August 2024 Newsletter

We hope you enjoyed a break over the summer. Here’s our roundup of the latest ESG stories for August.

EU Commission Publishes CSRD FAQs and EFRAG issues new ESRS Explanations

Two important updates have been announced concerning reporting requirements for EU companies and those with significant revenue within the EU.

The European Financial Reporting Advisory Group (EFRAG) has published a Compilation of Explanations for the European Sustainability Reporting Standards (ESRS). In addition to guidance on reporting requirements, structured by ESG categories, this provides detailed answers to various ESRS-related questions and includes explanations of how governance ESRS standards relate to business conduct.

The European Commission also released a set of FAQs to clarify the Corporate Sustainability Reporting Directive (CSRD). These provide clarity on the Directive's scope, specifying which ESRS sets companies should use and how to handle estimates when complete value chain information is unavailable. Further updates may be released as feedback continues to be received.

UK Government Plans to Regulate ESG Rating Providers

The UK government announced its intention to introduce new legislation in 2025 to regulate ESG rating providers, bringing them under the oversight of the Financial Conduct Authority (FCA). The new law intends to enhance transparency in ESG ratings and address existing concerns about inconsistent ESG evaluations, currently lacking supervision by market or securities regulators.

The move aligns with the guidance from the International Organization of Securities Commissions (IOSCO) in November 2021, recommending reporting any possible conflicts of interest and evaluating the data and procedures used in ratings. Following the lead of the EU, which has already implemented regulation, the UK legislation will build upon the FCA introduction of a voluntary code of conduct for ESG ratings at the beginning of the year. Chancellor Rachel Reeves has asked the Treasury to respond quickly to an industry consultation on ESG ratings, with a view to bringing in new legislation next year.

New Requirements under the ESMA ESG Fund Name Guidelines

The European Securities and Markets Authority (ESMA) has released the translations of its ESG Fund Name Guidelines which will take effect for new funds starting 21 November 2024 in EU member states that choose to adopt them. "New funds" refers to those established on or after this date, and managers of present funds are given until 21 May 2025 to comply. The guidelines set new standards for funds with names in three categories involving terms related to (1) transition and social governance, (2) environment and impact, and (3) sustainability. It specifies minimum investment thresholds and exclusions.  EU member states must inform ESMA by 21 October 2024 whether they: (i) comply, (ii) do not comply but plan to, or (iii) do not comply and do not intend to.

SEC Response to Legal Challenges of the Climate Disclosure Rules

The U.S. Securities and Exchange Commission (SEC) filed a brief in front of the Court of Appeals, defending its climate disclosure rules as necessary for investor protection and transparency. The new rules, introduced in March 2024, require companies to report on and address climate risks, the financial impact of severe weather, and, in some instances, greenhouse gas emissions. They have faced various legal challenges, including from Republican Attorneys General and the U.S. Chamber of Commerce, arguing the rules are overly burdensome and exceed the SEC's mandate. Despite having halted the rule’s implementation in April, the SEC insists they are within its authority and essential for providing consistent and comparable information to investors. The outcome of the case could significantly impact future corporate climate disclosures.

Virgin Atlantic Sustainable Fuel Ad Banned for ‘Green-Washing’

The UK's Advertising Standards Authority (ASA) has prohibited a Virgin Atlantic advertisement for misleadingly suggesting that a transatlantic flight was entirely powered by sustainable aviation fuel (SAF), implying no emissions or negative environmental impact. The ASA found the claim "100% sustainable aviation fuel" to be deceptive, as SAFs, while reducing emissions, are not emission-free. SAFs in commercial aviation can currently at best cut emissions by up to 70%. The ASA’s decision aligns with other significant moves against "greenwashing" in the aviation sector, emphasising the need to provide greater clarity for customers in the green transition. Virgin Atlantic responded by reaffirming its commitment to transparency in its sustainability efforts.

If you’d like to know more or discuss any of the topics please get in touch.