Sustainable Finance Update: June 2022

Investor & market news

UN approve world’s first global plastic pollution treaty

• The United Nations (UN) has approved what they consider to be the most significant environmental deal since the 2015 Paris climate accord – a global plastic pollution treaty, due to be finalised by 2024.
• The legally binding treaty will cause significant ripples globally, particularly for major plastic-producing countries, and businesses like consumer goods giants.

Environment Minister successful appeal against previous decision on climate change duty of care

• The full bench of the Federal Court has overturned a prior lower court decision which held that the then Environment Minister Sussan Ley owed a climate change duty of care to younger generations. The decision gained international attention and is the latest in growing trend of novel climate related litigations taking place across Australia.

Shell faces lawsuit over transition plans

• Multinational oil and gas company, Shell, is set to face a lawsuit from environmental lawyers. Although Shell pledged to halve the emissions from its operations by 2030, it is alleged that Shell is failing to properly prepare the company for the net-zero transition.

LMA, APLMA and LSTA announce joint publication of two new ESG guidance documents  

• Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA) and Loan Syndications and Trading Association (LSTA) has announced two guidance documents to support the development of green, social and sustainability linked loans.
• The first document, ‘Guidance for Green, Social and Sustainability Linked Loans External Reviews’ provides best practice guidance on external review processes.
• The second document, ‘Guidance on Social Loan Principles’, sits alongside the Social Loan Principles and is to provide greater clarity regarding requirements of the Social Loan Principles.

LMA releases guide to the application of SLLP in REF

• LMA announced the launch of a new guide to the application of Sustainability Linked Loan Principles (SLLP) in real-estate finance (REF)and real-estate development finance, seeking to provide more practical sector-specific guidance in applying SLLP.
• LMA acknowledges challenges in applying the SLLP to REF and real estate developments such as the borrower often being a special purpose vehicle, and the borrower does not itself occupy the property being financed thus they do not have direct control over the operation of these properties.

ASF publishes ESG guideline

• The Australian Securitisation Forum (ASF) ESG Working Group has published a Guideline on principles and disclosures for securitisation. There are three asset class specific disclosure guidance documents and an Issuer disclosure industry guideline. The guideline is to assist in championing best practice. 

ISSB publishes draft sustainability standards

• The International Sustainability Standards Board (ISSB) has published exposure drafts that will create a comprehensive global baseline for sustainability disclosures
• The two proposed standards cover general sustainability-related disclosure requirements and climate-related disclosure requirements.

IIF responses to Call for Evidence on Market Characteristics for ESG ratings providers in the EU

• Institute of International Finance (IIF) has responded to ESMA’s Call for Evidence on Market Characteristics for ESG Ratings Providers in the EU.
• The IIF describes a strong case to allow for the market to lead the evolving maturity and transparency of the ESG ratings industry with regulation to be involved as safeguards.
• The response also highlights the importance for a consistency policy approach globally.

EU countries support world-first carbon border tariff

• EU countries support a world-first carbon dioxide emissions tariff on polluting goods imports.
• Goods affected by the proposed tariff would be imports of steel, cement, fertilisers, aluminium, and electricity. While costs will not be implemented until 2026, a transition phase would begin in 2023.

EU’s advisers propose extending the green taxonomy

• EU’s Platform on Sustainable Finance have proposed to add an amber category to its sustainable finance taxonomy for investments that are transitioning out of significant harmful environmental performance levels to intermediate performance.

Regulatory developments

APRA releases climate risk self-assessment survey

• Australian Prudential Regulation Authority (APRA) has announced a voluntary climate risk self-assessment survey for medium to large APRA-regulated entities.
• The purpose of the survey is to improve understanding of the approaches being taken by APRA-regulated entities to identify, assess and manage climate-related financial risks.

Proposal for US listed companies to disclose climate-related risks

• The United States Securities and Exchange Commission (US SEC) has announced a landmark proposal requiring US listed companies to disclose their climate-related risks and greenhouse gas emissions as part of a push to address financial risks formed by rising temperatures.
• Under the proposal companies must disclose their emissions, and “actual or likely material impacts” in which climate-related risks will have on the company’s business, strategy, and outlook. This could potentially call for new regulations such as carbon tax to reduce physical risks.
• The public comment period has been extended to 17 June.

SEC proposes to enhance fund ESG labelling

• The United States Securities and Exchange Commission (US SEC) has proposed amendments to rules to promote consistent, comparable, and reliable information for investors regarding environmental, social and governance (ESG) factors.
• The amendments proposed seek to categorize different ESG strategies and requires funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on their type of ESG strategies.

EBA recommends adjustments to proposed framework for sustainable securitisation

• The European Banking Authority (EBA) has recommended changes to the EU Green Bond Standard (EU GBS) regulation that would allow the EU GBS to apply at the issuer/originator level. Therefore, transactions may meet requirements of the EU GBS without a portfolio of green assets as long as the issuer/originator commits the proceeds to generating new green assets.  

NGFS publishes key considerations to enhance market transparency in green and transition finance

• The Network for Greening the Financial System (NGFS) has published its report Enhancing Market Transparency in Green and Transition Finance.
• The report highlights challenges to market transparency and sets out relevant considerations to policymakers, which include: tying taxonomies and climate transition frameworks to clear objectives, a common understanding of taxonomies, frameworks and principles to avoid divergences and enhanced disclosure and reporting.

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