China: China Issues First ESG Disclosure Standard

The China Enterprise Reform and Development Society, a government-backed think tank, published the first China-focused disclosure standard, entitled “Guidance for Enterprise ESG Disclosure”. The guidance applies to all Chinese companies from June 1, 2022 and will serve as a reference for self- and third-party evaluation. It is currently voluntary and has not been made into law.

The ESG disclosure standard was developed in collaboration with Chinese insurer Ping An, China Mobile, Ant Group and several other companies. The guidance is intended to reflect local market characteristics, taking into account Chinese laws and regulations such as China’s Environmental Protection Law and Product Quality Law. It is based in part on the sustainability disclosure requirements of the Hong Kong Stock Exchange and the Shanghai Stock Exchange. While jurisdictions such as the UK, New Zealand, Japan and Switzerland base their disclosure measure on the TCFD’s recommendations, China’s guidance focuses on national requirements.

The guidance establishes an indicator system which provides a basic framework for disclosure when measuring the sustainability of a business. Disclosure requirements, indicators and other factors vary depending on the industry and size of companies. Factors considered include pollution, employee labor rights, product liability and business ethics. The disclosure principles require:

• Materiality, meaning that the information disclosed must have a significant impact on stakeholder decision-making. Stakeholders include any persons or groups whose interests may be affected by the decisions or actions of a corporation;
• Truthfulness, requiring objective and fact-based disclosures that reflect a true picture of the enterprise’s activity;
• Accuracy, which refers to the use of concise, clear and easy to understand language when making disclosures, without misleading statements;
• Integrity, requiring all information with significant impact on stakeholder judgment to be disclosed, without omissions; and
• Consistency, to facilitate comparison.

Links:
Guidance for Enterprise ESG Disclosure (Chinese only)


EU: EU Parliament’s Economic and Monetary Affairs Committee Proposes More Stringent Rules for EU Green Bond Standard

The EU Parliament’s Economic and Monetary Affairs Committee has announced proposals to significantly widen the scope of the EU Green Bond Standard (EUGBS), which was greenlit by the EU Council last month. The European Commission initially launched the EUGBS in July 2021, aiming to establish a European Green Bond (EuGB) label and with the goal of reducing greenwashing. The Committee’s proposals—approved with 44 votes in favor (12 against, three abstentions)—seek to implement transparency requirements and allow comparisons between EuGBs and existing green bonds. They would mandate that issuers identify and limit significant adverse affects of their operations and prohibit the issuance of EuGBs in countries on the EU’s grey or blacklist of tax havens, such as Panama.

The EU Taxonomy, part of the EU Action Plan on Sustainable Finance, enables certain economic activities and investments to be categorized and assessed based on their impact in achieving at least one of six defined environmental objectives. These include climate change mitigation and adaptation, which made up the basis of the newly implemented First Delegated Act. The Second Delegated Act specifies the particulars of disclosure requirements and advises on how the criteria can be reflected in key financials, with the Third Delegated Act—covering the inclusion of nuclear energy and natural gas in the taxonomy—yet to be formally adopted. On a related note, there have been important developments as regards the EU’s Sustainable Finance Disclosure Regulation (SFDR) recently, as we have covered here. The Commission has proposed amendments to the Regulatory Technical Standards, finalized by the European Supervisory Authorities (ESA) last month, which included disclosure templates for funds caught by Articles 8 and 9 of the SFDR. The ESAs have also raised questions with the Commission as to the interpretation of the SFDR and EU Taxonomy.

The proposals will obligate all issuers using the EuGB label to have verified climate transition plans in place to avoid the use of the label by so-called “brown” companies, or companies in high-polluting industries. Additionally, there would be stronger supervision powers ensuring that reviewers have fewer conflicts of interests and more power to ban companies from issuing EuGBs if they breach the new rules.

The Committee will begin negotiations with Member States in the coming weeks in order to finalize the scope and precise content of the amendments agreed upon in principle this week.

Links:
European Parliament Press Release


France: TotalEnergies Rejects Shareholder Climate Proposal

TotalEnergies rejected a shareholder proposal that called for the energy giant to align its climate goals with the Paris Climate Agreement. The proposal was introduced in April by a group of 11 investors, including Dutch pension provider MN, representing approximately 0.8 percent of TotalEnergies’ shareholder capital. The groups acknowledged TotalEnergies’ engagement and improvement in its climate-related positions in recent years but stated the view that the company’s current efforts were insufficient.

In response, the company stated that the resolution “encroaches on the public policy competence of the board of directors to define the company’s strategy.” In a statement, TotalEnergies argued that “under cover of extending the transparency of the information to be provided in the management report, the proposed resolution would in fact amount to an obligation to frame the strategy ‘to align its activities with the objectives of the Paris Agreement’ and to (i) set reduction targets in absolute terms…of direct or indirect greenhouse gas emissions…and (ii) the means implemented by the company to achieve these targets.”

While TotalEnergies indicated it won’t support the proposal, the company announced additional efforts at increasing transparency by committing to publish its Sustainability and Climate Report annually, which report will highlight the company’s strategy regarding energy transition and implementation of related measures.

The investors behind the proposal have urged the French financial authority (the AMF) to ensure the climate resolution appears on the agenda of the company’s next shareholder meeting.

Links:
The Board of Directors of TotalEnergies is promoting dialogue with its shareholders by inviting those that proposed a draft resolution to express their views at the Annual Shareholders’ Meeting of 25 May 2022
TotalEnergies shareholders urge regulator to ensure climate resolution included at next AGM