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German Federal Government Adopts Draft CSRD Implementation Act

Posted on July 30, 2024

Posted in Air Quality and Climate Change, Environmental, Social, and Governance, European Environmental and Public Law

Modern green building with innovative high rise vertical garden

The draft represents the next step in transposing the CSRD into national law.

By Axel Schiemann and Dominik Schöneberger

On 24 July 2024, the German Federal Government adopted the governmental draft of the Act implementing the EU Directive on Sustainability Reporting (Directive (EU) 2022/2464 – CSRD) into German law (the Government Draft). The adoption of the Government Draft constitutes the next significant step in the legislative process after the German Ministry of Finance published the first draft implementing law on…

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]

Singapore Consults on Green and Transition Taxonomy

Posted on May 27, 2022

Posted in Green Finance

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.

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.

IOSCO Calls for Oversight of ESG Ratings and Data Product Providers

Posted on November 30, 2021

Posted in Environmental Regulation, Environmental, Social, and Governance

The association noted that regulators could provide market participants with much-needed additional trust in ESG ratings and data.

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

On 23 November 2021, the International Organization of Securities Commissions (IOSCO) published a report and set of recommendations (Recommendations) in relation to the providers of environmental, social, and governance (ESG) ratings and data products. The Recommendations come as the market for ESG ratings and data products has grown considerably over recent years, largely as a result of the increasing demands of investors to obtain reliable and comparable ESG-related data on companies. The Recommendations follow on from a consultation that IOSCO issued in July 2021 (for more information, see this Latham blog post), and include a summary of the feedback that was received in relation to the consultation as an Annex.

IOSCO recognised that the area of ESG ratings and data product providers is not one that securities regulators would ordinarily be concerned with. However, given the rapidly expanding role these providers have within global securities markets, IOSCO noted that the involvement of regulators could provide market participants with much-needed additional trust in ESG ratings and data.

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.

IOSCO Consults on Regulation of ESG Data and Ratings Providers

Posted on July 28, 2021

Posted in Environmental Regulation, Environmental, Social, and Governance

The consultation is part of IOSCO’s broader goal to establish global sustainability disclosure standards.

By Paul A. Davies, Nicola Higgs, and Anne Mainwaring

On 26 July 2021, the Board of the International Organization of Securities Commissions (IOSCO) published a consultation report (the Report) that proposes a set of recommendations to mitigate risks flowing from activities of ESG ratings and data products providers and to address some of the challenges faced by users of ESG ratings and data products as well as the companies that are the subject of these ratings or data products.

This blog post provides of an overview of the ESG ratings and data market and outlines IOSCO’s proposed set of 10 recommendations.

FCA Seeks to Improve Quality of ESG Fund Disclosures

Posted on July 21, 2021

Posted in Environmental, Social, and Governance

FCA has published guiding principles on the design, delivery, and disclosure of ESG and sustainable investment funds.

By Nicola Higgs, David Berman, Paul Davies, Anne Mainwaring, and Charlotte Collins

On 19 July 2021, the FCA published a letter sent to chairs of authorised fund managers, which sets out the regulator’s expectations regarding disclosures by funds that make ESG-related claims. The FCA aims to ensure that any ESG-related claims are clear and not misleading, both when a fund is applying for authorisation and on an ongoing basis.

The FCA has published these principles in response to the significant increase in funds applying for authorisation that have an ESG or sustainability focus. The FCA notes that applications are often poor quality and fall below its expectations, and many make claims that cannot be substantiated. The FCA observes that, in general, fund applications in this area often do not contain sufficient, clear information explaining their chosen strategy and how this relates to the assets selected for the fund.

Climate (and ESG) Risk: The Growing Focus on Board Accountability

Posted on June 21, 2021

Posted in Environmental, Social, and Governance

Board members are expected to have adequate knowledge and understanding of climate-related and ESG risks.

By Nicola Higgs, Paul A. Davies, and David Berman

Legislators and regulators around the world have long recognised that one of the most effective ways to drive change is by focusing the minds of management — specifically by attaching individual accountability for ensuring that an organisation meets expected standards. Transitioning to net-zero carbon emissions has now become a critical priority for many governments, and the spotlight is shining on the boards of financial institutions and companies to drive that change.

This blog post highlights recent developments in the EU in this regard. At a time when standards on climate and environmental, social, and governance (ESG) issues are converging globally, these developments will be informative to global organisations wanting to embed best practices in governing the transition.

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Singapore Consults on Green and Transition Taxonomy

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