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Environment, Land & Resources

Insights and commentary on environmental issues and developments impacting business across the world

environmental social governance

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US Department of Labor Doubling Down on Scrutiny of ESG Investments

Posted on August 20, 2020
Posted in Environmental, Social, and Governance

Pending rulemaking set to limit ESG-focused investments by ERISA plan fiduciaries, as DOL’s concurrent letters raise questions.

By Paul A. Davies, Paul M. Dudek, and Kristina S. Wyatt

Letters to Registered Investment Advisors (RIAs)

The US Department of Labor (DOL) has reportedly sent letters[1] to several registered investment advisors seeking information about their use of environmental, social, and governance (ESG) funds in retirement plans, as reported by media outlets including Financial Advisor Magazine and Think Advisor. According to news sources, the DOL’s Employee Benefits Security Administration has asked the RIAs for detailed information about their policies and practices regarding ESG-focused investments. The information requested reputedly includes the RIAs’ policies and procedures, communications, performance information, and the names of individuals who participated in making ESG-focused investment decisions.

The timing of the DOL letters has raised eyebrows given the agency’s pending rulemaking, which aims to restrict plan fiduciaries’ investments in ESG funds, as noted below. News outlets quoted Bryan McGannon, director of Policy and Programs at US SIF, the Forum for Sustainable and Responsible Investment, as objecting to the enforcement actions: “This is a move that is clearly designed to intimidate and if it’s followed up by enforcement it will have a chilling effect on fiduciaries’ willingness to consider ESG funds in retirement plans.”

ESG Rating on Trial in Germany

Posted on April 7, 2020
Posted in Environmental, Social, and Governance, European Environmental and Public Law

A rating agency accepted a preliminary injunction regarding a disputed corporate sustainability rating.

By Paul A. Davies, Michael D. Green, Joachim Grittmann, and Alexander Wilhelm

As reported by a number of German newspapers and the environmental press, a dispute between the US proxy advisory firm Institutional Shareholder Services (ISS) and the German industrial image processing company Isra Vision came to a rapid conclusion before the Regional Court of Munich when ISS withdrew its objection against a preliminary injunction. As a result, the relevant ESG rating concerning Isra Vision was not published.

Background

ISS provides ratings and analytical services in respect of environmental, social, and governance (ESG) matters. ISS made a request to Isra Vision to participate in a sustainability review. After Isra Vision did not respond, ISS made its assessment on publicly available material. According to publicly available information, Isra Vision was given the worst rating (D-) in the assessment. As such, Isra Vision sought an injunction against the issuing of the rating.

EU Announces Initiative to Improve the Non-Financial Reporting Directive

Posted on February 10, 2020
Posted in Environmental Regulation, European Environmental and Public Law, Green Finance

The Initiative aims to grant investors, consumers, and other stakeholders a clearer picture of companies’ non-financial performance.

By Paul A. Davies and Michael D. Green

On 30 January 2019, the European Commission began a consultation process on a potential initiative to revise and improve the Non-Financial Reporting Directive (NFRD) (the Initiative). The Commission has not yet decided the form that the Initiative will take, but it aims to improve the NFRD’s ability to give investors access to non-financial information (including on environmental, social, and governance (ESG) factors and sustainability) about companies.

What Is the NFRD?

Since 2018, the NFRD has required certain large listed companies, banks, and insurers to publicly report information on a broad range of ESG matters on an annual basis. The Commission supplemented these reporting obligations with two sets of non-binding guidelines: one in 2017, aimed at helping companies report relevant, useful, and comparable information, and one in 2019, aimed at helping companies report climate-related information and integrating the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Sustainable Finance and Climate Change Risk in Financial Services

Posted on February 10, 2020
Posted in Air Quality and Climate Change, Environmental Regulation, Environmental, Social, and Governance, Green Finance

Policy makers and regulators seem keen to adopt both a “carrot” and “stick” approach to channelling private finance sustainably.

Financial services regulators have been particularly vocal in the last 12 months, specifically about the impact on the financial services sector as the world experiences, and attempts to respond to, climate change.

Mark Carney, outgoing governor of the Bank of England, highlighted how pressing an issue climate change is for the sector in October 2019, stating that, “ … changes in climate policies, new technologies and growing physical risks will prompt reassessments of the values of virtually every financial asset. Firms that align their business models to the transition to a net zero world will be rewarded handsomely. Those that fail to adapt will cease to exist. The longer that meaningful adjustment is delayed, the greater the disruption will be”.

“50 Shades of Green” – Mark Carney Calls for Accelerated Climate Resilience Action

Posted on September 30, 2019
Posted in Environmental, Social, and Governance, European Environmental and Public Law, Green Finance

Bank of England Governor identifies three areas of improvement in creating a sustainable finance system.

By Paul A. Davies and Michael D. Green 

On September 24, 2019, the Bank of England (BoE) published two speeches given by its governor, Mark Carney, in which he calls for climate change-related risks and resilience to be brought into

the heart of financial decision-making. Both speeches — one delivered to the UN General Assembly and the other at an insurance industry event — outline three key areas of improvement that Mr. Carney identifies as being necessary to bring climate change into mainstream financial decision-making: disclosure, risk management, and returns. This blog discusses each of these three areas, as well as the policy options that Mr. Carney views as necessary to implement the required changes.

