Green Finance

Singapore Consults on Green and Transition Taxonomy

Posted on May 27, 2022

The proposed taxonomy for green and transition activities is aligned with increasing global demand for clear and consistent classification of sustainable finance activities.

By Paul Davies and Sabrina Singh

In May 2022, the Green Finance Industry Taskforce — a multi-stakeholder group convened by the Monetary Authority of Singapore to accelerate the development of green finance — released for public consultation a second paper (Consultation Paper) on a Green Taxonomy for Singapore-based financial institutions (Green Taxonomy), with particular relevance to those active across ASEAN. The Consultation Paper follows a first paper on the Green Taxonomy, which was released in January 2021.

UK Net Zero Strategy: Understanding the Impact on Key Sectors

Posted on October 22, 2021

Posted in Air Quality and Climate Change, Environmental, Social, and Governance, Green Finance

The strategy sets out plans to reduce emissions from key sectors of the UK economy to ensure that the UK remains on track for net zero by 2050.

By Conrad Andersen, John Balsdon, David Berman, Paul A. Davies, Nicola Higgs, Sam Newhouse, Simon J. Tysoe, Michael D. Green, James Bee, and Anne Mainwaring

On 19 October 2021, the UK government published its climate change strategy, “Net Zero Strategy: Build Back Greener” (the Strategy), which outlines plans to support the UK economy’s transition to a greener and more sustainable future. On 31 October, the UK will host the 2021 United Nations Climate Change Conference, COP26, in Glasgow.

Last year, Prime Minister Boris Johnson set out a 10-point plan for a “green industrial revolution”, which laid the foundation for a green economic recovery from the impact of COVID-19. The Strategy builds on that approach to align the UK with its carbon budget and nationally determined contribution to the Paris Agreement, both of which aim to reduce economy-wide greenhouse gas (GHG) emissions by at least 68% by 2030 and 78% by 2035, compared to 1990 levels. Further, the Strategy details the UK’s vision for a decarbonised economy by 2050.

UK Government Releases Roadmap to Sustainable Investing

Posted on October 21, 2021

Posted in Green Finance

The roadmap introduces sustainability disclosure requirements for UK companies and reveals further developments in relation to a UK Green Taxonomy.

By David Berman, Paul A. Davies, Nicola Higgs, Michael D. Green, Anne Mainwaring, and James Bee

On 18 October 2021, the UK government released a report titled “Greening Finance: Roadmap to Sustainable Investing” (the Roadmap), which is intended to encourage UK businesses and investors to have regard to climate and other environmental, social, and governance (ESG) considerations in their decision-making processes. The Roadmap follows the government’s 2019 Green Finance Strategy, which set out a suite of policies to assist in aligning UK financial flows with a low-carbon planet.

The government states that it views the task of “greening the financial system”[1] as composed of three fundamental phases. The Roadmap addresses the first phase: informing investors and consumers and addressing the information gap in relation to environmental and sustainability issues between corporates and investors.[2] Notably, the Roadmap also introduces sustainability disclosure requirements (SDR) for UK companies and reveals further developments in relation to the UK Green Taxonomy (Taxonomy). In addition, the Roadmap identifies proposed timeframes for further developments on each of these topics.

US Department of Labor Puts ESG Investing Back on the Menu

Posted on October 18, 2021

Posted in Environmental, Social, and Governance, Green Finance

A new proposal would amend changes made to ERISA less than a year ago that have proved to be detrimental to ESG investing.

By Jean-Philippe Brisson, Paul A. Davies, Nicola Higgs, Malorie R. Medellin, and Deric Behar

In a sweeping reversal of Trump-era policies, the US Department of Labor (DOL) has issued a proposed rule, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (the Proposal), that would allow retirement savings plans to choose investments using analyses that incorporate climate change risks and other environmental, social, and governance (ESG) criteria.

The Proposal, if adopted, would amend the DOL rule Financial Factors in Selecting Plan Investments (the Rule), which was published in November 2020. The Rule adopted amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and required fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular investment. In effect, the Rule was premised on the idea that ESG factors are at odds with financial factors and fiduciary responsibilities of plan sponsors, and therefore plan fiduciaries should be restricted from making investment decisions based on ESG factors that are not primarily “pecuniary in nature” (see this Latham post for more information).

Sustainability Linked Leveraged Loans in Europe: LMA and ELFA Release Best Practice Guide

Posted on August 3, 2021

Posted in Environmental, Social, and Governance, Green Finance

Guidance will help borrowers, lenders, and advisers in applying Sustainability Linked Loan Principles.

By Paul Davies, Karan Chopra, Edward Kempson, and Sindhoo Vinod

On 28 July 2021, the Loan Market Association (LMA) and European Leveraged Finance Association (ELFA) published a best practice guide (the Guide) to Sustainability Linked Leveraged Loans (SLLLs). The Guide provides practical guidance for market participants on the application of the Sustainability Linked Loan Principles (SLLPs) to leveraged loans, particularly loans made at portfolio company level. ELFA and the LMA deemed the Guide necessary given the increasing prevalence of sustainability linked financings in the leveraged loan market.

