New Climate-related Financial Disclosure Regulations for UK Companies

On 19 January 2022 the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (the “Regulations”) were published in the UK. As of 6 April 2022, these Regulations are now in force. Companies that are subject to the Regulations will need to comply with the new reporting requirements for accounting periods ending on or after 6 April 2022.

What do the Regulations do?

The Regulations amend the Companies Act 2006 and expand the type of companies that are required to provide information in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”) as part of their strategic reports. The Regulations require mandatory disclosure of material information in the four TCFD categories: Governance, Strategy, Risk Management, and Metrics / Targets.

It is mandatory for companies that are subject to the Regulations to disclose climate and sustainability-related information outlined in the Regulations in the non-financial information section of their strategic reports. The information required to be provided depends on the type of company, for example, AIM companies are subject to less extensive requirements. These reports will be publicly available, accessible free of charge and filed at Companies House.

Similar requirements will also apply to certain limited liability partnerships (LLPs) in the UK. The LLP Regulations amend The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 and require certain LLPs to incorporate TCFD-aligned climate disclosures in their annual reports.

In-scope companies should familiarise themselves with the new reporting requirements and be aware of the potential for overlap with other reporting requirements. The BEIS Guidance offers additional detail on the expected disclosures. In general, companies and LLPs will be required to disclose the following information:

  • a description of the governance arrangements of the company or LLP in relation to the assessment and management of climate-related risks and opportunities;
  • an explanation of how the company or LLP identifies, assesses and manages climate-related risks and opportunities;
  • details of the processes the company or LLP uses to identify, assess and manage climate-related risks and how these processes are integrated into the overall risk management process of the company or LLP;
  • identification of the principal climate-related risks and opportunities arising in connection with the operations of the company or LLP;
  • a description of the actual and potential impacts of the principal climate-related risks and opportunities on the business model and strategy of the company or LLP;
  • an analysis of the resilience of the business model and strategy of the company or LLP, taking into consideration different climate-related scenarios;
  • a description of the targets used by the company or LLP to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
  • the key performance indicators used to assess progress against targets and a description of the calculations on which those key performance indicators are based.

Which companies do the Regulations apply to?

The Regulations apply to UK companies that are:

  1. AIM / traded companies;
  2. Banking companies;
  3. Authorised insurance companies;
  4. Companies with a high-turnover;

Provided that each such company has more than 500 employees (or together with its subsidiaries has more than 500 employees).

Are there any exemptions to the Regulations?

A company will not be subject to the Regulations if it is a subsidiary and annual climate-related disclosure is included in its parent company’s strategic report for the group. To be exempt, the parent must be a UK company (or LLP) and the strategic report must be prepared for a financial year that ends on or before the subsidiary’s financial year. The report must also include non-financial and sustainability information in respect of the subsidiary.

UK subsidiaries of a non-UK parent:

However, where a U.K. subsidiary has a non-UK parent that reports on a consolidated basis, the exemption does not apply. This means a non-UK parent may be exempt but their UK subsidiaries may be subject to the Regulations.

Non-UK companies with UK subsidiaries should be aware that their UK subsidiaries may fall within the scope of the Regulations and consider whether their strategic reports should be on an individual or consolidated basis with respect to their UK subsidiaries.

If you have any questions about this post, please contact Drew D. SalvestNatalie A. StewartRebecca Green any of the attorneys in our Banking and Finance Industry Group or the attorney in the firm with whom you in regular contact.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, please contact Brad A. MolotskyDavid AmerikanerNanette HeideDarrick MixVijay BangeSteve Nichol, or the attorney in the firm with whom you are regularly in contact.

 

ESG: Sustainability Linked Loans becoming more Commonplace in the Marketplace – Louise Melchor, Esq.

 

As environmental, social, and governance (“ESG”) initiatives are increasingly implemented by borrowers and lenders, sustainability linked loans provide opportunities for both.

What are Sustainability Linked Loans?

