On March 1, 2021, the European Banking Authority (EBA) published advice to the European Commission on the disclosure requirement on environmentally sustainable activities in accordance with Article 8 of the EU’s Taxonomy Regulation. The EBA recommends key performance indicators (KPIs) and related methodology for the disclosure by credit institutions and investment firms of information on how, and to what extent, their economic activities are environmentally sustainable in accordance with the Taxonomy Regulation.

In particular, the EBA recommends a “green asset ratio” as a KPI, and that credit institutions disclose their green asset ratio to show the extent to which the financing activities in their banking book (including loans and advances, debt securities and equity instruments) are aligned with the Taxonomy Regulation, Paris Agreement the UN SDGs.

Continue reading on MayerBrown.com for more detail on the EBA’s advice and the recommended green asset ratio.

The UK Supreme Court has handed down its judgment in the case of Okpabi and others v Royal Dutch Shell Plc and another.  Although the judgment made no substantive findings on the facts of the dispute, the Supreme Court’s decision raised important issues with regard to the circumstances in which a parent company will be held liable for the actions of its subsidiary – including in relation to ESG-related harms, such as environmental damage.

Continue Reading UK Supreme Court Clarifies Parent Company Liability for ESG-Related Harms Caused by Foreign Subsidiaries

On February 24, 2021, Acting Chair of the US Securities and Exchange Commission (SEC), Allison Herren Lee, announced that the agency will focus on public companies’ climate change disclosures as part of an effort to both assess current compliance with federal securities laws and develop new disclosure requirements for climate change.

Specifically, she stated that she has directed the SEC’s Division of Corporation Finance “to enhance its focus on climate-related disclosure in public company filings.” Further, SEC staff will increase its attention on how public companies follow the SEC’s 2010 published interpretive guidance on climate change disclosures (the “2010 Climate Change Release”) and whether companies’ disclosures comply with the federal securities laws. Signaling that the SEC is preparing a broad reform of its disclosure rules, Acting Chair Lee also stated that the staff will use the results of these assessments to begin to update the 2010 Climate Change Release and prepare “a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.”

Acting Chair Lee’s announcement follows her recent hiring of a new Acting Director of the Division of Corporation Finance and a Senior Policy Advisor for Climate and ESG. We discuss the SEC’s appointment of a dedicated ESG policy advisor, along with ESG experts elsewhere in the US government, in an earlier Blog Post.

Continue reading on MayerBrown.com for practical considerations and more on this new initiative from the SEC.

How will EU Member States enforce the new EU mandatory human rights and environmental due diligence laws? What disclosure will be expected of companies and what steps will be deemed adequate?

Shift, the highly influential centre of expertise on the UN Guiding Principles on Business and Human Rights, has released a discussion draft seeking to inform the development and enforcement of these new laws. The draft provides valuable insight into the criteria that national regulators could use in assessing the quality of a company’s diligence practices by proposing six “signals of seriousness” for human rights due diligence:

  1. Governance of Human Rights;
  2. Meaningful engagement with affected stakeholders;
  3. Risk identification and prioritisation;
  4. Taking action on identified risks;
  5. Monitoring and evaluating progress in addressing risks; and
  6. Providing and enabling remedy.

How many companies can confidently assert that they currently exhibit these six signals? We highlight Shift’s helpful criteria in this Blog Post.

Continue Reading Human Rights Due Diligence: Six Signals of Seriousness

The UK’s Pension Schemes Act 2021 recently received Royal Assent on February 11, 2021. The Act addresses a range of initiatives intended to strengthen protections for pension scheme members, including a framework for new climate risk-related governance and reporting requirements for trustees of larger pension schemes.

The government is currently consulting on the details of these new climate risk requirements. Among other things, the proposals refer to the TCFD and would require trustees to integrate climate factors into investment processes, conduct scenario analysis and make related disclosures. Trustees would also be required to have adequate climate-related knowledge.

Continue reading on MayerBrown.com for more summary and analysis of the proposals in the consultation.

In a keynote speech at the recent Climate Risk and Green Finance Regulatory Forum 2021, Ashley Alder, the Chair of the International Organization of Securities Commissions (IOSCO) and Chief Executive Officer of Hong Kong’s Securities and Futures Commission (SFC), addressed the “urgent need to retool the financial system to address the threat of climate change.” According to Mr. Alder:

“we are now in a crucial few months which will set the direction for years to come.”

Mr. Alder proceeded to highlight key climate-related issues that IOSCO is now addressing at a global level, effectively outlining the future of climate risk regulation by securities regulators. In this Blog Post, we discuss some of the key statements from Mr. Alder’s speech that foreshadow regulatory initiatives to come, as well as practical takeaways for market participants.

Continue Reading IOSCO Chair Outlines the Future of Climate Risk Regulation

Companies are increasingly exploring how they can introduce third party expert input in order to promote constructive exchange on ESG issues, including human rights.

Third party experts can help companies better understand different perspectives, address conflicting goals and better integrate human rights into their policies, corporate strategy, risk management and reporting. As investors continue to require better human rights integration by their portfolio companies, expert input is becoming even more valuable.

In addition to their investors and internal stakeholders, companies are engaging with other external stakeholders such as human rights experts, NGOs, academia and civil society. Some companies go a step further to better equip themselves to address emerging human rights risks and set up Human Rights, Ethics Advisory Councils or Committees made up of such external stakeholders. In a previous Blog Post, we discuss steps Boards can take to address such risks, including by understanding the perspective of critical stakeholders.

Third party expert input on human rights: a trend to watch?

On February 17, 2021, a working group of 11 U.S. financial services trade associations released their principles for “Financing a U.S. Transition to a Sustainable Low-Carbon Economy” (Principles).

The working group notes that climate change presents both risks and opportunities for the financial services industry and that, as a result, the industry must build reliable, consistent data sets, metrics, methodologies and standards to ensure that climate-related risks are appropriately understood, managed and disclosed.

We highlight the Principles, the members of the working group and key aspects of the related working group release in this Blog Post.

Continue Reading 11 Financial Services Trade Groups Release Principles for Financing US Transition to Sustainable Low-Carbon Economy

The NYU Stern Center for Sustainable Business published a report in January 2021 finding that US corporate Boards suffer from inadequate expertise in financially material ESG matters such as human rights.

In a survey of 1,188 Fortune 100 Board directors, only 18 (or 1.5%) had any experience or credentials relating to human rights. Findings amongst Board directors outside the US are unlikely to be very different. The Stern report found limited expertise across the full range of ESG risks (beyond human rights to climate change, water scarcity, pollution, #metoo, #blacklivesmatter, employee diversity, cybersecurity and bribery and corruption) and questioned whether “today’s Boards [are] fit for today’s challenges and opportunities“.

In this Blog Post, we discuss what Boards should do to address this capacity deficit.

Continue Reading Business and Human Rights – Are Boards Equipped to Address Emerging Risks?

On December 7, 2020, the Brazilian Securities and Exchange Commission (CVM) launched a consultation on proposed amendments to Normative Ruling 480/2009 aimed at, inter alia, increasing transparency by improving the quality of information disclosed by publicly-held companies on ESG aspects.

Following the global trend of enhancing and simplifying disclosures—similar to what the US Securities Exchange Commission (SEC) has recently done with Regulation S-K—CVM’s main goal is to reduce compliance costs while also responding to investors’ increasing demand for better ESG data. In this Blog Post, we highlight the main ESG-related amendments proposed by CVM in this new consultation paper.

Continue Reading Brazilian Securities and Exchange Commission Set to Strengthen ESG Reporting Requirements