ESG

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.

UK Welcomes Formation of International Sustainability Standards Board

Posted on November 9, 2021

Posted in Environmental, Social, and Governance

The government also introduced transition plan requirements for companies to meet the UK’s 2050 net zero target.

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

On 3 November 2021, the International Financial Reporting Standards (IFRS) Foundation Trustees Chair, Erkki Liikanen, announced the long-awaited formation of the International Sustainability Standards Board (ISSB). The ISSB aims to address to one of the key issues that companies and investors have faced in relation to environmental, social, and governance (ESG)-related corporate reporting over recent years — the wide variety of different reporting frameworks and a lack of an authoritative market leader.

Liikanen also announced the consolidation of two of the leading sustainability disclosure organisations into the ISSB by June 2022, and introduced prototype climate and general disclosure requirements (the Prototypes), which the ISSB will consider as the basis of its work.

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).

UK Regulators Launch Discussion on Diversity and Inclusion

Posted on July 8, 2021

Posted in European Environmental and Public Law

Discussion Paper opens debate on potential new rules to improve diversity in financial services.

By Rob Moulton, David Berman, Paul Davies, and Charlotte Collins

On 7 July 2021, the FCA, the PRA, and the Bank of England published a joint Discussion Paper on diversity and inclusion in the financial sector. The regulators, in particular the FCA, have been focused on diversity and inclusion as regulatory issues for some time. According to the regulators, research shows there is a positive correlation between increased diversity and inclusion and better outcomes in risk management, conduct, culture, and innovation. Therefore, improving diversity and inclusion in financial services is seen as tying in closely with the regulators’ objectives. In the Discussion Paper, the regulators consider diversity and inclusion not only in terms of how a firm is run internally, but also how the firm serves its customers.

New German Law Aims to Strengthen Global Human and Environmental Rights

Posted on June 30, 2021

Posted in Environmental, Social, and Governance

The law imposes mandatory human rights and environmental due diligence obligations on companies in Germany as of 1 January 2023.

By Paul A. Davies, Stefan Bartz, and Alexander Wilhelm

On 25 June 2021, the Bundesrat, the legislative chamber of the German Federal States, approved the Supply Chain Due Diligence Act (Lieferkettensorgfaltsgesetz). The law now only needs to be signed by the Federal President (Bundespräsident) and published before entering into force. Two weeks before, the coalition parties reached a last-minute compromise to adopt the law ahead of the end of the legislative period in September.

This blog post will examine the amendments to the prior draft law resulting from that compromise and consider how the Act will impact companies in Germany (for more information on the draft law, please see Latham’s previous blog).

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