Sustainability linked loans (“SLLs”) are based on the Sustainability Linked Loan Principles developed by the LMA, APLMA and LSTA.[1]  In SLLs, a borrower, together with its lender group, determine and set certain sustainability performance targets (“SPTs”) for the borrower to achieve, to be measured by key performance indicators (“KPIs”).  Independent organizations, including the Sustainability Accounting Standards Board (“SASB”), provide guidance on the ESG metrics most relevant to certain industry sectors.  Once agreed between the borrower and lenders, the KPI/SPT benchmarks are then integrated into margin adjustments to the interest rate or commitment fee for the credit facility (i.e., by achieving the KPIs, the interest rate is reduced).  The credit facility documentation will also include reporting requirements for independent, external verification of the borrower’s performance level with respect to each SPT for each KPI, at least annually.

Borrower Benefits

Many companies have already undertaken ESG data collection and reporting, and more will likely do so as the SEC expands its focus on ESG disclosures and as more investors demand this information. While the above noted third party verification and reporting costs are inherent to SLLs, borrowers that are already engaging in these efforts may find they can efficiently obtain an additional economic incentive through SLL financing.  Additionally, SLLs can be part of a comprehensive alignment with the borrower’s ESG strategies and policies.

Lender Benefits

Lenders are undertaking ESG initiatives as well, in which SLLs may be a component.  And, regulatory agencies for certain lenders are communicating their plans to provide guidance on climate-related risks, and integrate these principles into their supervisory expectations.[2]  Further, studies have shown that companies (e.g., SLL borrowers) that identify and manage their ESG risks have improved financial performance.[3]  So, financing SLLs can benefit lenders across policy, regulatory and business aspects.

Current State of the Market and Next Steps

Although SLLs are a relatively new financing concept, particularly in the U.S., the volume of SLLs globally quadrupled in issuance between 2020 and 2021.[4]  As ESG momentum continues to build in the U.S., the volume of SLLs is likewise expected to continue to grow.  Currently, terms are negotiated on a transaction specific basis, and market provisions have not been added to the LSTA’s suite of documentation.  But, as SLLs become more common, the market is likely to coalesce on terms.  Stay tuned for more updates on SLLs and other trending sustainable finance products, including green bonds and commercial property assessed clean energy (C-PACE) financing.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Louise Melchor, the author or Brad A. Molotsky, Nanette Heide, Seth Cooley, David Amerikaner, Jolie-Anne Ansley, Hari Kumar or the attorney in the firm with whom you are regularly in contact.

 

[1] Available at https://www.lsta.org/content/sustainability-linked-loan-principles-sllp/

[2] See https://www.occ.gov/news-issuances/bulletins/2021/bulletin-2021-62.html and https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202111032

[3] https://www.msci.com/esg-101-what-is-esg/esg-and-performance

[4] See https://about.bnef.com/blog/1h-2022-sustainable-finance-market-outlook/

 

 

 

Don’t Say Climate Change

As Florida’s “Don’t say gay” bill  (SB 1834) occupies the front pages of many media outlets today, one is reminded of an earlier (2012) state legislative exercise in prohibiting engagement with reality: North Carolina’s “Don’t say climate change” bill (H819).Unhappy with the perceived prospect of dampened economic development resulting from the state’s Coastal Resources Commission estimating that the sea level would rise by 39 inches in the next century, the state legislature chose to bury the state’s head in the sand. It passed a bill prohibiting the state’s coastal management and environmental agencies from defining the rate of sea level rise for regulatory purposes for the next four years. (“The Coastal Resources Commission and the Division of Coastal Management of the Department of Environment and Natural Resources shall not define rates of sea-level change for regulatory purposes prior to July 1, 2016.”) 

