EU: Round Up of Recent Sustainability Developments
On December 13, 2024, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published Q&As regarding its Guidelines on funds’ names using ESG or sustainability-related terms. The Guidelines, in effect for new funds since November 21, 2024, contain new minimum requirements for in-scope funds. These include requiring a fund that uses the word “sustainable” in its name to invest “meaningfully” in sustainable investments, within the meaning of the Sustainable Finance Disclosure Regulation (“SFDR”). The Q&As clarified, among other issues, that to invest “meaningfully” in sustainable investments generally means that at least 50% of a fund’s investments are sustainable investments, but competent authorities could set a higher threshold. For more details, see our Debevoise Debrief ESMA Publishes Q&As on Its Fund Naming Guidelines.
On December 17, 2024, the EU Platform on Sustainable Finance (the “Platform”), an advisory body to the European Commission, published a proposal for a categorization scheme for products under the SFDR. The Platform proposes three categories of products: Sustainable, Transition and ESG Collection, each with minimum criteria, including that a predefined proportion of investments fulfill the core sustainability objective of the product. Products falling outside these categories would be identified as unclassified products and may be prohibited from including descriptions of ESG characteristics in their marketing materials. The Platform’s proposal will likely influence the European Commission’s own expected proposal for wholesale review of the current SFDR regime, which is expected in the first half of 2025. For more details, see our Debevoise In Depth Report on SFDR Categorisations.
On December 19, 2024, the Platform published another proposal to introduce the “Investing for Transition Benchmarks” (“ITBs”) in the EU Taxonomy. The ITBs are two voluntary benchmarks that investors can adopt to help channel funding towards entities investing in transition efforts. The ITBs incorporate, alongside financial investment objectives, specific objectives regarding the “greening of CapEx,” greenhouse gas emissions reductions and transition to a low-carbon economy. The ITBs envisage a minimum 7% average annual reduction in CO2 intensity until 2050 against a 2023 baseline.
Finally, on December 19, 2024, the European Financial Reporting Advisory Group (“EFRAG”), the European Commission’s technical advisor, published five additional explanations regarding the European Sustainability Reporting Standards, addressing technical issues relating to reporting information on climate change mitigation and adaptation targets and biodiversity and ecosystems.
Links:
ESMA Fund Names Q&A
SFDR Proposal
ITBs Proposal
EFRAG ESRS Explanations
U.S.: Treasury and IRS Release Rules for Clean Hydrogen Production Tax Credit
On January 3, 2025, the U.S. Department of the Treasury and the Internal Revenue Service released final rules implementing the clean hydrogen production tax credit, established by the Inflation Reduction Act (“IRA”), President Biden’s signature clean energy legislation. The rules set out the eligibility criteria and compliance requirements for hydrogen producers who are seeking to claim a tax credit of up to $3 per kilogram of clean hydrogen produced. Eligible projects must also meet prevailing wage standards, a priority of the IRA.
The final rules will become effective on January 10, 2025.
Links:
Press Release
Final Rules
Global: GFANZ Announces Update to Areas of Focus
In January 2025, the Glasgow Financial Alliance for Net Zero (“GFANZ”), a group of financial institutions and other financial sector participants launched in 2021 to support the transition to a net-zero economy, announced plans to update its areas of focus. The update includes prioritizing work designed to address barriers to mobilizing capital to support the transition, such as regulatory barriers or inadequate investment policies. In addition, GFANZ announced increased focus on “unlock[ing] the more than $5 trillion a year opportunity created by countries modernizing their energy systems and putting economies onto a low-carbon path in the next decade.” GFANZ intends to do so through public-private partnerships using platforms such as “Just Energy Transition Partnerships,” which seek to finance collaboration between developed and emerging economies to enable climate transition, and the World Bank Private Sector Investment Lab, an initiative of the World Bank and private financial institutions to address investment barriers in emerging economies.
GFANZ also announced plans to change the criteria for membership, such that going forward, “any financial institution working to mobilize capital and lower the barriers to financing energy transition” will be allowed to participate. It has been reported that GFANZ will no longer require membership in one of its sector alliances. These organizational changes come as a number of significant departures from various net zero alliances have been announced in recent months.
Links:
Press Release
Statement
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