On 25 January 2023, the new CEO of the UK Competition and Markets Authority (“CMA”), Sarah Cardell, set out one way in which the CMA will seek to ensure that the UK’s transition to a net zero economy will not be held up by competition law concerns. Significantly, Sarah Cardell again emphasised that environmental sustainability is a strategic priority for the CMA. This is an invitation for businesses to start pushing harder on the CMA’s open door, for which Mayer Brown’s ESG team is on hand to help.

Continue Reading Climate change: the CMA’s open door

On 26 January 2023, the UK’s Competition and Markets Authority (the “CMA“) announced that it intends to investigate the accuracy of environmental claims made by businesses in the fast-moving consumer goods (“FMCG”) sector. The CMA has stated that it will examine claims made both online and in-store about household products – such as food and drink, cleaning, homecare and self-care products – to determine whether they comply with UK consumer protection law.

The investigation of goods in the FMCG sector will expand the scope of the CMA’s ongoing anti-greenwashing work, which has the ultimate aim of ensuring products and services that claim to be ‘green’ or ‘eco-friendly’ are being marketed to consumers accurately.

Continue Reading Greenwashing: UK competition watchdog to investigate the FMCG sector

On 31 January 2023, the UK Government published its Environmental Improvement Plan 2023 (the “EIP”), detailing how it plans to restore nature and improve environmental quality in the UK. In particular, the EIP proposes new commitments to upgrade wastewater treatment works, restore wildlife and promote nature-friendly farming practices. These new commitments underpin the ambitious international targets agreed at the UN Biodiversity Conference COP15 in December 2022, which the UK Government helped deliver (for further information about COP15, read our earlier blog post here).

The UK Prime Minister, Rishi Sunak, has said that the EIP “provides the blueprint for how we deliver our commitment to leave our environment in a better state than we found it, making sure we drive forward progress with renewed ambition and achieve our target of not just halting, but reversing the decline of nature“.

Continue Reading UK Government publishes refreshed plans to improve environmental quality and reverse nature decline

On January 15, 2023, South Korea’s Financial Supervisory Service (“FSS”) issued new guidelines (the “Guidelines”) (Korean language only) to enhance transparency on the methods and procedures used by credit rating agencies to perform ESG bond certification evaluations. In announcing the Guidelines, the FSS noted that, prior to their introduction, there were no specific rules or regulations in South Korea covering the ESG certification process. The FSS also indicated that currently it is difficult to compare ESG ratings performed by different agencies due to the lack of consistent standards and that the Guidelines are intended to improve the comparability and utility of related evaluation reports.

We set out below some of the highlights of the Guidelines:

  • The Guidelines reflect the International Organization of Securities Commission’s recommendations for regulating ESG ratings and data product providers including those relating todocumenting the rating procedure and strengthening the independence of evaluators.
  • The FSS has also supplemented the Guidelines with local features including the disclosure of minimum investment ratios required for ESG bond recognition and the introduction of a validity period of the certification.
  • Credit rating agencies will be subject to certain requirements including verifying the use offunds when undertaking ESG bond certification evaluations. The FSS expects that this aspect of the Guidelines will help prevent greenwashing. 

The Guidelines will be implemented as Korea Financial Investment Association best practice and will become effective from February 1, 2023.

On 24 January 2023, each of the European Parliament’s trade committee and economic affairs committee reached agreed positions on the financial aspects of the draft Corporate Sustainability Due Diligence Directive (the “Draft Directive”). The agreed positions mark a departure from the European Commission’s and the Council of the European Union’s previous positions on the Draft Directive (which you can read about here and here), since the committees have agreed that:

  1. the scope of the Draft Directive should be widened to include the financial services sector and smaller companies; and
  2. the financial services sector should not be designated as “high risk”, meaning those within the sector would no longer be mandated to report on their sustainability engagement policies.

The European Parliament’s legal affairs committee will consider the trade committee’s and economic affairs committee’s agreed positions when reviewing the Draft Directive. Once the legal affairs committee has reviewed and opined on the Draft Directive, the EU Parliament will vote and determine its initial negotiation position on the Draft Directive (in accordance with usual EU legislative process).

FTSE Russell – a leading provider of benchmarks that are used extensively by investors across the globe – has removed 34 companies from the FTSE4 Good All-World benchmark (the “FTSE4Good Index”). The companies were removed for failing to meet climate performance standards imposed by the newly introduced ‘Climate Change Score’ system, which is based on parameters created by the Transition Pathway Initiative (“TPI”), an initiative backed by 132 investors with over US$50 trillion in assets under management.

Continue Reading Climate performance – FTSE4Good Index looks to hold companies to higher environmental standards

On January 17, 2023, the Board of Governors of the Federal Reserve System (“Federal Reserve”) launched its pilot climate scenario analysis exercise (“CSA”) by publishing instructions for the six US banking organizations that will participate.

As part of the CSA, participating organizations will submit data templates, supporting documentation, and responses to qualitative questions to the Federal Reserve by July 31, 2023. The Federal Reserve is continuing to collect information on climate risk management practices, and banks should consider reviewing the CSA instructions to better understand the Federal Reserve’s expectations.

In this Legal Update, we provide background on the Federal Reserve’s climate risk management initiative and highlight key items in the CSA instructions.

Continue reading at Mayerbrown.com.

By far the largest focus in recent years in terms of ‘responsible investment’ has been on the ‘Environment’ limb of ESG. The UN Principles of Responsible Investment (“PRI“) – an international organisation working to encourage the integration of ESG factors into investment decision making – is now seeking to change this with the launch of its ‘Advance‘ initiative, which is a “collaborative stewardship initiative where institutional investors work together to take action on human rights and social issues”. This forms part of a renewed effort to reinvigorate the ‘Social’ and ‘Governance’ limbs to ESG and bring social initiatives to the forefront of ‘responsible investing’.

Continue Reading Business and human rights: investors commit to action on human rights and social issues via the world’s largest human rights stewardship initiative

In January 2023, the Board of Governors of the Federal Reserve System released a report that reviews the climate action plans of global systemically important banks (“G-SIBs”) and summarizes the progress they are making toward achieving them (“Climate Action Report”).[1] As discussed below, the Climate Action Report can be an useful tool for banks that are developing sustainable financing products and climate risk management processes because it identifies key peer behaviors and widely used resources.

Continue Reading Climate Action and Banks: Review of Climate Action Plans Released by US Federal Reserve

Regulators are increasingly mandating companies to make environmental disclosures (see here, here and here).

The CDP – a not-for-profit organisation aiming to encourage the disclosure of environmental risk – has measured and scored the effectiveness of companies’ 2022 environmental disclosures in their latest ‘A List’ Report (the “CDP Report”). The CDP Report shows that a mere 12 of the 18,700 companies that responded to the CDP’s questionnaires scored a ‘triple A’ for their environmental disclosures, whilst over 29,500 companies scored an ‘F’ after failing to provide any data to the CDP.

According to the CDP, over 680 investors with combined assets of US $130 trillion, and over 280 large purchasers with US $6.4 trillion in buying power requested over 48,000 companies to disclose environmental information through the CDP in 2022. 

Continue Reading Mandatory Disclosure: companies’ environmental disclosures analysed in the CDP’s 2022 ‘A List’ Report