Well, the climate didn’t care. Based on a 5-year report newly released by NOAA (full NOAA report), the estimate generated by NC’s Coastal Resources Commission has proven to be very much on target. The NOAA report is enlightening, if one wishes to get into the seaweed and look at empirical data and methods for projecting forward. But an easier read can be found in the NC section of the website published by SeaLevelRise.org (here). Among the information presented is a simple graph showing the actual (not projected) increases and decreases in sea level, by year, in Wilmington, NC, measured using tidal gauges. Between 2012, when the NC legislature put the kibosh on defining the rate of sea level rise, and 2016, when doing so was again permitted, the sea level in Wilmington rose by about 4.5 inches (from 6.83 to 11.27 inches higher than the 1950 baseline measurement). The simplest of math tells us that this rate of increase exceeded one inch per year.

A 30 year mortgage loan on a Wilmington, NC or Long Beach Island, NJ shore property purchased today will not be paid off until after 2050, when NOAA is projecting that the East Coast sea level will be 10 to 14 inches higher than it is today. Legislators in many states may not yet be listening, but mortgage lenders surely must be. Maybe even erstwhile buyers, however much they may have been dreaming about a house at the beach.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discuss your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Seth Cooley, David Amerikaner, Jolie-Anne Ansley, Hari Kumar or the attorney in the firm with whom you are regularly in contact.

ESG: – New York City Council Passes a Natural Gas Ban for New Buildings

Last week, New York City’s city council approved a ban on natural gas as a fuel source in newly constructed buildings.

Per reporting from NPR, nearly 40% of carbon emissions in the country — and more than 50% of New York City’s emissions — come from buildings.

The new natural gas ban in newly constructed buildings, by a vote of 40-7, applies to buildings that are up to 7-stories in height by the end of 2023; buildings that are taller than 7-stories have until 2027 to comply.

The bill contains several exceptions, including hospitals, laundromats and crematoriums.

As noted by NPR, the legislation also requires that the Mayor’s Office of Long-Term Planning and Sustainability conduct 2 long term studies. The first will examine the use of heat pump technology and the second is a study on the impact of the new bill on the city’s electrical grid.

Not surprising there has been massive pushback from the natural gas industry against these type of natural gas bans. This pushback, however, has not stopped cities around the country from proceeding with various types of natural gas ban efforts. By way of example, at least 42 cities in California have acted to limit natural gas in new buildings, and Salt Lake City, Utah and Denver, Colorado have also made plans to move toward required electrification in buildings.

Moreover, in Ithaca, New York, the city committed to ending the use of natural gas in all buildings — not just new ones.

Passing this type of natural gas ban for new buildings in New York City, the largest city in the country, marks a significant move for other cities trying to move similar legislation to attempt to cut down carbon emissions in the fight against climate change, joining cities like San Jose and San Francisco that have made similar commitments to reduce emissions.

The efforts to ban natural gas in new buildings in New York City is also being considered on a state wide basis in the New York Senate and House. Senator Brian Kavanagh (D) and Assembly Member Emily Gallagher (D) are working on legislation that would require any buildings constructed in New York after 2023 to be entirely powered by electricity. If their legislation passes, New York would become the first state to ban natural gas in new buildings on a state-wide level.

Triple Bottom Line – By passing this type of natural gas ban in new buildings, focusing on buildings as one of the largest emitters of green house gases,  New York has provided other cities with a leader to attempt to follow if they are so inclined.  As noted, California has been attempting this type of ban on a city by city basis and has passed 42 such bans throughout the state.  If New York state follows the NYC lead it will become the first state to enact such a ban and would mark a bit of a watershed moment in the fight against greenhouse gas emissions showing that buildings can indeed be constructed in this manner if reduced emissions are one of the  key goals attempting to be achieved by the builder/owner or the legislature.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Seth Cooley, David Amerikaner, Jolie-Anne Ansley, Hari Kumar or the attorney in the firm with whom you are regularly in contact.

ESG – State Plastic Bag and Straw Bans – An Update


Earlier this year, Duane Morris Governmental Services published an Alert that discussed states and municipalities across the country banning plastic bags in force. In addition to putting prohibitions on plastic bags, states and localities have also been looking at plastic straw bans as advocates look to reduce plastic pollution as plastics are not biodegradable and cannot break down naturally. It is estimated that Americans use 500 million drinking straws every day. While some legislation only contains plastic straw bans, other legislation loops plastic straws in with other plastic prohibitions.

