ESG

FCA Seeks Improvements to ESG Benchmarks

Posted on March 22, 2023

Posted in Environmental, Social, and Governance

The regulator is concerned that ESG-related disclosures are not meeting expectations.

By Nicola Higgs, Becky Critchley, Anne Mainwaring, Ella McGinn, and Charlotte Collins

The FCA has published a Dear CEO letter sent to benchmark administrators on 20 March 2023, expressing concerns about the quality of their ESG-related disclosures. The FCA’s concerns are based upon a preliminary review of ESG benchmarks, which assessed the disclosures made by a sample of UK benchmark administrators. The review found the quality of ESG-related disclosures to be poor, and the letter sets out the FCA’s specific findings in this regard. The FCA states that it is acutely aware that poor practices in this area could lead to claims of greenwashing and dilute trust and confidence in ESG labelling. Therefore, the FCA is not only concerned about technical compliance with disclosure requirements, but also about ensuring the integrity of ESG-related products.

ESG and Sustainable Finance

Posted on February 24, 2023

Posted in Environmental, Social, and Governance

By Paul A. Davies, Edward R. Kempson, Luca Morreale, and Peter Neuböck

Sustainable Finance

Sustainable finance is the practice of redirecting public and private capital towards investments that support ESG goals and outcomes. The market dynamics of sustainable finance are driven by the need for enormous investments to support sustainable transitions and meet net zero targets.[i] According to McKinsey[ii], an estimated US$9 trillion of green investment is required annually to reach this goal, while the EU Commission’s 2030 climate target plan calls for an additional €350 billion of investment per year to 2030.[iii] To address this funding gap, institutional investors and financial institutions with more than US$130 trillion in assets under management have announced sustainable finance commitments.[iv]

European Council Adopts Negotiating Position on Corporate Sustainability Due Diligence Directive

Posted on December 2, 2022

Posted in Environmental Regulation, Environmental, Social, and Governance, European Environmental and Public Law

The Council’s position includes a number of differences from the European Commission’s original proposal, including in relation to the requirement to diligence the broader value chain.

By Paul A. Davies, Michael D. Green, and James Bee

On 30 November 2022, the European Council (the Council) — which comprises the views of the EU Member State governments — adopted its negotiating position on the EU’s proposed Corporate Sustainability Due Diligence Directive (CSDDD). The CSDDD would require large companies operating in the EU to undertake due diligence on their own activities and that of their suppliers, and to identify, mitigate, or avoid any actual or potential adverse impacts of their business operations. The CSDDD would also set out any penalties (including possible civil liability) in relation to the breach of such obligations.

European Parliament Adopts Corporate Sustainability Reporting Directive

Posted on November 18, 2022

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

From 2024 at the earliest, more European and global companies will need to disclose their ESG activities in greater detail.

By Paul A. Davies, Michael D. Green, and James Bee

On 10 November 2022, the European Parliament adopted a final version of the Corporate Sustainability Reporting Directive (CSRD). The CSRD will require large EU companies (including private companies) and some global companies with significant operations in the EU to regularly report ESG-related information, putting it at the forefront of the trend toward the development of more detailed ESG disclosure regimes that is proliferating worldwide.

European Parliament and Council Reach Political Agreement on CSRD

Posted on June 24, 2022

Posted in Environmental, Social, and Governance

The Corporate Sustainability Reporting Directive expands the existing sustainability reporting requirements and brings more companies under its scope.

By Paul A. Davies, Michael D. Green, and James Bee

On 21 June 2022, the European Parliament and European Council reached a provisional political agreement on the terms of the EU’s proposed Corporate Sustainability Reporting Directive (CSRD). The CSRD will extend the current sustainability reporting requirements in the EU (namely those under the Non-Financial Reporting Directive (NFRD)), to include more companies and topics and to require more detailed disclosures, and represents a key piece of legislation in the international trend towards increasing sustainability-related reporting by companies. The European Parliament indicated this international aim in its press release announcing the agreement, stating that the CSRD “aims to end greenwashing and lay the groundwork for sustainability reporting standards at global level.”

While the full text of the agreed version of the CSRD has not yet been made public, the press releases from the European Parliament and Council do shine some light on the key provisions that will likely be included in the final document.

EU Issues Call for Evidence on the ESG Ratings Market

Posted on April 12, 2022

Posted in Environmental, Social, and Governance

The Call for Evidence is one of a number of measures the EU is taking as it aims to strengthen the reliability of ESG ratings.

By Paul A. Davies, Sarah E. Fortt, Betty M. Huber, Michael D. Green, and James Bee

On 4 April 2022, the European Commission (Commission) published a call for evidence (Call for Evidence) to solicit responses to inform the Commission on the dynamics of the ESG ratings market in Europe, including on the use and objectives of ESG ratings and the interplay between larger and smaller market players.

Given the growing interest in ESG issues from investors in recent years, ESG ratings and similar products have become increasingly popular as an independent and easy-to-use data point for investors to compare companies’ ESG credentials. However, this popularity has led to concern from some market participants and regulators as to the currently unregulated nature of the ESG rating provider market. This unregulated nature has in turn led to concerns regarding the consistency and quality of ESG ratings, as well as the ability to compare ESG ratings from different providers who often use materially different methodologies.

ESMA Consults on ESG-Related Amendments to Its Suitability Guidelines

Posted on February 11, 2022

Posted in Environmental, Social, and Governance

Proposed changes seek to reflect the integration of sustainability considerations into MiFID II.

By Nicola Higgs, Anne Mainwaring, Dianne Bell, and Charlotte Collins

The European Securities and Markets Authority (ESMA) is consulting on updates to its Guidelines on the MiFID II suitability requirements, in light of upcoming changes that will embed sustainability considerations into the MiFID II framework. These changes will require firms to consider sustainability preferences as part of the suitability process when providing advisory and portfolio management services. ESMA is considering how it needs to update its Guidelines to reflect these new requirements, in order to assist firms in understanding what is expected of them in an area potentially difficult to navigate given that many clients may have limited understanding of sustainability factors and ESG or sustainability-related products, and that the availability of such products is still reasonably limited.

ISS, Glass Lewis Focus on ESG in 2022 Benchmark Proxy Voting Policies

Posted on January 12, 2022

Posted in Environmental, Social, and Governance

The policies aim to provide crucial guidance to public companies amid the growing importance of ESG in proxy voting.

By Paul A. Davies, Michael D. Green, Andra Troy, and James Bee

In late 2021, Institutional Shareholder Services (ISS) and Glass, Lewis & Co (Glass Lewis), the two leading proxy advisory firms, released updated policy documents for the 2022 proxy season.

Notably, both ISS and Glass Lewis have given considerable attention to environmental, social, and governance (ESG) matters, reflecting the rapidly increasing importance of ESG to shareholder relations at public companies. The Glass Lewis policies will apply from January 1, 2022, and the ISS policies will apply from February 1, 2022.

This blog post reviews the major updates in the ISS and Glass Lewis policies as they relate to key ESG issues, and considers the similarities and differences of each firm’s policies in certain areas.

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