U.S.: States Investigate Banks for ESG Practices
On October 19, 2022, attorneys-general from 19 U.S. states
launched civil investigations into whether the ESG practices of
some of the nation’s largest banks are harmful to the energy
industry. The banks under investigation include Bank of America,
Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and
Wells Fargo.
The investigation targets activity related to each bank’s
membership in the United Nations Net-Zero Banking Alliance
(“NZBA”), a UN-convened group of over 100 banks that are “committed to aligning their lending and investment portfolios
with net-zero emissions by 2050.”
Arizona Attorney General Mark Brnovich characterized the NZBA as
an agreement between financial institutions to support the “climate agenda” by “choosing not to work with
companies engaged in fossil fuel-related activities.” He
further stated that “this means some farmers, oil leasing
companies, and other businesses will be unable to get a loan
because of the alliance.”
The Texas Attorney General’s Office released a similar
statement and civil investigative demands for each bank, including,
for example, requiring documents and communications related to the
bank’s decision to join each climate initiative of which it is
a member, including, but not limited to, the NZBA.
Companies operating in the United States are increasingly facing
conflicting demands from state regulators, some of which seek to
encourage ESG-focused investment and some of which appear to be
opposed to any consideration of ESG factors. Debevoise &
Plimpton will hold a webinar on November 9 entitled “State
Level ESG Investment Developments – A Fast Evolving
Landscape.” An announcement of the webinar will be sent
shortly. We hope that you can join us.
Links:
Arizona Attorney General
– Statement
Texas Attorney General
– Statement
UK: FCA Proposes New Rules on Sustainability Disclosure
Requirements and Investment Labels
On October 25, 2022, the UK Financial Conduct Authority
(“FCA”) published a consultation on a new regulatory
framework for sustainability disclosure requirements and investment
labels. The key elements of this proposal are to introduce
investment labels (mainly meant for retail products but also
available for funds marketed to institutional investors).
The proposal introduces a regime of detailed disclosure,
including for fund-related precontractual and ongoing
sustainability disclosures, as well as entity-related
sustainability reports. It also introduces a general
anti-greenwashing rule, as well as naming and marketing rules
restricting the use of certain sustainability-related terms in
product names and marketing materials.
Though the proposal bears similarity to—and overlaps
with—disclosure and marketing requirements under the EU
Sustainable Finance Disclosure Regulation (“SFDR”), the
FCA took a slightly different approach than the EU. The SFDR is not
intended to introduce labels, but rather requires retail and
institutional funds to provide certain minimum disclosures on ESG
risks. It also requires these funds to disclose sustainability
information in a specific manner and on an ongoing basis, though
only to the extent that the funds promote certain
sustainability-related themes. Going forward, fund sponsors will
need to ensure that they meet the UK labeling and/or naming and
marketing rules, while also staying consistent with their SFDR
qualification and related EU disclosure obligations.
Link:
FCA Proposal
UK: HSBC Climate Advertisements Banned by the Advertising
Standards Authority
On October 19, 2022, the UK’s Advertising Standards Agency
(“ASA”) held, in what has been described as “the
first ruling of its kind,” that sustainability-focused
advertisements run by HSBC were misleading. The ASA launched the
investigation after receiving 45 complaints over HSBC’s
advertisements, which included statements about the bank’s $1
trillion commitment to help clients plant trees and transition to
net zero. The ASA asserted that such statements were undermined by
HSBC’s funding of fossil fuels and deforestation.
The ASA ruling stated that it “did not consider that [the
ads meant] consumers would understand the intricacies of
transitioning to net zero, and would not expect that HSBC, in
making unqualified claims about its environmentally beneficial
work, would also be simultaneously involved in the financing of
businesses that made significant contributions to carbon dioxide
and other greenhouse gas emissions, and would continue to do so for
many years into the future.” The ASA concluded that the ads
omitted material information and were therefore misleading.
The ASA ruled that HSBC must remove the ads in question. The ASA
further ruled that HSBC must ensure that future marketing materials
featuring environmental claims are adequately qualified and do not
omit material information about the bank’s contribution to
carbon dioxide and greenhouse gas emissions.
Link:
ASA Ruling
EU: Platform on Sustainable Finance Publishes Final Report
on Minimum Safeguards under the EU Taxonomy Regulation
On October 11, 2022, the European Commission’s Platform on
Sustainable Finance published its Final Report on Minimum
Safeguards under the EU Taxonomy Regulation. The Report sets out
checks for firms to determine whether the companies in which they
invest have in place “minimum safeguards” in relation to
human rights, employment rights, anti-bribery, taxation and fair
competition.
Whilst the checks described in the Report form part of the
process for qualifying an investment under the Taxonomy Regulation
as taxonomy-aligned, the practical impact of the report is likely
to be wider. The Report’s standards represent general criteria
for due diligence on human rights and best business practices. In
addition, there is significant overlap between the concept of “Minimum Safeguards” in the Report and the concept of “good governance” in the definition of sustainable
investment and sustainability requirements for funds classified
under Articles 8 and 9 of the EU Sustainable Finance Disclosure
Regulation.
The Report draws a direct line to the pending Corporate
Sustainability Due Diligence Directive (“CSDDD”) and the
pending Corporate Sustainability Reporting Directive
(“CSRD”): portfolio companies complying with the CSDDD
will be deemed to comply with the Minimum Safeguards, and if a
company is subject to the strict reporting standards under the
CSRD, that will provide the basis for—and make it easier to
verify—compliance with the Minimum Safeguard.
While the Report recognizes a different scale of checks
depending on the size of the company, it generally sets a high bar
for the standards to be met.
For more information on the Report, please see our Client Update.
Link:
Final Report
Global: Microsoft Launches Scope 3 Emissions Tracking and
Analysis Tool
On October 13, 2022, Microsoft launched a series of
enhancements, including a tool to improve Scope 3 emissions data
recording, to its Cloud for Sustainability (the “Cloud”)
and Microsoft Sustainability Manager, which enables companies to
record, report, reduce and replace their emissions. The software
utilizes real-time data sources to provide more accurate carbon
accounting and management.
The recent updates increase the capabilities of the Cloud by
incorporating tools that provide companies with the capability to
track Scope 3 emissions, including emissions generated in value
chains outside their direct control. In addition, companies will be
able to track water and waste data, as well as fuel- or
power-related emissions within their operations, which can be
broken down by activity in order to set and track goals for future
emission reductions.
Link:
Microsoft
statement
Global: Impact Investing Reaches over $1 Trillion for the
First Time
On October 12, 2022, the Global Impact Investing Network
(“GIIN”) released a report—GIINsight: Sizing the
Impact Investing Market 2022—which estimated that the
worldwide impact investing market had reached $1.164 trillion,
reflecting a 40% increase in the last two years. Impact investing
is the allocation of investments that target not only monetary
returns but also specific and measurable environmental, social or
governance goals.
The report studied data collected from more than 3,000 asset
owners and managers. It found that the market shows “undeniable momentum.” It also spotlighted two areas of
particular growth:
- the green bond market, which, since launching in 2008, reached
$578 billion in 2021; and - corporate impact investing, through which corporations deploy
their cash reserves to push for social change, often in response to
shareholder pressure to address climate change and social
inequity.
Amit Bouri, CEO of GIIN, stated that though this market growth
serves as a “very positive sign for impact investing, it is
also a call for further action.” Specifically, he views
further growth of impact investing as necessary to meet the UN
Sustainable Development Goals by 2030 and to achieve net zero
emissions by 2050.
Link:
GIIN Report
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Source: news.google.com
