EU Taxonomy Developments and the EU’s Renewed Sustainable Finance Strategy
On July 6th, the European Commission published its Strategy for Financing the Transition to a Sustainable Economy, the successor of the EU’s Sustainable Finance Action Plan, which launched in 2018. The strategy focuses on transforming the financial system and financing transition plans, building on the 2018 Action Plan, which centered on developing the EU Taxonomy, putting in place disclosure regimes, and developing tools for the market to develop sustainable investment solutions and prevent greenwashing.
The Mutual Influence of Investors and Government
On issues from voting rights to climate change, the relationship between investors, companies, and governments has never been more dynamic. This has spurred a lively discussion about the impact and appropriate role of these actors in addressing systemic environmental and social issues. An increasingly cited view is that commitments made by businesses and investors are often superficial, and at best, can provide only incremental progress towards addressing the problems we face. Some go further to suggest that sustainable investing has done more harm than good, with the notion that these efforts have provided a false sense of progress and have delayed meaningful government action. This is a worthwhile debate, but my experience over the last eight years in the sustainable investing space has given me a very different perspective.
Sustainalytics Weighs in on EU Taxonomy’s State of Flux
On May 7th, the European Commission published draft rules on how corporates and financial institutions should report on their alignment with the EU Taxonomy. The draft rules are laid out in a very technical document and not an easy read. This might explain why certain changes with significant impact on timelines and scope of the EU Taxonomy Regulation have flown under the radar of media and investors. Some of the impacts even escaped the attention of financial market participants responding to the consultation on the rules.
La pertinence des labels ISR dans le contexte de la SFDR et des mesures de l’AMF contre le greenwashing
Une marée de réglementations liées à l’ESG s’abat sur les investisseurs institutionnels. Avec l’introduction de SFDR et les obligations de publication mises en place par l’AMF, se pose la question d’une possible obsolescence des labels ISR dans la lutte contre le greenwashing. Un phénomène qui inquiète de plus en plus les investisseurs et les régulateurs au vue de la croissance constante du marché des fond ISR. Pendant de nombreuses années, l’industrie s’est auto-régulée en s’accordant sur une définition générale de l’investissement responsable et/ou en se tournant vers les opérateurs de labels pour créer des standards de marché.
Royal Dutch Shell Court Order Shifts Paradigm for Corporate ESG Accountability
On 26 May 2021, the Court of The Hague orders Royal Dutch Shell (RDS) to reduce CO2 emissions to a net 45% by the end of 2030 compared to 2019 through the Group Policy of the Shell Group. The order of a national (Dutch) court demands that a global company (RDS) fulfills its obligations under the Paris Climate Agreement, although RDS was not a party in that agreement, and there is no legal equivalent in The Netherlands. What are the broader consequences of this order, also globally and for other companies and potentially also other jurisdictions?
New Draft Disclosure Rules Change Timelines and Scope of EU Taxonomy
In recent months, a lot has been said and written about the EU Taxonomy, the green classification system of economic activities that aims to drive capital flows to sustainable investments supporting the EU’s policy goals on climate and the environment. Political, corporate, and civil society lobbying reached its peak when the EU published draft rules last December, which deviated substantially from expert recommendations. However, the latest draft delegated act with rules on Taxonomy reporting published by the European Commission on May 7th has received far less attention even though some of the proposed changes affect the practical implementation timelines as well as the scope and ambition of the regulation.
Les points communs entre la réglementation française et européenne en matière d’ISR
Quand les nouvelles réglementations sur les investissements durables et responsables (ISR) furent annoncées avec le « EU Action Plan », les institutionnels français n'ont pas cillé. Depuis l'accord de Paris en 2015, de nombreuses nouvelles obligations réglementaires liées à la publication d’information et à l’analyse ESG ont influencé les stratégies d’investissements responsables des institutionnels français. Le règlement SFDR qui est entré en vigueur le 10 mars dernier vient s’ajouter au cadre réglementaire local en matière de reporting.
EU Sustainable Finance Disclosure Regulation: An Update
Update - 3 March, 2021: To help investors comply with the new requirements of the SFDR, Sustainalytics launched the PAI Data Solution that maps our research to the 60 indicators defined by the regulator. This new dataset will enable investors to consider the PAIs in their investment decisions as well as supporting disclosure requirements. Visit our website to learn how we can help with you SFDR compliance journey.
Climate Action, Human Health and Responsible Investing
This year, we mark Earth Day under a pandemic. To date, casualties of the novel coronavirus include more than 170,000 deaths, ongoing disruptions to healthcare systems and a deep economic downturn. As we face the first global recession in a decade, Earth Day – the theme of which this year is climate action – serves as a reminder for investors to reflect on how their investment activities relate to social and environmental health concerns.
