EU: SFDR Technical Standards Adopted for Products Promoting Sustainable Investments, Environmental or Social Criteria and Firms Considering Principal Adverse Impacts

On July 25, 2022, the EU adopted the long awaited set of regulatory technical standards (RTS) in a Delegated Regulation supplementing the Sustainable Finance Disclosure Regulation (SFDR). It includes disclosure templates for pre-contractual and ongoing disclosures applicable to financial products that promote sustainable investments or otherwise promote environmental or social characteristics (also known as Article 8 and Article 9 Financial Products) and to firms that consider principal adverse impacts. The RTS will apply from January 1, 2023.

The European Supervisory Authorities developed the RTS in order to refine the content, methodologies and presentation of information required by the SFDR regarding products and firms with special sustainability ambition and therefore to improve the quality and comparability of information provided in disclosures. The RTS is also designed to provide financial market participants with a degree of certainty when preparing future disclosures.

Links:
Commission Delegated Regulation 2022/1288

International: Equator Principles Association Issues Guidance for Financial Institutions

The Equator Principles provide a risk- management framework developed by the Equator Principles Association (EPA), an unincorporated group of supporting financial institutions, to provide a minimum standard for identifying, assessing and managing environmental and social risks when financing a project. The principles are designed to apply to large infrastructure and industrial projects, and take into consideration the United Nations Guiding Principles on Business and Human Rights, the goals of the Paris Agreement and biodiversity objectives. So far, the Equator Principles have been adopted by 134 financial institutions (such as Citigroup, Credit Suisse and Société Générale) in 38 countries, including the UK, U.S., Brazil, China and India.

This month, the EPA published a Guidance Note to Support Effective Consistent Application of the Equator Principles focusing on two issues:

• Environmental and Social Due Diligence undertaken by consultants. The note details best practice for the selection process for consultants and their scope of work, including pre-financial close due diligence, ongoing monitoring, and specific due-diligence procedures depending on the country where the project takes place.
• Environmental and Social Impact Assessments (ESIAs) carried out by borrowers. The note elaborates on the scope of work for financial institutions as part of the ESIA process, before the borrower has carried out an ESIA or when a financial institution reviews the ESIA provided by the borrower. It includes advice on procurement of capable ESIA service providers, selection of the specialist team (e.g., to include biodiversity specialists, climate change risk consultants or human rights risk assessors) and stakeholder identification and engagement (including local communities and their legitimate representatives).

The guidance contains checklists, program outlines, document review lists and templates.

Links:
EPA Guidance Note

International: UN General Assembly Adopts Resolution on Environment-Related Rights

On July 28, 2022, the United Nations General Assembly adopted Resolution A/76/L.75 recognizing that access to a clean, healthy and sustainable environment is a universal human right.

The Resolution “recognizes that the impact of climate change, the unsustainable management and use of natural resources, the pollution of air, land and water, the unsound management of chemicals and waste, and the resulting loss in biodiversity interfere with the enjoyment of this right [to a clean, healthy and sustainable environment] – and that environmental damage has negative implications, both direct and indirect, for the effective enjoyment of all human rights.” The Resolution “calls upon States, international organizations and business enterprises to scale up efforts to ensure a healthy environment for all.”

Referring to the resolution as a “historic” decision, UN Secretary-General António Guterres stated that “[t]he resolution will help reduce environmental injustices, close protection gaps and empower people, especially those that are in vulnerable situations, including environmental human rights defenders, children, youth, women and indigenous peoples” and that “[t]he international community has given universal recognition to this right and brought us closer to making it a reality for all.”

Prior to the vote, the UN Special Rapporteur on Human Rights and the Environment, David Boyd, stated that “[t]here will likely be a vote on recognition of the Right to a Clean, Healthy and Sustainable Environment. This right was not included in the Universal Declaration of Human Rights back in 1948. So, this is really a historic resolution that will change the very nature of international human rights law.”

Originally proposed last June by Costa Rica, the Maldives, Morocco, Slovenia and Switzerland, the Resolution is based on the UN Human Rights Council’s resolution from October 8, 2021, “recognising access to a healthy and sustainable environment as a universal right.”

Links:
UNGA Resolution A/76/L.75
UN News - UN General Assembly declares access to clean and healthy environment a universal human right
UN News - Why the UN General Assembly must back the right to a healthy environment
UN News - The right to a healthy environment: 6 things you need to know

U.S.: BlackRock’s Support of ESG Proposals Drops

In its recently released 2022 Voting Spotlight report, Blackrock indicated that its support for ESG proposals during the 2022 proxy season declined from 47% of environmental and social (E&S) proposals to 22%.

BlackRock’s voting pattern mirrors the market sentiment. While E&S proposals increased by 133% during the 2022 proxy season, they were met with declining overall market support, down from 36% in 2021 to 27%. BlackRock explained that it was supporting fewer E&S proposals in response to a decline in the quality of proposals combined with companies’ progress on climate-related strategy and disclosure. BlackRock previously commented in the proxy season that many of the climate proposals were “unduly prescriptive.” Some of the proposals considered most prescriptive were those calling for decommissioning fossil fuels, eliminating finance and insurance for underwriting fossil fuel projects and ending fossil fuel exploration and development. However, the asset manager said it continues to generally support E&S proposals while ensuring the best economic outcomes for its clients through an orderly energy transition.

Despite its decline in support for E&S shareholder proposals, Blackrock said it was “encouraged by the progress many companies in key sectors have made in their energy transition planning and actions, as detailed in their enhanced disclosures,” and by the progress companies have made in “engaging on policies addressing climate risk and the energy transition, through their own corporate political activities and those of the trade associations of which they are active members.”

On social issues, the asset manager threw its support behind proposals promoting diversity, equality and inclusion where it saw insufficient disclosures.

BlackRock will disclose its votes on every board election, proposal and other issues during the 2021-2022 proxy year later this month.

Links:
BlackRock – 2022 Voting Spotlight
BlackRock Casts Fewer Votes Against Companies on Climate, Environment & Social Issues
BlackRock supporting fewer environmental and social shareholder proposals