Other Notable Developments

Climate Accounting: The International Accounting Standards Board published a consultation document setting forth eight illustrative examples of how companies can apply International Financial Reporting Standards Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements.

Shareholder Proposals: Research from the Sustainable Investment Institute found that, although anti-ESG proposals surged in 2024, these earned on average only 1.9% support, less than half the support earned three years ago.

UK: New FCA Sustainable Fund Labels Roll-Out Begins

On July 31, 2024, firms subject to the Financial Conduct Authority’s (“FCA”) labeling scheme were allowed to begin using the fund labels. The labeling scheme, which is intended to tackle greenwashing, allows firms to use four specific labels for their sustainable funds:

• “Sustainability Improvers” – funds that invest in assets that may not currently be sustainable but aim to improve their sustainability profile over time;

• “Sustainability Impact” – funds that invest in assets with clearly “pre-defined, positive, measurable impact in relation to an environmental and/or social impact”;

• “Sustainability Focus” – funds that invest in other sustainable assets; and

• “Sustainability Mixed Goals” – funds that invest in a blend of assets from the other three categories.

To comply with the FCA labeling rules, asset managers need to demonstrate that at least 70% of the fund’s assets support the label of choice.

Firms must notify the FCA when using an investment label and have until December 2, 2024 to ensure the labeling of their funds complies with the new scheme.

Links:
FCA Sustainability Disclosure and Labelling Regime
Debevoise In Depth – December 2023

U.S.: Republican Congressional Leaders Request ESG Information from over 130 Investors

On July 30, 2024, House Judiciary Committee Chairman Jim Jordan and Subcommittee on the Administrative State, Regulatory Reform, and Antitrust Chairman Thomas Massie (Republican Representatives from Ohio and Kentucky, respectively) penned letters to over 130 U.S.-based companies, retirement plans, and government pension programs requesting information about their ESG goals. Each recipient is a member of the Climate Action 100+ initiative. The letters highlighted the recent call by Climate Action 100+ for investors to take action toward “reduc[ing] greenhouse gas emissions across the value chain.”

The letters request information from each recipient about its plan to engage Climate Action 100+ focus companies in its portfolio with respect to Climate Action 100+ signatories’ request to stakeholders to “address the sectoral barriers to the net zero transition.” In addition, each letter requests that the recipient preserve certain written materials relating to its role as a signatory of Climate Action 100+ and, more broadly, its “efforts to advance ESG-related goals.”

According to a press release issued by Rep. Jordan’s office, recipients of the letters “must answer for their involvement in prioritizing woke investments over their own fiduciary duties.” The correspondences are viewed as part of the larger U.S. Republican movement against ESG investing initiatives.

Links:
Letters
Press Release

EU: Climate Resilience Dialogue Publishes Its Final Report

On July 30, 2024, the EU Climate Resilience Dialogue (“CRD”) published its Final Report with recommendations to “narrow the climate protection gap and increase the resilience of the economies and societies to the effects of climate change.”

The CRD is a group of stakeholders—including insurers, reinsurers, and public authorities—convened by the European Commission with the goal of closing the gap between how much is lost due to climate change and how much is insured, as well as proposing methods to stimulate investment in climate adaptation (i.e., solutions, adjustments, and actions to mitigate damages caused by climate change). It was created against the backdrop of a widespread climate insurance problem.

The CRD’s Interim Report, released on July 27, 2023, noted that “[t]he financial cost of climate change is already high and on the rise, yet only around 30% of climate change-related losses are currently covered by insurance.” The Interim Report emphasized the CRD’s intention to map the climate protection gap, identify the gap’s main drivers and impact, and find effective and efficient solutions leading to more comprehensive insurance protections.

The Final Report identifies low risk-awareness as one of the most significant contributing factors to the climate protection gap. The Report recommends a holistic approach to stemming economic losses, including climate adaptation measures, public and private investment, and political measures such as direct subsidies or fiscal incentives to preserve insurability and promote climate adaptation.

Links:
Interim Report
Final Report
CRD Overview

Global: SBTi Reviews Effectiveness of Carbon Credits in Corporate Targets

On July 30, 2024, the Science Based Targets initiative (“SBTi”) published four technical publications as an early step in the process of reviewing the SBTi Corporate Net-Zero Standard. The publications, informed by feedback from over 5,000 companies, are focused on reviewing the approach to scope 3 emissions, which make up, on average, 75% of a company’s emissions.

The Scope 3 Discussion Paper outlines the SBTi’s initial considerations for refining scope 3 emissions targets, including by encouraging companies to focus on reducing critical emission sources instead of relying on carbon credits from activities outside the value chain. The paper details various scenarios where carbon credits may support evidence of corporate decarbonization or offset residual emissions, emphasizing that credits should not replace direct value chain decarbonization.

The SBTi also published evidence on the effectiveness of Environmental Attribute Certificates (“EAC”), with a corresponding report analyzing the submitted data (the first of three reports on EAC instruments). It also evaluated the effectiveness of carbon credits in corporate climate targets as a substitute for direct emissions reductions in its independent systematic review.

A draft Corporate Net-Zero Standard is expected to be released by the end of 2024 for public consultation.

Link:
Press Release

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