German Corporate Governance Standards Overhauled
The legal and regulatory foundations of Germany’s corporate governance system are being overhauled in the form of far-reaching changes to the German Stock Corporations Act (AktG) and the German Corporate Governance Code (Kodex). As a result, institutional investors should expect enhanced transparency from German issuers, as well as stronger rights enabling them to effectively exercise their stewardship responsibilities. The reform reflects both the transposition of the EU Shareholder Rights Directive II (SRD II) into domestic law and a corresponding Kodex revamp, both aiming to incorporate governance features that are more typically associated with Anglophone jurisdictions.
PFAS Sparks a Wave of Litigation in the U.S. Chemical Industry
In 2019, a wave of litigation related to per- and polyfluoroalkyl substances (PFAS) emerged in the United States, as several states filed lawsuits against PFAS manufacturers, including DuPont, Chemours and 3M. This legal action accompanies increased regulatory scrutiny of this potentially risky class of chemicals. In this article, we will focus on the risks chemical companies face related to PFAS contamination of drinking water in the United States and the ESG risks posed to chemical companies and their investors.
Shareholder Rights Directive II gets transposed into local legislation - a look at say on pay
The newly updated European Shareholder Rights Directive (“SRD II”) (2017/828/EU) aims to promote long-term shareholder engagement at companies listed in EU-regulated markets. These changes were prompted by an almost decade-long conversation that arose in the wake of the 2008 global financial crisis. Since then, many market actors have flagged shareholder short-termism as a key contributor to the crisis, with long-term engagement conversely seen as a bulwark against similar failures in the future.
Controversial Weapons: Regulatory Landscape and Best Practices
Since the beginning of modern warfare in the 20th century, we have witnessed the development of weapon types that have a severe, disproportionate and indiscriminate impact on civilians, even years after a conflict has ended. Over the past decades, several protest movements have attempted to halt and ban the production of specific, controversial weapon types, and many countries have adopted international conventions to this effect. More recently, some financial institutions have begun to restrict or exclude financing of companies with involvement in certain weapons. This article explores what investors can do, beyond existing legal frameworks, with respect to controversial weapons.
Regulating the Chemicals Industry: How does REACH impact Companies?
Chemical substances are part of our daily lives. They are found everywhere from the cleaning detergents we use to the clothes we wear and our personal electronics. The companies that produce these chemicals, some of which can be hazardous and have a negative impact on human health and the environment, are exposed to several risks and are highly regulated. In Europe, the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation focuses on ensuring the safe use of chemicals, as well as the phasing-out of the most harmful chemical substances. As the third and final REACH registration deadline approaches, we take this opportunity to look at the impact of chemical regulations on the sector and investors.
GDPR and the Right to Privacy
On May 25, 2018, General Data Protection Regulation (GDPR) will enter into force, repealing the 1995 non-legally binding European Union (EU) Data Protection Directive. GDPR enhances European citizens’ right to privacy by enshrining the “right to be forgotten,” establishing concepts like “privacy by design” and by setting aggressive timelines for businesses to report data breaches.
Commentary on New Department of Labor Guidance
On April 24th, the US Department of Labor (DOL) released a Field Assistance Bulletin (FAB), seeking to clarify how environmental, social and corporate governance (ESG) factors should be considered under the Employee Retirement Income Security Act (ERISA).
ESG in Australian Banking: A look at the Royal Commission Inquiry
The ongoing Government-appointed Royal Commission inquiry into misconduct in the banking and financial sector has put Australian financial institutions at the centre of a storm of public outrage, media attention and investor concern. Daily headlines are revealing a litany of wrongdoing and raising questions about what went wrong, and the reforms needed to fix it.
Moving the Fashion Industry Forward: Regulations and Industry Tools
Five years ago, the world was awakened to the reality of garment manufacturing conditions in Asia, and specifically in Bangladesh. The production of clothes for the developed markets was posing life-threatening hazards for Bangladeshi garment workers. The Rana Plaza factory collapse, which killed 1,100 people and severely injured 2,000, raised awareness among industry organizations, governments, investors and the public about fundamental human rights issues as well as poor working conditions in the region.
US Lawmakers Act Against Tax Inversions: Implications for Corporate Governance
The Tax Cuts and Jobs Act (“TCJA”), which came into effect on 1 January 2018, marks one of the most substantial reforms to the United States tax code in more than 30 years. In response to growing public pressure, US lawmakers have enacted wide-reaching tax reforms to curb the trend of tax inversions. These tax arrangements involve the re-incorporation of US companies abroad, enabling them to avoid US laws and domestic tax rates. This blog will examine how a corporate inversion – the most common type of tax move – erodes the US tax base and increases investment risk.