March 2023 Newsletter

The sun is shining (in London) and we have some great ESG stories for you.

FCA updates on its Sustainability Disclosure Requirements (SDR) and investment labels consultation

The Financial Conduct concluded its consultation into Sustainability Disclosure Requirements (SDR) and investment labels on 25th January 2023. Measures proposed in the consultation aimed to “build confidence and to help consumers navigate the market” and encompass considerations of market restrictions, refining specific criteria for labels and clarifying how products can qualify for each label. Following broad support for the proposed regime, the FCA will publish a Policy Statement in Q3 2023. The Policy Statement will also clarify that independent verification of product categorisation is not required for a product to qualify for a label. There is a place among the new measures for all in-scope products, including those which may not qualify for a label but have “some sustainability-related characteristics”. LINK

Summary of ‘Green Day’ Announcements

On 30th March, the UK government presented numerous climate- and sustainability-related finance policy announcements. Both the government’s ‘Powering up Britain’ and ‘Green Finance Strategy’ publications include measures in response to last year’s High Court ruling that the UK’s ‘Net-Zero Strategy’ did not meet government’s obligations under the Climate Change Act. Highlights from the ‘Green Finance Strategy’ include a consultation paper on the Green Taxonomy to be published in Q3 2023; a consultation later this year on Climate Transition Plans for large companies; a review later this year of the UK Stewardship Code; and an initial framework outlining how the UK can become the first net-zero aligned financial centre. Key announcements from the ‘Powering Up Britain’ agenda include a series of new green hydrogen projects; the announcement of eight carbon capture, usage and storage (CCUS) projects and details on the role of Great British Nuclear to deliver new nuclear projects; and ‘the Great British Insulation Scheme’ which will seek to make UK homes more efficient. Critics have noted the proposals will allow the continuing expansion of fossil fuel production in the North Sea, contrary to the government’s low carbon ambitions, and without an alternative support mechanism for the renewables industry. Amongst the new proposals, the “carbon budget delivery plan” also shows the UK is not on track to deliver on its international climate pledge for 2030 under the Paris Agreement or the UK’s legally-binding sixth carbon budget for 2033-37. LINK

Biden Vetoes Anti-ESG Resolution

President Biden’s first ever veto was issued to defend plans for fund managers to include ESG considerations under a new Department of Labor (DoL) rule. Addressing the Republican-led resolution which he vetoed, Biden said it “would prevent retirement plan fiduciaries from taking into account factors, such as the physical risks of climate change and poor corporate governance, that could affect investment returns.” The resolution was brought using the Congressional Review Act, whereby Congress members vote to disapprove rules within 60 days of implementation. The DoL rule came into force on 30th January and is itself a reversal of a Trump administration move to block the integration of ESG considerations into Employee Retirement Income Security Act (ERISA) funds. LINK

BlackRock to Continue Engaging with Companies on Climate Strategy, Emissions Targets

BlackRock’s newly announced Engagement Priorities for 2023 remain largely unchanged from 2022, despite the firm finding itself amid an ESG backlash this year. BlackRock emphasises, however, that its engagement will focus on understanding how companies manage risk and maximise opportunities and “does not tell companies what to do”. One key aspect of the engagement priorities involves disclosure; BlackRock encourages disclosures aligned with the TCFD framework and welcomes the ISSB’s work in developing global sustainability reporting standards. Last year, the Engagement Priorities commentary encouraged companies to disclose Scope 3 emissions and targets where material; this year, the commentary goes further to note that a growing number of companies now disclose Scope 3 emissions. LINK

Texas Anti-ESG Investing Bill Faces Pushback Over $6 Billion Cost to Pensions

Retirement system managers in Texas have released estimates that proposed legislation to limit ESG investing in the state’s public retirement investment system could cost the pension system billions in lost returns. Senator Bryan Hughes filed the bill, SB 1446, which includes a proposal to prohibit investment managers and proxy advisors from working for state pensions systems if they are determined to take “action or consider a factor in managing assets of a public retirement system that furthers […] any social, political, or ideological interest beyond what federal or state law requires.” Texas is one of several states to introduce proposals to disallow ESG investing, although many have faced similar pushback over the cost and estimated lost returns which may result. LINK

If you would like to discuss any of the topics discussed here, please get in touch.