August 2024: Dutch ACM clears bank collaboration on disclosures, ASIC's first greenwashing fine, SBTI buildings standard & more

Key highlights from August 2024 in the sustainability space.

1- Dutch banks cleared to work together on sustainability reporting

The Netherlands Authority for Consumers and Markets confirmed on the 14th of August that banks are allowed to collaborate with one another when preparing their sustainability related disclosures to make these more comparable. This conclusion comes as a response to the Dutch Banking Association (NVB) who had asked the Authority whether such collaboration would be permitted under competition rules. The Authority’s decision is significant for the future of sustainability related disclosures, as such collaboration could enhance the comparability and accessibility of the data generated by the disclosures, ultimately improving their quality and reliability. It could also signal progress in terms of sustainability-related industry collaboration, which many have approached carefully given strict competition rules.

2- Australia fines Mercer Superannuation for greenwashing

On the 2nd of August, the Australian Federal Court ruled against Mercer Superannuation (Australia) Ltd. in a case brought by the Australian Securities and Investments Commission (ASIC). The Court found that the company had made misleading statements about the nature and characteristics of some of its ESG investment options, pretending to exclude certain types of companies while including them in the more sustainable options offered on their website. A fine of US$7.4 million was issued. This case was the first of its kind brought by ASIC, joining the growing tide of greenwashing cases around the world, and demonstrating financial authorities’ growing vigilance in the face of eco-hypocrisy. 

3- SBTI launches buildings sector framework

The Science Based Targets initiative (SBTi) has launched a new decarbonization framework for the buildings sector, urging companies and financial institutions to align with net-zero targets. The framework outlines four critical actions: halting fossil fuel installations by 2030, reducing in-use operational emissions, lowering embodied emissions from materials and construction, and retrofitting inefficient buildings. Given that the buildings sector accounts for over a quarter of energy-related emissions, these measures are vital to meet the 1.5°C global warming limit. The SBTi emphasizes immediate action, as the sector plays a key role in preventing climate change's catastrophic effects.

4- New study reveals oceans reaching hottest temperatures in 400 years

A new study was published this month in the scientific journal Nature, highlighting the link between mass blanching of corals in the Great Barrier Reef and record-high ocean temperatures. According to the study, the January–March Coral Sea heat extremes in 2024 were one of the warmest in 400 years, exceeding previous scientific estimates on future warming. Planet warming gasses are mostly to blame for the surge in temperatures, raising concerns about the discrepancy between existing emissions-related targets and the progress that has been made towards these. 

- Content prepared with the help of Defne Fresko Tasci.

July 2024: US Climate reporting, ESRS documentation, ESG in the UK & More

Key highlights from July 2024 in the sustainability space.

1- Update on US Climate Reporting Rules 

Back in October 2023, we had reported that California had adopted first-in-the-US corporate climate disclosure bills. This month, Governor Newsom introduced amendments to delay the compliance deadlines with the bills by two years, deeming compliance with them ‘infeasible’ but confirming that the state remains committed to implementing the regime. California is not alone in its commitment to sustainability related disclosure requirements, with a report published by Fitch on the 9th of July revealing that Washington, New York, Illinois and Minnesota are also going ahead with similar disclosure requirements. The progression of these laws and regulations at state level reveals that thousands of companies operating in the US will - eventually - be required to provide climate-related reporting, even in the potential absence of effective climate reporting rules from the Securities and Exchange Commission.  

2- Activity around ESRS

New material around the European Sustainability Reporting Standards (ESRS) were published this month and should prove particularly useful for companies preparing to disclose under the CSRD in 2025.  First, on the 10th of July, the Global Reporting Initiative (GRI) published a Q&A document on the meaning of the ESRS for existing users of the GRI Standards. Then, on the 25th of July, EFRAG released a study analysing early practices of companies preparing to disclose under the ESRS, highlighting the opportunities and challenges faced by these entities. Shortly thereafter, on the 26th of July, EFRAG issued new explanations of the ESRS as part of its Compilation of Explanations. 

3- Turning point for ESG in the UK as Labour gains power

On the 4th of July, the general election in the UK saw a Labour government gain power for the first time in 14 years, shepherding in a new era for sustainability in the UK. The elections are expected to have significant consequences for ESG in the UK, as the Labour government differs significantly from the preceding Conservative governments on multiple policy outlooks relating to this front. Indeed, the new government has demonstrated a sustained commitment to the energy transition agenda and net-zero policy, highlighting these issues as a key priority during their election campaign. The government is also expected to undertake significant action in relation to Diversity, Equality and Inclusion. The prominence of these issues in the new government’s agenda is promising for the future of ESG in the UK. 

