number of major Chinese companies including Ping An Insurance Company, issued “The Guidance for Enterprise ESG Disclosure” effective on 1 June 2022 (“Guidance“). The Guidance is China’s first ESG disclosure guideline, and covers all companies and industries.  It follows the environmental disclosure rules issued by China’s Ministry of Ecology and Environment (MEE) which came into effect earlier in February 2022 (which we reported here).

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