EU: Commission Proposes Common Criteria against Greenwashing and Misleading Environmental Claims

On March 22, 2023, the European Commission proposed the Green Claims Directive, which sets out common criteria against greenwashing and misleading environmental claims. The proposal aims to provide consumers with more clarity and reassurance concerning products labeled “green” to enable them to choose environmentally friendly products and services. The framework also benefits businesses by allowing them to be recognized and rewarded by consumers for their efforts to be more environmentally conscious. In this manner, the Directive aims to create common rules regarding the definition and enforcement of green claims to ensure a level playing field in the EU market.

A 2020 study found that 53.3% of examined environmental claims in the EU were vague, misleading or unfounded and that 40% of these claims were unsubstantiated. The Directive’s criteria are meant to stop companies from using vague or unfounded green claims in an effort to falsely market themselves and their products or services as environmentally conscious.

Under the proposed rules, any explicit green claims about products or services will be subject to minimum norms on how they are substantiated and communicated to customers. For instance, before any green claims can be publicly made, they must be verified by an independent accredited third party and backed by sufficient scientific evidence. The criteria will apply to both new public and private environmental labels as well as all voluntary claims about environmental impacts or performance. Claims covered by other current and future EU rules are excluded.

The Green Claims Directive follows the March 2022 proposal on “empowering consumers for the green transition,” furthering the Commission’s commitment to the European Green Deal. The proposal will now be subject to approval by the European Parliament and the Council.

Links:
Press Release
Commissioner Virginijus Sinkevičius's Speech

Mexico: Finance Industry Publishes First Sustainable Finance Taxonomy

On March 17, 2023, the Mexican Minister of Finance and Public Credit published a sustainable finance taxonomy (“Taxonomy”). The Taxonomy promotes capital mobilization towards activities with positive environmental and social impacts and aims to promote transparency in the Mexican financial sector.

Similar to the EU’s taxonomy, the Mexican Taxonomy will focus on climate change mitigation and adaptation, biodiversity protection, water management, circular economy and pollution prevention. The Taxonomy will also focus on social initiatives, including gender equality and equal access to healthcare, education and financial inclusion. However, the Mexican Taxonomy breaks with the EU’s in its lack of classification of nuclear energy and natural gas as “green activities.”

The Taxonomy was developed by a working group launched by the Mexican Sustainable Finance Committee in 2020, made up of private-sector representatives, subject-matter experts and international organizations. International organizations involved in the planning process included the Global Green Growth Institute and Planisphera. The Taxonomy also received financing from UK climate finance fund, UK PACT.

Prior to the launch of the Taxonomy, there were two consultation processes held at the end of 2022, with trade associations, financial authorities, and participants in the Mexican financial sector. The Taxonomy will initially be implemented on a voluntary basis.

Link:
Taxonomy

UK: Government Confirms Nuclear Will Be Classed as “Environmentally Sustainable” in the UK Green Taxonomy

On March 15, 2023, the UK government launched an initiative to bring nuclear power to the forefront of the nation’s energy composition. Chancellor Jeremy Hunt hopes that nuclear energy will provide a quarter of the UK’s electricity by 2050.

As part of his Spring Budget, the Chancellor announced the establishment of Great British Nuclear, an agency and delivery body which will support increase in the UK’s nuclear capacity, primarily by attracting private investment. Hunt indicated that such developments would reduce reliance on imports of other energy sources, mimicking the approach of the EU with respect to Russian gas.

Notably, nuclear energy has been reclassified as “environmentally sustainable,” which the government hopes will help the UK meet its net-zero obligations. The inclusion of nuclear and gas in the EU Green Taxonomy last year was condemned by some countries, as well as groups such as Greenpeace, before the European Parliament ultimately classed nuclear energy and gas power as sustainable investments.

The UK’s existing nuclear power stations date back to the 1950s, with only one station currently expected to still be in operation after 2028.