Comprehensive Climate Disclosure

Mr. Carney first discusses the importance of improving corporate disclosure of climate-related risks and opportunities. He highlights the Task Force on Climate-related Financial Disclosures (TCFD) as an example of a comprehensive, practical, and flexible framework for risk disclosure, and also notes that supporters of the TCFD control balance sheets totalling US$120 trillion (indicating potentially high demand for such a regime).

Companies Can Consider UN Sustainable Development Goals When Defining Sustainability Commitments

Posted on September 7, 2018
Posted in Environmental, Social, and Governance

Risk and opportunities come with ESG commitments, which include advancing the SDGs.

By Sara K. Orr, Kristina S. Wyatt, and Bobbi-Jo B. Dobush

dsc20050813_115856_52In a recent article, Latham lawyers highlighted the increasing importance of environmental, social, and governance (ESG) issues in corporate decision-making and how companies are linking ESG issues to the United Nations’ 2030 Sustainable Development Goals (SDGs). As investors, community members, and other stakeholders increasingly prioritize ESG issues, a number of entities have publicly committed to advancing the SDGs. In the corporate sphere, ESG issues form a thread that runs through many key organizational activities, including public disclosures, mergers and acquisitions, project finance, supply chain management, regulatory compliance, capital raising, human capital management, environmental compliance, and public disclosures. The SDGs can provide a unifying structure by which to establish ESG-related performance goals, and to prioritize and implement ESG initiatives.

Companies Must Carefully Consider ESG Disclosures Under UK Non-Financial Reporting Directive

Posted on March 13, 2018
Posted in Environmental, Social, and Governance

Companies should conduct thorough due diligence in light of closer scrutiny from stakeholders and governmental and non-governmental bodies.

By James Inness and Natasha Hamilton-Foyn

Companies are facing increasing pressure to report on environmental, social, and governance (ESG) matters in terms of their legal obligations, stakeholder pressure, and reputational issues. Companies are subject to both mandatory and non-mandatory non-financial reporting obligations. For the first time, in 2018, under the Non-Financial Reporting Directive (NFRD), certain companies must publish in their annual reports information relating to environmental, social, and employee matters, respect for human rights, and anti-corruption and bribery matters. The NFRD therefore bolsters existing mandatory disclosure obligations under the Modern Slavery Act 2015 and the Climate Change Act 2008. The forthcoming Conflicts Minerals Regulation will further strengthen these obligations.

China Mandates ESG Disclosures for Listed Companies and Bond Issuers

Posted on February 6, 2018
Posted in China, Environmental, Social, and Governance, Green Finance

New requirements build on China’s rapid progress in green finance to increase transparency across the market

By Paul Davies, Bridget Reineking and Andrew Westgate

The China Securities Regulatory Commission (CSRC), in collaboration with China’s Ministry of Environmental Protection, has introduced new requirements that, by 2020, will mandate all listed companies and bond issuers to disclose environmental, social and governance (ESG) risks associated with their operations.

In recent years, China has become a global pioneer in policy architecture, local pilot programs, green bonds, green industry funds, environmental stress testing, and green assurance. Concurrently, interest in ESG investment has grown significantly. Major institutional investors have increasingly adopted ESG factors in their decision making and market analysis.

Does China’s Overseas Investment Require More Legally Binding Standards?

Posted on December 15, 2017
Posted in China, Environmental, Social, and Governance, Green Finance

By Paul Davies, Bridget Reineking, and Andrew Westgate

China has issued numerous green policies in an effort to support President Xi’s signature “One Belt, One Road” initiative, which aims to mitigate environmental and social risks arising from China’s overseas lending. Although few of these policies are legally binding, they reflect China’s heightened focus on environmental issues, both at home and abroad. However, given China’s increasing number of foreign direct investments over the last few years, more legally binding obligations may be necessary to better address resulting environmental and social risks.

China’s Green Credit Directive (GCD) is an instructive example. The GCD urges banks to “effectively identify, measure, monitor and control environmental and social risks associated with their credit activities”. Furthermore, the GCD recommends that funds be suspended or terminated if “major risks or hazards are identified”. As Latham has previously written, policies such as these demonstrate that Chinese leadership is taking steps to prioritise environmental, social, and governance impacts of their country’s investments overseas.

China Prioritises Environmental, Social, and Governance Factors in Overseas Investment

Posted on November 2, 2017
Posted in China, Environmental, Social, and Governance, Green Finance

By Paul Davies, Bridget Reineking, and Andrew Westgate

The Chinese government has announced a US$4 trillion investment in developing infrastructure globally under the “Belt and Road Initiative” (BRI). Under the BRI the Chinese government will spend US$750 billion on overseas investments in the next five years alone. Although China often cites the BRI as the country’s way of fostering sustainable economic development, there are concerns regarding management of environmental risks, especially in countries lacking environmental governance. In response, the Chinese government has recently issued two publications encouraging sustainable investment practices overseas.

China’s National Development and Reform Commission, Ministry of Commerce, Ministry of Foreign Affairs, and the People’s Bank of China have jointly issued an Opinion on further Guiding and Regulating Outbound Investment (the Guiding Opinions). The four bodies intend that the Guiding Opinions will endorse foreign investment in strategically important areas, and discourage or ban investments that conflict with China’s national interests.

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