Sustainability Blog #9

Legislation and regulation

The beginning of May saw important developments regarding the directives on unfair commercial practices. On 3 May, the Council of the EU adopted its position on the proposed directive to empower consumers for the green transition by amending the Unfair Commercial Practices Directive (UCPD) and the Consumer Rights Directive (CRD). The objective of these amendments is to provide consumers with the tools and information they need to make sustainable choices and actively participate in the transition to a greener economy. This now provides the Council presidency with a mandate for negotiations with the European Parliament, which can start as soon as the EP has adopted a position.

In the final few days of the month, significant developments also unfolded regarding the Corporate Sustainability Due Diligence Directive (CSDDD). While the Council had agreed on a common position on the text of the directive last December, the European Parliament had yet to agree on its position before final “trilogue” talks with the EU Commission could begin. Although it had seemed like a done deal, on Wednesday 31 May (just one day before the vote), the European People’s Party decided to vote against the CSDDD position during the plenary session unless a specific amendment was added to the text. The amendment would require the European Commission to transform the directive into a regulation six years after its implementation. However, despite this unexpected last-minute setback, the EP ended up voting in favour of its position on the CSDDD. More details will follow in next month’s blog.

On 17 May, the European Supervisory Authorities (ESAs) published consolidated questions and answers (Q&A) relating to the Sustainable Finance Disclosure Regulation (SFDR) and the SFDR Delegated Regulation. The consolidated Q&A combined the European Commission’s Q&A from July 2021, May 2022 and April 2023, and the ESAs’ Q&A from November 2022. The answers provided give greater insight into PAI disclosures, financial product disclosures, various issues regarding scope, etc. You can find the consolidated Q&A here.

News and publications

On 9 May, the UN PRI issued a responsible investment due diligence questionnaire for real estate investors. The due diligence questionnaire (DDQ) has been developed to help investors better understand and evaluate real estate managers’ approaches to responsible investment. The questionnaire can be used by investors in two scenarios: when choosing an investment manager for a new real estate mandate, or when overseeing an investment manager to whom they have allocated funds. The questions specifically target managers who engage in direct real estate investment. You can find the DDQ here.

A fascinating study called “The Effect of Multinational Enterprises on Climate Change” has been published by the World Bank. By combining fresh data, empirical analysis, and the latest literature, the report explores the challenges and opportunities that multinational enterprises (MNEs) present in the context of climate change mitigation. The findings highlight that while a small number of MNEs significantly contribute to global emissions, they also possess the potential to rapidly initiate meaningful change in their global suppliers’ emissions by encouraging them to adopt sustainable practices and green technologies. Additionally, MNEs emerge as crucial contributors to climate transition through their increasing investment in green sectors. However, the report raises concerns about potential inaction and resistance from MNEs, underscoring that many of them presently lack adequate corporate commitment to decarbonize their own production and supply chains. You can find the study here.

Sustainability-linked financing is still in its infancy, but it is already an integral part of today's financing landscape and looks set to remain into the future. Plenty of data and information exists, particularly on the KPIs of sustainability-linked financings, but it is scattered. Hence, CMS has published a brand-new report on Sustainability KPIs in finance transactions, offering an analysis and comments on all aspects of sustainability-linked financing.
 
This includes a detailed study of over 100 SLBs issued on the “public” (Eurobonds and EMTN) and “private” bond markets in Europe between January 2020 and April 2023. Apart from relevant and up-to-date market data on: KPIs used and impacts on the characteristics of the financing, this report provides best practices, common KPIs as well as practical experiences from clients. Check out the full report here.