Link:
Spring Budget

Canada: Legislation Addressing Human Rights in Supply Chains Expected to Pass

Proposed in 2021, Bill S-122 is expected to pass a final vote in Canada’s House of Commons in the coming weeks. The bill, which is part of a global movement towards Human Rights Due Diligence (“HRDD”), will require Canadian companies and issuers, as well as entities with certain connections to Canada, to conduct thorough assessments of human rights exposure in their operations and supply chains. Similar HRDD legislation has also been enacted recently in the EU in the form of the Corporate Sustainability Due Diligence Directive as well as in German and French domestic law.

Bill S-122, titled the “Fighting Against Forced Labour and Child Labour in Supply Chains Act,” has broad scope and will extend ESG human rights reporting requirements to all companies listed on a Canadian stock exchange as well as to companies that do business or hold assets in Canada above certain thresholds and either produce, sell or distribute products in Canada or import products into Canada.

Significantly, the requirements will also extend to certain entities not directly engaged in any of the above if they directly or indirectly control any such entity with the requisite nexus to Canada. Reporting will involve both public disclosures and specific disclosures to be provided to shareholders. Enforcement mechanisms will include financial penalties.

Link:
Bill S-122

Global: IPCC Releases Sixth Climate Report

On March 20, 2023, the Intergovernmental Panel on Climate Change (“IPCC”), the United Nations body tasked with “assessing the science related to climate change,” released its Sixth Assessment Report (AR6). The report, which has been referred to as a “survival guide for humanity,” was finalized during the IPCC’s 58th Session. The 85-page report covers updates to climate change across multiple categories, looking into the current trends as well as short- and long-term risks and solutions. Key takeaways include:

1. Current Status and Trends:
• Noting that “human activities … have unequivocally caused global warming,” the report explains with “high confidence” that this has caused “widespread adverse impacts on food and water security, human health and on economics and society and related losses and damages to nature and people.” The report also observes that vulnerable communities that have contributed the least to climate change are negatively affected disproportionately.
• Commenting on responses taken to date, the report notes with high confidence that international and domestic efforts have contributed positively to efforts combatting climate change, but also notes with high confidence that “global tracked finance for mitigation and adaptation has seen an upward trend since AR5, but falls short of needs.”
2. Long-Term Climate and Development Futures:
• The report notes with high confidence that “many climate-related risks are assessed to be higher than in previous assessments, and projected long-term impacts are up to multiple times higher than currently observed” and that “multiple climatic and non-climatic risks will interact, resulting in compounding and cascading risks across sectors and regions. Sea level rise, as well as other irreversible changes, will continue for thousands of years, at rates depending on future emissions.”
• Regarding efforts to mitigate these effects, however, there is high confidence that “integrated, cross-cutting multi-sectoral solutions increase the effectiveness of adaptation. Maladaptation can create lock-ins of vulnerability, exposure and risks but can be avoided by long-term planning and the implementation of adaptation actions that are flexible, multi-sectoral and inclusive.” It also notes with high confidence that “achieving and sustaining global net negative CO2 emissions would reduce warming.”
• This section also offers a warning sign to all, noting with very high confidence that “there is a rapidly closing window of opportunity to secure a liveable and sustainable future for all.”
3. Short-Term Responses:
• Addressing what can be done in the short term, the IPCC states that “deep, rapid and sustained mitigation and accelerated implementation of adaptation reduces the risk of climate change for humans and ecosystems.” It notes with high confidence that “accelerated implementation of adaptation, particularly in this decade, is important to close adaptation gaps.”
• Commenting on near-term risks, the report notes with high confidence that “many changes in the climate system, including extreme events, will become larger in the near term with increasing global warming.”
• Looking at potential solutions, the IPCC notes with high confidence that “actions that prioritise equity, climate justice, social justice and inclusion lead to more sustainable outcomes, co-benefits, reduce trade-offs, support transformative change and advance climate resilient development. Adaptation responses are immediately needed to reduce rising climate risks, especially for the most vulnerable. Equity, inclusion and just transitions are key to progress on adaptation and deeper societal ambitions for accelerated mitigation.” It notes further that “effective climate action requires political commitment, well-aligned multi-level governance and institutional frameworks, laws, policies and strategies. It needs clear goals, adequate finance and financing tools, coordination across multiple policy domains, and inclusive governance processes.”

Links:
IPCC – AR6 Synthesis Report
UN Sustainable Development Group – Press Release