Connecticut:
Lawmakers in Connecticut introduced HB 6502 earlier this year to prohibit the automatic distribution of single-use plastic straws at certain eating establishments. Specifically, the bill would, effective January 1, 2022, prohibit full-service restaurants from providing customers with single-use plastic straws unless they request it or if the customer has a disability. The legislation defines a “full-service restaurant” as an establishment that primarily services food to be consumed on-site and where an employee does the following: (1) escorts and seats the customer, (2) takes the customer’s food and beverage order after the customer is seated, (3) delivers the order and any requested related items to the customer, and (4) brings the check for the order to the customer’s table.

Violations under the bill would result in a restaurant owner or operator receiving warnings for a first or second violation and a fine for a third violation. The fine would be $25 for each day of the violation, up to $300 in a single year. Enforcement power would belong to a municipal or district health department that has jurisdiction over the restaurant. The plastic straw ban bill additionally does not prohibit municipalities from adopting or implementing ordinances or rules that further restrict a full-service restaurant from providing customers single-use plastic straws, as long as the ordinance or rule does not prohibit a restaurant from providing a single-use plastic straw to someone with a disability.

HB 6502 additionally would phase out the use of particular polystyrene trays and food containers.

Maine:
In March 2021, Maine lawmakers introduced LD 602, which would prohibit the manufacture, sale, and distribution, at retail or wholesale, of single-use plastic straws, splash sticks, and beverage lid plugs made entirely or partly of plastic.

The legislation further prohibits food and eating establishments from providing such items to customers at a point of sale or making them available to customers otherwise. However, food and eating establishments are allowed to provide single-use drinking straws, splash sticks, or beverage lid plugs not made of plastic only upon a customer’s request. The establishment must further collect a fee from the customer of no less than $0.05 for each item provided.

Massachusetts:
Massachusetts lawmakers introduced H. 998 earlier this year to restrict the distribution of single-use plastic straws by prohibiting food establishments from providing such straws to customers unless requested by the customer. H. 998 defines a “food establishment” as an operation that stores, prepares, packages, serves, vends, or otherwise provides food for human consumption, including but not limited to any establishment requiring a permit to operate under the State Food Code.

The bill states that the straw ban shall not include a straw made from non-plastic materials, such as paper, pasta, sugar cane, wood, or bamboo.

In mid-June, lawmakers scheduled a virtual hearing to address the plastic straw ban legislation. However, the bill has not seen any action since.

Mississippi:
This past session, Mississippi lawmakers introduced Senate Bill 2071, which would have prohibited a food establishment from providing a single-use plastic straw unless a consumer requested such a straw.

The bill’s definition of a “food establishment” is comprehensive. The bill’s definition of a food establishment is as follows: all sales outlets, stores, shops, or other places of business located within the State of Mississippi that operate primarily to sell or convey food directly to the ultimate consumer, including any place where food is prepared, mixed, cooked, baked, smoked, preserved, bottled, packaged, handled, stored, manufactured and sold or offered for sale, including, but not limited to, any fixed or mobile restaurant, drive-in, coffee shop, cafeteria, short order cafe, delicatessen, luncheonette, grill, sandwich shop, soda fountain, tavern, bar, cocktail lounge, nightclub, roadside stand, prepared food take-out place, catering kitchen, commissary, grocery store, public food market, food stand or similar place in which food or drink is prepared for sale or for service on the premises or elsewhere, and any other establishment or operation where food is processed, prepared, stored, served or provided for the public for charge.

SB 2071 died in committee in February 2021.

