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

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

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

Investors are increasingly focussed on how companies address modern slavery and wider human rights issues when making investment decisions.  Despite this, many UK companies are failing to adequately report on, and take sufficient steps to eradicate, modern slavery within their businesses and supply chains, according to the Financial Reporting Council’s (the “FRC“) recently published Modern Slavery Reporting Practices in the UK Report (the “Report”).

The Report, which analysed the reporting practices of 100 companies listed on the London Stock Exchange’s Main Market, highlighted that the majority of companies are failing to disclose sufficient information to enable stakeholders to make informed decisions about companies’ compliance with modern slavery legislation.  Such shortcomings in the quality of companies’ modern slavery reporting presents a number of compliance, reputational and financial risks to companies.

Continue Reading Business and Human Rights: the Financial Reporting Council identifies failings in UK companies’ modern slavery reporting

“Greenwashing” – that is, environmental claims that are not fully or properly substantiated, or that contain false information, omit critical information, are exaggerated or are presented in an unclear, ambiguous and/or inaccurate manner – continues to be a major focus of scrutiny across all sectors, and the advertising industry is no exception.  The volume of statements and claims regarding the sustainability credentials of businesses’ goods and services, often made in the context of advertising and marketing, is increasing rapidly.

At the same time, the interests of regulators, consumers, and other stakeholders, in combatting misleading, “greenwashed” environmental claims has grown commensurately.  According to analysis conducted by the Independent, over the past 12 months alone, the UK’s Advertising Standards Agency (“ASA“) has found 16 advertising campaigns to have exaggerated the green credentials of, or made unsubstantiated environmental claims about, the advertised brands.

As a consequence of this growing interest, the World Federation of Advertisers (“WFA“) – a global organisation that represents the common interests of advertisers and marketers – has issued landmark guidance on how brands can ensure that any environmental claims featured in their marketing communications are credible for both consumers and regulators (the “Guidance“).  The Guidance, produced with the support of the International Council for Advertising Self-Regulation, the European Advertising Standards Alliance and the UK’s ASA (amongst others), is the first guidance that has been issued at an international level with regard to making environmental claims, and represents a highly significant development in the context of growing efforts to combat greenwashing.

Continue Reading World Federation of Advertisers issues guidance on making credible environmental claims

The move towards consolidated, aligned, sustainability disclosure requirements, long identified as an essential element of sustainability efforts, took a major step forward last week.  On 24 March 2022, the International Financial Reporting Standards Foundation (“IFRS Foundation”) and the Global Reporting Initiative (“GRI”) announced a collaboration agreement, the purpose of which is to seek to align their capital market and multi-stakeholder focussed sustainability disclosure regimes (the “Agreement“).  The Agreement represents the latest development in the IFRS Foundation’s efforts to consolidate the plethora of – sometimes disparate – international sustainability reporting regimes into a consolidated, more cohesive, framework, for the benefit of companies, investors and society at large.

Continue Reading International Sustainability Standards Board and Global Sustainability Standards Board to align their sustainability disclosure standards

Disclosure of information on the ESG-related risks facing financial institutions is widely recognised as a vital tool to promoting market discipline.  It enables stakeholders to assess the risks presented to financial institutions by issues such as climate change, social and governance risks, whilst also allowing stakeholders to review the sustainable finance strategies of financial institutions.  In light of this, governments are increasingly introducing different mandatory ESG-related reporting requirements for financial institutions, such as TCFD-aligned reporting requirements (for further information on TCFD-aligned reporting requirements, please see our previous blog posts here and here).

Adding to the plethora of existing ESG-related reporting requirements, on 24 January 2022, the European Banking Authority (“EBA“) published its final draft implementing technical standards on Pillar 3 disclosures on ESG risks (the “Final Draft ITS“).  The Final Draft ITS sets out mandatory templates, tables and instructions that supplement the EBA’s ‘Pillar 3 package’ prudential reporting requirements (the “Reporting Requirements“), which certain EU-based financial institutions will be required to comply with under the Capital Requirements Regulation (Regulation (EU) No. 575/2013) (the “CRR“).

Continue Reading The European Banking Authority publishes new ESG reporting requirements

Much is heard of the plethora of – often disparate – disclosure regimes and standards around sustainability, and the attendant difficulties for stakeholders, including investors, customers, and the public more generally, of assessing and comparing performance in a meaningful way.  Significant developments in the consolidation of the sustainability disclosure landscape are, however, imminent.

The Climate Disclosure Standards Board (CDSB) – an international consortium of businesses and NGOs that offers companies a framework for reporting environmental information – has announced that it will close down its operations and consolidate with the International Sustainability Standards Board (ISSB) at the end of January 2022.  In addition, the ISSB will complete the consolidation of the Value Reporting Foundation (VRF) – an international NGO that houses the Integrated Reporting Framework and the Sustainability Accounting Standards Board (SASB) Standards – by the end of June 2022. These developments mark significant steps towards the ISSB’s ambition to become the world’s leading sustainability standards board.

Continue Reading International Sustainability Standards Board Commences its Streamlining of the Sustainability Disclosure Landscape

The pressure on States and corporates to take action to address the socio-economic and environmental impacts of climate change is rapidly increasing. This pressure has resulted in a substantial rise in the number of climate change-related disputes. Although many of these disputes have thus far been brought before national courts, arbitration is likely to become an increasingly important method for resolving climate change-related disputes in the near future, since these disputes are often of an international nature and may benefit from the use of a neutral forum. In particular, there is likely to be an increase in climate change-related investment treaty arbitration, given the rising influence of climate change in the investment treaty landscape. This will bring into focus a variety of considerations affecting investments which are subject to the protection of one or more investment treaties.

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During the COP26 summit, a coalition of 190 countries and organisations committed to phase out coal energy by 2040 as part of their commitment to transition to a low-carbon economy.  The coalition also stated, in their ‘Global Coal To Clean Power Transition Statement’, that they would provide a framework to support affected workers, sectors and communities to make a “just transition” away from unabated coal power.  The coalition’s concern is that the transition to a low-carbon economy may leave many coal-dependent economies at risk of economic hardship and social unrest.

The ‘Just Transition Assessment‘ (the Assessment) recently published by the World Benchmarking Alliance (WBA) provides important insight into the metrics that NGOs may lobby for in order to achieve what they view as a “just transition” (for information on some of the WBA’s other initiatives, please see our Corporate Human Rights Benchmark publication).  In carrying out the Assessment, the WBA states that it has measured the actions that some of the world’s most influential companies have taken to support workers and communities whilst they transform to low-carbon business models.

The Assessment contends that there is a “systematic lack of action by  companies to identify, prepare for and mitigate the social impacts of their low-carbon strategies”.  The Assessment goes on to state that these purported inadequacies need to be addressed, as transition risks being adversely affected by social unrest among those whose livelihoods are threatened.

Continue Reading Just Transition: The World Benchmarking Alliance Publishes Its ‘Just Transition Assessment’