4- New Zealand finalises groundbreaking trade deal to eliminate tariffs on sustainable goods 

On the 2nd of July, New Zealand concluded a pioneering trade deal with Costa Rica, Iceland and Switzerland that will see tariffs removed from hundreds of sustainable and eco-friendly products, according to Trade and Agriculture Minister Todd McClay. The Agreement on Climate Change, Trade and Sustainability (ACCTS) sets an example for multilateral action on climate change, demonstrating how sustainability-enhancing initiatives can simultaneously boost states’ economies.

- Content prepared with the help of Defne Fresko Tasci.

June 2024: EU elections put Green Deal at risk, ISSB harmonization roadmap, Denmark's carbon tax on agriculture & more

Key highlights from June 2024 in the sustainability space.

1-Right swing in European Parliament elections

European Parliament elections took place between 6-9th of June, resulting in heavy losses for Green parties and associated concerns about the future of the EU Green Deal. It is not expected that existing protections would be rolled back, as the centre of the political spectrum still commands a majority in the Parliament, but its ability to pass new measures to advance the sustainability agenda is put into question. Surprisingly, on June 17, the environment ministers passed a landmark nature restoration law (Regulation on Nature Restoration). While this vote does not negate the fact that it will certainly be more difficult to get ambitious environmental legislation off the ground in the next five years, the Green Deal may well survive. 

2-ISSB promises further harmonisation of global sustainability disclosure reporting 

The 2024 IFRS Foundation Conference, which took place in London on the 24-25th of June, saw an announcement from the International Sustainability Standards Board (ISSB) to the effect that the Board will deliver further harmonisation and consolidation of the disclosure reporting landscape in the next two years, as part of their new work plan. This goal will complement the ISSB’s priority of supporting the implementation of IFRS S1 and S2. As part of this new agenda, the IFRS will assume responsibility for disclosure-specific materials developed by the UK Transition Plan Taskforce, effectively bringing the technical work of the TPT to an end. 

3-Denmark introduces Europe’s first CO2 emissions tax on agriculture

On the 24th of June, the Danish Government agreed to introduce Europe’s first carbon tax on agriculture, at the conclusion of a five-month negotiation with farming and conservation groups. The move is significant, as Denmark is one of the world’s foremost pork and dairy exporters, and is expected to enable the Nordic country to reach its target of cutting 70 percent of its total emissions by 2030. There seems to be broad-based consensus around the tax in Denmark, while New Zealand had to end plans to price agricultural emissions just this month due to widespread pressure from farmers. 

4-Market activity around carbon credits

Throughout the month of June, there was significant market activity around carbon credits, with many million tons of carbon removal credits being sold. Among these is an 8 million tonne removal agreement signed by Microsoft with investment group BTG Pactual, one of the largest nature based carbon removal deals, if not the largest.

- Content prepared with the help of Defne Fresko Tasci.

May 2024: New ESMA guidelines against greenwashing, ISSB/ESRS interoperability & Climate change litigation in France

Key highlights from May 2024 in the sustainability space.

1- EU finalises rules for combatting greenwashing in fund names

On the 14th of May, the European Securities and Markets Authority (ESMA) released final guidelines for the use of ESG/sustainability-related terms in investment fund names. These guidelines are intended to combat the risk of greenwashing in the naming of investment funds, as increased investor demand for sustainable investing has incentivised asset managers to use such labels liberally to attract capital. The document defines thresholds to satisfy before a fund can be called “sustainable”, and establishes a “transition” category for investments that are on the path to becoming green even if they don’t qualify as such just yet. It also specifies exclusion criteria for these different funds, applying stricter Paris-Aligned Benchmark (PAB) exclusions to funds using environmental terms while covering funds using transition related terms with lighter EU Climate Transition Benchmark (CTB) exclusions. To comply with these new guidelines, over 40% of investment funds in the EU may be required to change names or sell certain assets, according to an analysis released by sustainability technology platform Clarity AI. 

2-IFRS Foundation and EFRAG publish interoperability guidance

On the 2nd of May, the IFRS foundation and EFRAG published guidance material to illustrate the interoperability between the ISSB and ESRS* standards. The publication is intended to provide practical support to explain “how companies can efficiently comply with both sets of standards.” The guidance elaborates on the alignment of key concepts such as materiality and explains how a company starting to disclose with either set of standards can ensure compliance with the other. The document was designed to reduce complexity and fragmentation in the market for sustainability disclosure standards, in alignment with the ISSB’s founding ethos of providing a comprehensive global baseline for such standards. This is a welcome development as the disclosure requirements faced by companies are increasingly heavy and difficult to navigate. The guidance should enable companies to better collect, govern and control data, contributing to the comparability of data across the board and enhancing companies’ accountability in this respect. 