New York:
Two companion bills in New York have been introduced this year related to plastic straws. A207 and S1505 would allow restaurants to only provide single-use plastic straws unless requested by a customer. The legislation otherwise prohibits restaurants from providing customers with single-use plastic straws or single-use plastic stirrers. Further, the bill specifies that restaurants providing compostable straws or stirrers to customers must have access to curbside food waste collection for composting.

The bills define a restaurant as any diner or other eating or beverage establishment that offers food or beverages for sale to the public, guests, members, or patrons, whether consumption occurs on or off the premises.

Neither bill has advanced this session.

Rhode Island:
In July, Governor Daniel McKee signed House Bill 5131/ Senate Bill 155 into law. The new law prohibits a food service establishment from providing a single-use plastic straw to a consumer unless the consumer requests it. The bill will take effect January 1, 2022, and tasks the director of health with promulgating and adopting rules and regulations to enforce the new plastic straw ban.

Rhode Island’s new plastic straw ban defines a “single-use plastic straw” as a single-use, disposable tube made predominantly of plastic derived from either petroleum or a biologically based polymer, such as corn or other plant sources, used to transfer a beverage from a container to the mouth of the person drinking the beverage. Single-use straws, under the bill, do not include a straw made from non-plastic materials, including, but not limited to, paper, pasta, sugar cane, wood, or bamboo.

The bill further defines a “food service establishment” as any fixed or mobile restaurant, coffee shop, cafeteria, short-order cafe, luncheonette, grill, tearoom, sandwich shop, soda fountain, tavern; bar, cocktail lounge, night club, roadside stand, industrial feeding establishment, cultural heritage education facility, private, public or nonprofit organization or institution routinely serving food, catering kitchen, commissary or similar place in which food or drink is prepared for sale or for service on the premises or elsewhere, and any other eating or drinking establishment or operation where food is served or provided for the public with or without charge.

New Jersey:

On Nov. 4, 2020, Governor Murphy signed into law P.L. 2020, c117, which prohibits the use of single-use plastic carryout bags in all stores and food service businesses statewide and single-use paper carryout bags in grocery stores that occupy at least 2,500 square feet beginning May 4, 2022.

Beginning May 4, 2022, New Jersey businesses may not sell or provide single-use plastic carryout bags to their customers. Those businesses that decide to sell or provide reusable carryout bags must ensure that the bags meet the requirements as defined in the law.

The law defines reusable bags as ones that:

  • Are made of polypropylene fabric, PET non-woven fabric, nylon, cloth, hemp product, or other washable fabric; and
  • Have stitched handles; and
  • Are designed and manufactured for multiple reuses.

Under the new law, polystyrene foam food service products and foods sold or provided in polystyrene foam food service products will also be banned as of May 4, 2022, and food service businesses will only be allowed to provide single-use plastic straws by request starting Nov. 4, 2021.

However, the following products will be exempt for an additional two years, until May 4, 2024:

  • Disposable, long-handled polystyrene foam soda spoons when required and used for thick drinks;
  • Portion cups of two ounces or less, if used for hot foods or foods requiring lids;
  • Meat and fish trays for raw or butchered meat, including poultry, or fish that is sold from a refrigerator or similar retail appliance;
  • Any food product pre-packaged by the manufacturer with a polystyrene foam food service product; and
  • Any other polystyrene foam food service product as determined necessary by the DEP.

Triple Bottom Line – While it is often inconvenient to not be in a position to carry goods from a store or restaurant in a plastic bag or to drink from a plastic straw, as more states focus on the burgeoning problem of plastic waste entering the water supply and creating land fill capacity concerns, it is very likely that more and more states will continue to enact some level of plastic bag and plastic straw bans as a means to begin to combat this issue.  Recycling of plastic would also start to begin to address the issue but has not become an economic reality as of yet given the cost to build facilities that could gather and recycle the applicable plastic in bags and straws and similar materials.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Ryan Stevens, the author or Brad A. Molotsky, Nanette Heide, Seth Cooley, David Amerikaner, Jolie-Anne Ansley, Hari Kumar, or the attorney in the firm with whom you are regularly in contact.

