Sustainability Blog #6

Legislation and regulation

On 23 February, the Loan Market Association (LMA), published updated versions of Green Loan Principles and Guidance, Social Loan Principles and Guidance and Sustainability-Linked Loan Principles and Guidance. These Principles and Guidance were developed to provide high level frameworks of voluntary recommended market standards across the sustainable loan markets. LMA stated that  “the updates reflect recent market developments across global sustainable finance markets, ensuring the frameworks continue to promote the development, and integrity, of sustainable finance products.” You can find the new Principles and Guidance here.

Besides various types of sustainable loans, another popular type of sustainable financial instruments are Green, Social, Sustainable and Sustainability-linked bonds. Like LMA’s Principles for loans, ICMA (International Capital Market Association) also issues Principles and Guidelines for various types of sustainable bonds. However, regulating the green bond market is also important to the European Union, which issued an EU Green Bond Standard (EUGBS) proposal in 2021 as a part of the EU Green Deal. The EUGBS is a voluntary standard to help scale up and raise the environmental ambitions of the green bond market and it will be EU Taxonomy aligned. Last month, the EU has taken further steps towards implementing the EUGBS as negotiators of the Council and the European Parliament reached a provisional agreement on the creation of European green bonds (EuGB), thus ending the trilogue negotiations started on 12 July 2022. The agreement is provisional as it still needs to be confirmed by the Council and the European Parliament, and adopted by both institutions before it is final. However, after that, it will start to apply 12 months after its entry into force.

A big step forward was taken regarding the implementation of the Corporate Sustainability Due Diligence Directive (CSDDD) too. The Committee on the Environment, Public Health and Food Safety in the European Parliament has adopted its report on the CSDDD on 9 February. “The environment committee is sending a strong signal: we want to oblige companies to make their entire value chain climate-neutral by 2050. (…) No company should be able to relocate its particularly climate-damaging activities to countries outside Europe in order to circumvent the strict climate regulations in Europe,” said Tiemo Wölken, rapporteur for the opinion. Opinion states that all large companies would need to develop and implement net-zero transition plans aligned with the CSRD and ESRS including the time-bound, science-based targets, and perform environmental and human rights due diligence. Moreover, company directors are responsible for overseeing the obligations regarding combatting climate change and they are also responsible for putting in place and overseeing the due diligence.

On 17 February, Commission Delegated Regulation (EU) 2023/363 was published in the Official Journal of the European Union. This Delegated Regulation amends and corrects the regulatory technical standards (RTS) laid down in SFDR RTS regarding the content and presentation of information about disclosures in pre-contractual documents and periodic reports for financial products investing in environmentally sustainable economic activities. The Delegated Regulation entered into force on 20 February, and you can find it in the link.

It's also important to note that February started with a big publication from the European Commission as they presented a Green Deal Industrial Plan to enhance the competitiveness of Europe's net-zero industry and support the fast transition to climate neutrality. The Plan aims to provide a more supportive environment for scaling up the EU's manufacturing capacity for the net-zero technologies and products required to meet Europe's ambitious climate targets. The plan revolves around four main pillars. The first pillar is about a simpler regulatory framework, the second will speed up investment and financing for clean tech production in Europe, the third pillar will focus on enhancing and developing skills and the fourth will be about global cooperation and making trade work for the green transition. The whole Green Deal Industrial Plan can be found here.

News and publications

European Public Real Estate Association (EPRA) responded to the ESMA Consultation on Guidelines on funds’ names using ESG or sustainability-related terms. You can find the whole response here.

The World Business Council for Sustainable Development (WBCSD) published an interesting report on what lies behind the increase in ESG-related litigations. Lawsuits against companies concerning ESG issues have grown by 25 percent over the last three decades and this report offers the key trends that has led to that. You can download the full report here.