*The European Sustainability Reporting Standards are the benchmark followed by companies to disclose under the Corporate Sustainability Reporting Directive. (CSRD) 

3-Criminal complaint against French energy company 

On May 21, three NGOs and eight individuals filed a criminal complaint in Paris against TotalEnergies’ board of directors and main shareholders for their contribution to climate change and its fatal impact on human and non-human lives. The lawsuit relies on articles 223-1, 221-6, 223-7 of the French criminal code and article L. 415-3 of the French environment code. The claimants argue that TotalEnergies’ strategic direction contributed to climate change by expanding fossil fuel extraction as the company figures among the top emitters of greenhouse gases globally. The case comes amid the rising frequency of criminal proceedings related to alleged climate change wrongdoings globally. Notably, the complaint targets natural persons along with the company itself. French courts have previously admitted the liability of a director in involuntary manslaughter cases under specific circumstances. It remains to be seen whether such an argument will be successful in this case, as a direct causal relationship will be difficult to prove. 

- Content prepared with the help of Defne Fresko Tasci.

April 2024: CS3D approved, EU exits Energy Charter Treaty, Climate Change litigation update & more

Key highlights from April 2024 in the sustainability space.

1-EU Parliament approves CS3D
On the 24th of April, the EU Parliament finally adopted the Corporate Sustainability Due Diligence Directive after much reported controversy in February. The Council agreed on a new compromise in March 2024, dramatically reducing the scope of the CS3D by raising the threshold for the EU companies covered by the rules to those with more than 1000 employees, instead of the initial 500, and to those with a revenue greater than €450 million, up from €150 million. 

While the watering down of the Directive is regrettable, it ensured the adoption of the directive while keeping its core intact, according to the Vice-President of the EU Parliament, Heidi Hautala. The timeline for the implementation of the Directive will start in 2027 for companies that have over 5,000 employees and a turnover of €1.5 billion, and will progressively apply to smaller companies in 2028 and 2029, giving them more time to prepare for implementation.

2-EU Parliament votes for withdrawal from the Energy Charter Treaty 

On the same day where it approved the CS3D, the European Parliament voted to withdraw the European Union from the Energy Charter Treaty (ECT 1998). The treaty is often viewed as an obstacle to climate action as it allows conventional fossil fuel companies to make claims against states adopting clean energy transition policies. The UK had previously announced in February that they would be leaving the ECT. These decisions come following unsuccessful attempts at modernising the treaty in a way that accommodates the EU’s ambitious sustainability agenda through the EU Green Deal.  

3-ECtHR rules on sufficiency of measures combating climate change 

On April 9, the European Court of Human Rights issued rulings in three landmark climate change cases against France, Switzerland and Portugal (among others.) The Court was asked to determine whether the states’ allegedly insufficient measures to combat climate change amounted to a violation of the individual human rights of European citizens as guaranteed by the European Convention on Human Rights (ECHR). While the Court dismissed the cases against France and Portugal on procedural grounds, the case against Switzerland proceeded. In Verein Klimaseniorinnen Schweiz v. Switzerland, the Grand Chamber of the Court decided that Switzerland had not taken the necessary steps to fight global warming and had therefore violated the applicant’s (a Swiss NGO) right to private and family life under Article 8 of the Convention.  

4-SBTi to accept use of carbon credits in relation to Scope 3 emissions

The Science Based Targets initiative (SBTi), an organisation focused on aligning corporate environmental sustainability action with the climate goals of the Paris Agreement, announced on April 9, that they were prepared to accept the use of environmental attribute certificates for the purpose of abatement of Scope 3 emissions. This announcement follows on from their announcement earlier this year that they plan to revise their Corporate Net Zero standard. They have explicitly stated that they will not attempt to validate the quality of carbon credits, instead establishing thresholds relating to the validity of such certificates. 

Nevertheless, this announcement has the potential to significantly increase the global use of energy attribute certificates such as carbon credits. In response, SBTi employees have reportedly issued an open letter, accusing the SBTI board of trustees of “undermining our Standard Operating Procedures and governance processes” as the possibility of using carbon credits could dissuade companies from taking direct action to reduce emissions. 

- Content prepared with the help of Defne Fresko Tasci.