ESG – $1.2 Trillion Hard Infrastructure Bill Becomes Law with Many Positive ESG Features

On November 6, 2021, the House of Representatives passed what has been referred to as the $1.2 Trillion Dollar “hard” infrastructure bill by a vote of 228-206. Thereafter, later in November, President Biden signed this Bill into law.

The Hard Infrastructure bill includes $550 Billion in new spending focusing on the areas of:

> $110 billion toward roads, bridges and other infrastructure upgrades across the country;

> $40 billion is new funding for bridge repair, replacement, and rehabilitation and $17.5 billion is for major projects;

> $73 billion for the country’s electric grid and power structures, including new transmission lines;

> $66 billion for rail services including expanding high-speed rail to new areas;

> $65 billion for  broadband access and infrastructure;

> $55 billion for water infrastructure;

> $21 billion in environmental remediation;

> $47 billion for flooding and coastal resiliency as well as “climate resiliency,” including protections against wild fires;

> $39 billion to modernize public transit, which is the largest federal investment in public transit in history;

> $25 billion for airports;

> $17 billion in port infrastructure;

> $11 billion in transportation safety programs;

> $7.5 billion for electric vehicles and EV charging stations and infrastructure;

> $2.5 billion in zero-emission buses;

> $2.5 billion in low-emission buses; and

> $2.5 billion for ferries.

We will continue to focus on the specifics of the various spending packages and will look to report back as details become more visible. Additionally, the CBO has reported back on the Build Back Better second Infrastructure package Reconciliation Bill to enable the bill to likely be voted on when Congress is back in session.

Triple Bottom Line – While it is sometimes easy to be cynical about our collective will power to invest in hard and soft infrastructure projects, in this instance, real dollars are being committed to upgrades that will have broad ranging positive impacts on many communities and lead to job creation for design, build and operating type jobs for these sectors as well as result in positive (or less-negative) effects on our environment.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Hari Kumar, or the attorney in the firm with whom you are regularly in contact.

ESG – EPA Announces National Recycling Strategy

Earlier this month, the Environmental Protection Agency (EPA) released its National Recycling Strategy.  Interestingly, as they have not always been aligned on issues in the past, the American Chemistry Council’s (ACC) Plastics Division issued the following statement …“America’s Plastic Makers® today welcomed EPA’s National Recycling Strategy, which will help the U.S. achieve its goal of recycling 50% of post-use materials by 2030. EPA’s Strategy also recognizes the potential of advanced (chemical) recycling technology to transform plastic recycling rates in the United States. Advanced recycling is critical for achieving a more circular economy for plastics. Since 2017, 65 advanced recycling projects have been announced that have the potential to divert more than 5 million metric tons of waste annually from landfills.”

“There is significant alignment in what America’s Plastic Makers are calling for in our 5 Actions for Sustainable Change and what EPA has laid out in its National Recycling Strategy. This is particularly evident in the Strategy’s support of increasing domestic markets for recycled material, creating national recycling standards to reduce contamination and measure results more effectively, and enhancing recycling infrastructure.

Further to this end, the ACC called on Congress to further help the EPA implement its strategy and achieve its recycling goals by enacting policies such as a national standard requiring plastic packaging to contain 30% recycled plastic by 2030 and an American-designed producer responsibility system to improve recycling access and collection of all materials.  While some might view this as enlightened self-interest given the 70% no- recycled plastic, this author prefers to focus on the positive attribute of having a 30% recycled content requirement and the positive progress this will represent on this front.

Per the ACC, “consumers want packaging with more recycled plastics material, more than 400 brands have committed to increasing the amount of recycled material in their packaging, and America’s Plastic Makers have set a goal to have 100% of plastic packaging to be reused, recycled, or recovered in the U.S. by 2040. EPA’s Strategy lays the groundwork to make much of this possible.”

