Recent developments show how innovative sustainable finance instruments can help the transition to greener financial markets.

By Paul A. Davies and Edward R. Kempson

The EU Taxonomy Regulation[1] (the Regulation), which entered into force in July 2020, is one of the most significant developments in sustainable finance. The Regulation creates a classification system for green and sustainable economic activities (the Taxonomy) that is intended to be used by market participants in the EU and beyond to navigate the transition to a low-carbon, resilient, and resource-efficient economy. Under the Taxonomy, in order for an economic activity to be classified as “green”, it must (i) substantially contribute to one of six environmental objectives,[2] (ii) do no significant harm to the other five objectives, (iii) comply with certain governance safeguards,[3] and (iv) comply with specific science-based performance thresholds (or “technical screening criteria”).

The newly published Energy White Paper establishes a domestic trading scheme and sets out plans to clean out energy. 

By Paul A. Davies and Michael D. Green

On 14 December 2020, the UK Government published its Energy White Paper (the Paper). The Paper builds on previous green economy plans, setting them “in a long-term strategic vision, […] consistent with net zero emissions by 2050”.

The Paper further details ambitions unveiled by the Prime Minister in mid-November, in his Ten Point Plan. Moreover, the Paper sheds more light on previously established initiatives, such as the UK Emissions Trading Scheme, previously set into law through the Greenhouse Gas Emissions Trading Scheme Order 2020.

The delay may complicate the regulatory landscape for sustainable finance as the EU moves toward a standardized classification system. 

By Paul A. Davies, Nicola Higgs, and Michael D. Green

The UK government (government) has delayed a decision on whether it will adopt the EU’s taxonomy of sustainable finance activities (the Taxonomy) as the UK approaches the end of its post-Brexit transition period.

The European Commission’s Technical Expert Group (TEG) on Sustainable Finance, which developed the Taxonomy, published its final report on the document in March 2020. The resulting Taxonomy follows from consultations with more than 200 industry experts and scientists.

Measures aim to establish consistent criteria for sustainable investments, as well as clear market standards for investors.

By Paul A. Davies and Aaron E. Franklin

Overview

The European Commission (EC) has set out its first proposal for “concrete actions” to help the EU financial sector take the lead in establishing a greener economy and supporting the Paris Agreement. These legislative proposals, which were published on 24 May 2018, follow the release of the EC’s Action Plan on sustainable finance on 8 March 2018 (more information on the Action Plan is available in this Latham blog post).

If the changes are adopted, they would be implemented through a series of delegated acts to establish the environmental taxonomy, followed by a fitness check of EU legislation on public corporate reporting and amendments to non-binding guidelines on non-financial reporting. The EC would also adopt a prospectus for green bond issuances and would publish a comprehensive study on sustainability ratings and research. Finally, the EC would create ecolabels for financial products and explore possible measures to see how climate and environmental risks can be incorporated into banks’ risk management policies aligning with the EU taxonomy.

The action plan recommends leveraging London’s leading role in global green finance to grow green opportunities.

By Paul A. Davies

The Green Finance Taskforce’s first report, “Accelerating Green Finance,” advises the UK government on how to achieve important green finance goals, carbon targets in relation to the Paris Agreement. The report, published on 28 March, recommended the establishment of a Green Finance Institute, which would be a “one-stop-shop’ for all work relating to this sector. The report also advised:

  • Boosting investment in innovative clean technologies
  • Driving demand and supply for green lending products
  • Setting up Clean Growth Regeneration Zones
  • Improving climate risk management with advanced data
  • Building a green and resilient infrastructure pipeline
  • Issuing of a sovereign green bond for green projects, including flood defence

Sir Roger Gifford, Chairman of the Green Finance Institute, noted that “[t]he opportunities for green investment are plentiful — London’s deep pools of liquidity make it the natural choice for financing these initiatives.”[1]

Recommendations signal a major shift for Europe’s financial system through both legislative and non-legislative changes.

By Paul A. Davies and Aaron E. Franklin

The European Commission (EC) has revealed its action plan for mobilizing the financial system to encourage a “greener and cleaner economy.”[1] The plan, which was released on 8 March, states that it aims to facilitate the following, in conjunction with the Paris Agreement and the EU’s sustainable development agenda: i) improvements in the financial system’s contributions to sustainable and inclusive growth, and ii) stronger financial stability by incorporating environmental, social, and governance (ESG) factors into investment decision-making. The inescapable takeaway is that the EC strongly encourages a more active regulatory role in the sustainable investments market, through both legislative and non-legislative changes.

By Paul Davies and Andrew Westgate

As a world leader in the manufacturing of electronic devices, China is beginning to reform its rules and regulations to ensure that the resulting framework is able to keep pace with the rapid developments now taking place in this sector both in China and globally. Two recent developments in this regard are discussed below.

Battery Waste. In December of 2016, the Ministry of Environmental Protection (MEP) issued the “Battery Waste Pollution Prevention Technology Policy.”[1] The policy, which applies to all kinds of battery waste, does not impose specific requirements, but instead defines key policy priorities for regulators to develop standards for battery waste. Priorities reflected in the policy include the following:

By Paul Davies, Michael Green and Andrew Westgate

Silhouette of Meeting Table in the Office

Leaders from around the world, including 20 heads of state, attended the Belt and Road Forum for International Cooperation in Beijing on May 14-15. The attendees at the forum agreed on guiding principles for the initiative, and the Asian Development Bank, the European Investment Bank, the New Development Bank, the World Bank and China’s Finance Ministry also signed an agreement promoting the initiative.

The US was represented at the forum by Matthew Pottinger, the National Security Council’s senior director for Asia. A few days prior, on May 12, the US and China announced a series of trade measures to improve access to Chinese markets for American beef and natural gas exports, among other sectors. Mr. Pottinger’s attendance at the forum, a change from the original plan to send a Commerce Department official, was widely seen as a response to the trade dea