The Guide is intended to assist borrowers, lenders, and advisers when considering the integration of sustainability factors in leveraged loan documents, and should be read alongside the SLLPs and the LMA Guidance on the Sustainability Linked Loan Principles. These complementary documents were updated in May 2021 to reflect progression in the market and to ensure alignment with the International Capital Market Association’s (ICMA’s) Sustainability Linked Bond Principles.

European Commission Publishes New Green Bond Standard and Unveils Latest Sustainable Finance Strategy

Posted on July 14, 2021

Posted in Environmental Regulation, European Environmental and Public Law, Green Finance

The new green bond standard aims to hit EU Green Deal targets, address environmental challenges, and increase investment in sustainable activities.

By Paul Davies and Edward Kempson

The European Commission (the Commission) recently issued two key announcements relating to the newly published EU Sustainable Finance Strategy (the Strategy) and the new EU Green Bond Standard (the EUGBS). This blog will highlight key areas of focus in the Strategy and will explore anticipated dynamics in the green bond market and between the EUGBS and the International Capital Market Association’s (the ICMA’s) Green Bond Principles (the GBPs).

The European Commission Unveils New Sustainable Finance Package

Posted on April 23, 2021

Posted in Environmental, Social, and Governance, European Environmental and Public Law, Green Finance

The package focuses on material sustainability reporting and disclosure obligations, as the EU looks to direct capital toward sustainable activities.

By Paul A. Davies, Nicola Higgs, David Little, and Michael Green

On 21 April 2021, one day prior to Earth Day and a US-led global climate summit, the European Commission adopted a much-anticipated package of measures as part of its policy to help direct capital towards sustainable initiatives and to help the European Union reduce its greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and reach its 2050 carbon neutrality goal.

The package of measures include:

A proposed Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements under the Non-Financial Reporting Directive (NFRD) and seek to ensure that companies provide consistent and comparable sustainability information
The EU Taxonomy Climate Delegated Act, which aims to identify the economic activities that best contribute to climate change mitigation and adaptation
Six Delegated Acts on fiduciary duties, investment, and insurance advice, which aim to ensure that financial firms (e.g., advisers, asset managers, or insurers) include sustainability in their procedures and investment advice to clients

China and EU to Collaborate on Green Investment Standards

Posted on April 12, 2021

Posted in China, Environmental Regulation, Green Finance

The People’s Bank of China announced a collaboration with the European Union to adopt a common taxonomy for green investments.

By Paul A. Davies, Nicola Higgs, and Edward R. Kempson

On 21 March 2021, the People’s Bank of China (PBC) announced that China is working with the European Union to adopt a common green taxonomy across the two markets later this year. PBC Governor Yi Gang, speaking at the China Development Forum, said strengthening the nation’s green finance system was the central bank’s priority for the next five years.[1] He emphasised that, in order for China to meet its 30/60 goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060, China needs to engage in collaboration with global partners.

The EU Taxonomy Regulation,[2] which entered into force in July 2020 and will take effect on a phased basis from 1 January 2022, is one of the most significant developments in sustainable finance to date. It creates a classification system for environmentally sustainable economic activities and aims to provide clarity as to what should be considered “green”. The EU Taxonomy Regulation is intended to avoid issues of greenwashing and is considered to be an important tool in implementing the Paris Agreement climate goals. For more details on the EU Taxonomy Regulation, please refer to our blog post on the topic.

Financial Services Trade Organizations Publish Principles for Regulatory Sustainability Transition

Posted on March 9, 2021

Posted in Air Quality and Climate Change, Energy Regulatory, Environmental Regulation, Green Finance

The principles are intended to guide the industry’s engagement with policymakers concerning the ongoing economic transition away from carbon.

By Paul A. Davies, Jason C. Ewart, and Edward R. Kempson

The US Climate Finance Working Group, a group of leading financial services trade associations, has published “Financing a US Transition to a Sustainable Low-Carbon Economy” — a set of principles for how the financial services industry can play a role in addressing climate change.

The principles, not meant to be exhaustive, are intended to serve as a useful framework for the industry’s engagement with policymakers to find practical, market-based solutions to the challenges and opportunities related to climate risk and the ongoing economic transition away from carbon. The working group noted that while individual institutions can play a significant role in the global effort to address climate change, policy must provide a critical foundation for driving the transition.

FCA Considers Establishing ESG Guiding Principles

Posted on December 1, 2020

Posted in Environmental Regulation, Environmental, Social, and Governance, Green Finance

FCA director highlights areas of concern in relation to ESG reporting and provides recommendations.

By Paul A. Davies, Nicola Higgs, Michael D. Green, and Anna Lewis-Martinez

Richard Monks, Director of Strategy at the UK Financial Conduct Authority (FCA), recently delivered a speech on the environmental, social, and governance (ESG) reporting regime and how it can be improved as part of SRI Services and Partners’ Good Money Week, held in October. The speech draws particular attention to the increasing use and relevance of ESG ratings.

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