Triple Bottom Line – While it is sometimes easy to be cynical about alliances and partnerships in the ESG and sustainability space, in this instance it is nice to see the alignment of the EPA and the ACC regarding increasing recycled content and setting industry wide standards with the ultimate goal to create a 100% goal for recycled, reused or recovered for particular materials.  N

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Jolie-Anne S. Ansley, David Amerikaner,  Seth Cooley, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

Decarbonization of the UK Construction Sector?

It’s probably too early to deliberate whether COP 26 was a success, and if progress has been made since Paris. Glasgow will be remembered for the passionate speech from the Maldives representative, which reminded us (if ever we needed reminding) of the Armageddon-esque effects of climate change to the planet as a whole, and to small island nations in particular. The target remains to aim for net-zero carbon emissions by 2050, and to keep global warming close to 1.5 degrees.

To read the full text of this post by Duane Morris partner Vijay Bange, please visit the Duane Morris London Blog.

The HM Treasury’s Roadmap to Sustainable Investing: Overview and Key Considerations for Businesses

On 18 October 2021, the HM Treasury published a policy paper titled “Greening Finance: A Roadmap to Sustainable Investing” (the Roadmap) that sets out the government’s long-term strategy to green the financial sector.

The Roadmap outlines a three-phase strategy to achieve this goal. The first phase is “informing” where sellers of investment products, financial services firms and corporates will be required to report information on sustainability. The second  phase is “action” where this information is mainstreamed into business and financial decisions. The third is the “shift” phase; ensuring financial flows across the economy shift to align with the UK’s net zero commitment.

The Roadmap sets out the government’s strategy to achieve phase 1 through economy-wide Sustainability Disclosure Requirements (SDR), the UK Green Taxonomy and Investor Stewardship. Each of these are outlined below.

1. SDR: what will businesses have to report on?

The SDR’s aim is to combine existing and new sustainability disclosure requirements in one framework for corporates, asset managers / owners and creators of investment products. The framework will be implemented through legislation, with sector-specific requirements being determined by government departments and regulators. The Roadmap emphasises that these new requirements will go further than existing disclosure requirements (such as those required by the Task Force on Climate-Related Financial Disclosures) by requiring reporting on environmental impact. SDR will also go beyond the FCA’s existing ESG framework by requiring asset managers / owners and creators of investment products to substantiate ESG claims in a way that is both comparable and accessible. SDR will also require disclosure with reference to the UK’s Green Taxonomy. Certain firms will have to publish transition plans, detailing how they intend to align with the government’s net zero goal by 2050. 

Certain UK-registered companies and listed issuers, including financial services firms, will need to disclose information about how they identify, assess and manage sustainability factors arising from their global operations in their Annual Reports. Financial services firms that manage or administer money for investors will need to disclose the sustainability-related information that clients and end-consumers need to make informed decisions about their investments. Investment product firms will need to disclose, at product level, the sustainability-related information that consumers need to make informed decisions about their investments.

2. UK Green Taxonomy

The lack of commonly accepted definitions makes it difficult for companies and investors to clearly understand the environmental impact of their decisions and can lead to issues such as greenwashing. To address this, the government is implementing the UK Green Taxonomy (the Taxonomy) that outlines criteria that specific economic activities must meet to be considered environmentally sustainable and “Taxonomy-aligned”.

Reporting against the Taxonomy will form part of SDR. Certain companies will be required to disclose the proportion of their activities that are Taxonomy-aligned. Providers of investment funds and creators of investment products will have to do the same for the assets that they invest in and products they create.

The Taxonomy has six objectives: Climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems. Each of the environmental objectives will be underpinned by a set of standards known as Technical Screening Criteria (TSC). To be considered Taxonomy-aligned, an activity must meet three tests. It must make a substantial contribution to one of the six environmental objectives, do no significant harm to the other objectives (this aims to ensure that activities which support one objective do not have a significant adverse impact on another) and meet a set of minimum safeguards: these are minimum standards for doing business, constituting alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Although Taxonomy-alignment will be determined by reported data rather than projections, the Taxonomy also recognises companies that are working to meet environmental objectives in the future. For example, due to technological constraints, some economic activities cannot currently be conducted in a way which is aligned with net zero-ambitions. For a number of these activities, the TSCs will set the threshold for Taxonomy alignment at the “best-in-sector” emissions level. These are known as “transitional activities”. Secondly, some companies will report on the proportion of their capital expenditure that is Taxonomy-aligned. This will enable these companies to demonstrate their investment in producing green activities in the future.

