October 2024: EU Deforestation Regulation Delay, COP16 Highlights, Nuclear Power for AI, and more

Key highlights from October 2024 in the sustainability space.

1- European Commission Proposes One-Year Implementation Delay for Deforestation Regulation

On October 2, the European Commission issued new guidance on implementing the EU Deforestation Regulation, and proposed a 12-month delay. This delay responds to feedback from international partners on their readiness to comply, particularly for countries producing goods like palm oil and soy. Concerns were raised that tools to trace links between these products and deforestation may not be ready in time. If approved, the regulation will apply to large companies starting December 30, 2025, and to micro and small enterprises from June 30, 2026, providing a phased approach for effective implementation. The European Council, aligning with the Commission’s position, has scheduled a plenary vote for November 14, with the goal of adopting the regulation and publishing it in the EU's Official Journal by year-end.

2- COP16 on Biodiversity Held in Colombia: Highlights and Challenges

The sixteenth Conference of the Parties (COP16) to the Convention on Biological Diversity took place in Cali, Colombia, from October 21 to November 1. This was the first Biodiversity COP since the signing of the Kunming-Montreal Global Biodiversity Framework in 2022, but it was overshadowed by disappointment. Only 34 of 195 framework signatories submitted actionable plans to meet its goals. The conference was also criticized for not leveraging sufficient resources to address the scale of biodiversity loss, especially as the discussions on resource mobilization were cut short due to delays. This lack of progress is particularly concerning in light of the World Wildlife Fund's October 9 Living Planet Report, which highlights a "catastrophic 73% decline in the average size of global wildlife populations over the last 50 years."

Nonetheless, COP16 saw some breakthroughs. A new global levy on products derived from genetic resources was introduced, creating one of the world’s largest biodiversity conservation funds. Additionally, Indigenous communities achieved a milestone with formal inclusion in the UN biodiversity decision-making process.

3- ESMA Issues 2024 European Common Enforcement Priorities for Corporate Reporting

On October 24, the European Securities and Markets Authority (ESMA) released its 2024 European Common Enforcement Priorities for corporate reporting. Key priorities include a strong focus on sustainability reporting, alongside standards for IFRS financial statements and ESEF reporting.

 For sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD), ESMA emphasizes materiality considerations in reporting under ESRS, the need for well-structured sustainability statements that align with financial statements, and disclosures related to Article 8 of the Taxonomy Regulation. ESMA also clarified that enforcers will take action on any significant misstatements, countering expectations of leniency due to early implementation challenges with the CSRD.
4- Tech Giants Turn to Nuclear Power to Fuel AI Growth Amid Rising Emissions Concerns

Last month, new research from Morgan Stanley projected that data centers powering AI technologies could generate approximately 2.5 billion metric tons of CO₂-equivalent emissions globally by 2030. This finding has amplified concerns over the energy demands of AI, which risk undermining tech companies' sustainability goals. 

In response, Microsoft, a major player in AI technology, formed a team dedicated to reducing cloud and AI emissions and signed a deal with Constellation Energy to restart the Three Mile Island nuclear plant, aiming to source low-carbon energy for its data centers.

Following Microsoft, Google and Amazon also turned to nuclear power this month. Google became the first corporation to purchase energy from small modular reactors (SMRs) under development by Kairos Power. Amazon signed agreements to advance SMR technology in the Pacific Northwest with Energy Northwest and X-energy and in Virginia with Dominion Energy. While these agreements refer to nuclear energy as carbon-free, this designation remains debated due to emissions generated during uranium extraction, transport, and processing.

- Content prepared with the help of Defne Fresko Tasci.

September 2024: New York Climate Week, SEC dismantles ESG Task Force, climate disclosures in Australia, and more

Key highlights from September 2024 in the sustainability space.

1- New York Climate Week 2024
The New York Climate Week was held between the 22nd and 29th of September in New York, coinciding with the UN Summit of the Future that took place between the 20nd and 23th of September in the same city. With 100.000 attendees and more than 900 events, the week was significant for the future of global climate goals. As COP29 is expected to see a sharp decline in attendance, due to the host state Azerbaijan's vested interests in oil and gas and the long travel times for US executives, the week is set to be the climate event of the year. During the week, the Climate Group unveiled an urgent 12 month action plan to get the world ‘on-track’ in relation to the climate in just one year. The global to-do list includes seven ambitious actions to deliver on climate commitments, highlighting the fact that the world does not have another year to waste when it comes to the climate crisis. Key takeaways from the week centre around alarm raised as the world breached the 1.5°C warming limit for an entire year for the first time, companies’ regulatory concerns as they ramp up for sustainability related disclosures for the first time in 2025, and geopolitical unrest interfering with the delivery of climate commitments. Other highlights from the week can be accessed here. 

2- SEC dismantles Climate and ESG Task Force

The SEC has quietly disbanded its Climate and ESG Task Force, which was launched in 2021 to address misleading environmental, social, and governance (ESG) disclosures. Initially formed with nearly two dozen staffers, the task force played a significant role in high-profile enforcement cases, including actions against Bank of New York Mellon, Goldman Sachs, and Vale SA. Despite its closure, the SEC emphasized that the expertise developed by the task force has been integrated across its Enforcement Division.

The move comes amid growing backlash against ESG initiatives, with both the SEC and companies increasingly distancing themselves from the term. ESG priorities have been dropped from the SEC’s compliance examiners' focus, and it is uncertain if pending ESG regulations will be finalized before the potential change in SEC leadership in early 2025.

3- Australia passes legislation introducing mandatory climate-related disclosures

On the 9th of September, both houses of the Parliament of Australia passed the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, requiring in-scope entities to disclose climate-related risks and opportunities in accordance with the relevant sustainability standards (ASRS) starting from January 2025. This introduction is a welcome step in harmonising sustainability related financial disclosures internationally. An interesting inclusion in the bill is a requirement for companies to disclose scenario analyses for a low warming scenario (1.5°C) and a high warming scenario (> or = 2.5°C), tying in with the abovementioned concern around the sustained breach of the 1.5°C warming target in 2024. 

4- California’s Responsible Textile Recovery Act signed into law

On September 22, 2024, California Governor Gavin Newsom signed the Responsible Textile Recovery Act (SB 707), establishing the nation's first extended producer responsibility (EPR) program for apparel and textiles. This law requires manufacturers, distributors, and other producers of apparel and textile products to form or join a producer responsibility organization (PRO) by 2026, shifting the burden of managing end-of-life products to the producers. The program will include creating collection systems, education initiatives, and performance standards, and aims to handle post-consumer textile waste through repair, recycling, and managing chemicals like PFAS.

SB 707 is part of a growing EPR trend in California, which also passed EPR laws for electric vehicle batteries, marine flares, carpet, and paint. As more states and countries adopt EPR frameworks, manufacturers and retailers should closely monitor developments and ensure compliance with emerging regulations.

- Content prepared with the help of Defne Fresko Tasci.

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