3. Investor Stewardship in Green Finance

The Roadmap outlines the government’s expectation that the pensions and investment sectors should seek to integrate ESG considerations into investment decision-making, monitoring and engagement strategies, escalation and collaboration (with other investors) and voting practices. For example, when exercising their shareholder rights,  being ready to vote against directors, corporate actions or other resolutions.

Next Steps

The key dates and developments to look out for are:

  • November 2021 – discussion papers on SDR disclosures, consumer-facing product-level SDR disclosures and the sustainable investment labelling regime
  • Q1 2022 – consultation on two of the environmental objectives under the Taxonomy (climate change mitigation and climate change adaptation)
  • 2022 – consultations on SDR disclosures, consumer-facing product-level SDR disclosures and the sustainable investment labelling regime
  • End of 2022 – legislation on draft TSCs for climate change mitigation and climate change adaptation
  • End of 2022 – government expects pensions and investment sector organisations to have published a high-quality net zero transition plan
  • Q1 2023 – government to consult on expansion of TSCs and standards for remaining four environmental objectives under the Taxonomy
  • End of 2023 – government to assess progress on its expectations for stewardship within the UK pensions and investment sectors

Key Considerations for Businesses

Although companies will have adequate notice before becoming subject to disclosure requirements, in order to be prepared companies are advised to review existing disclosure practices and determine the additional information required to be disclosed and the processes in place for gathering that additional information. Companies are also advised to keep up-to-date with the key consultation and implementation dates outlined above.

If you have any questions about this post, please contact Drew D. Salvest, Natalie A. Stewart, Rebecca Green any of the attorneys in our Banking and Finance Industry Group or the attorney in the firm with whom you in regular contact.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, please contact Brad A. Molotsky, David Amerikaner, Nanette Heide, Darrick Mix, Vijay Bange, Steve Nichol, or the attorney in the firm with whom you are regularly in contact.

ESG – NJ Single Use Plastic Ban becomes effective as of November 4, 2021

Beginning this coming week, on Thursday, November 4th, restaurants, convenience stores and other food-service businesses are required to comply with a new NJ state law that prohibits them from providing customers with single-use plastic drinking straws unless the customer has specifically requested one.

The new restriction does not impact the sale of beverages that are prepackaged with a plastic drinking straw, such as juice boxes, nor does it apply to the sale of boxes of straws in food stores.

Per NJBIZ, the by-request-only restriction on plastic single-use drinking straws applies to all food-service businesses, including restaurants, convenience stores and fast-food establishments.

Additional restrictions, which take effect May 4, 2022, include bans on single-use plastic carryout bags, single-use paper carryout bags at grocery stores of 2,500 square feet or more, and polystyrene foam food-service products.

For additional information, the state has created a new website at www.nj.gov/dep/plastic-ban-law which includes information on who are “regulated entities”, a Frequently Asked Questions page, a list of establishments and how the law impacts them, and more.

Additionally, the NJ Business Action Center has created a clearinghouse at https://business.nj.gov/bags/vendorclearinghouse to aid businesses in identifying vendors and manufacturers who sell reusable carryout bags permitted by the new law.

Triple Bottom Line – New Jersey joins a growing list of cities, counties and other states who are clamping down on single use plastics as a source of pollution which is exacerbating a growing issue within our sea life as plastics find their way to streams, rivers and oceans, break down and are ingested by the fish we often eat.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Jolie-Anne S. Ansley, David Amerikaner,  Seth Cooley, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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