ESG Watch is S-RM’s round-up of the latest regulatory and policy updates relating to ESG from around the globe.
Key news in this edition:
- EU Parliament Legal Affairs Committee approves vote on corporate sustainability due diligence
- The Reserve Bank of India issues framework for green deposits
- Tel Aviv Stock Exchange launches its first ESG questionnaire.
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Turkish Government Publishes Hydrogen Technologies Strategy and Roadmap
On 7 April, the government of Turkey published its Hydrogen Technologies Strategy and Roadmap (‘HTSR’), joining several other European countries that have recently launched their own hydrogen strategies. The HTSR outlines the Turkish Ministry of Energy and Natural Resources’ (‘the Ministry’) aim to develop a carbon zero economic model which prioritises the use of hydrogen, due to its potential contribution to sustainable energy production. The HTSR sets two targets, and thirteen policies, that must be implemented by the Turkish government, to create a research and technology development programme focusing on hydrogen. The two targets set by the HTSR are to reduce the cost of green hydrogen production and to gradually increase the installed power capacity of the electrolyser by 2053. The thirteen policies outlined include a review of current legislation and its potential revision to accommodate hydrogen production, use, storage and transportation; and, to advance public-private partnerships to increase investments in and the commercial demand for hydrogen. The HTSR states that the success of its policies will ultimately rest on the creation of a skilled workforce that has the capabilities to implement the newly developed hydrogen technologies.
European Parliament adopts law relating to deforestation
On 19 April, the European Parliament adopted a law to ban the import into the European Union (‘EU’) of goods which were grown on land that was either deforested or degraded after 31 December 2020. The law will require companies that sell goods in the EU to produce evidence in the form of due diligence statements and geolocation data to confirm that their products do not come from deforested land or have not led to land degradation. In addition, companies will have to demonstrate that their products are compliant with local legislation of the origin country, including those relating to human rights. Although the legislation does not target specific countries, it covers products such as cocoa, coffee, palm-oil, cattle, soya, wood, rubber, charcoal and printed paper products. Companies that fail to comply with the legislation face fines of up to four percent of the company’s turnover in the EU countries. The law will be published in the EU Official Journal, after its formal endorsement by the European Council, and will enter into force 20 days after. Companies will then have between 18 and 24 months to comply. The law has been criticised by several countries who stand to be most affected, citing some of the demands as too onerous or that sufficient national regulation is already in place.
EU Parliament Legal Affairs Committee approves vote on corporate sustainability due diligence
On 25 April 2023, the members of the European Parliament’s Legal Affairs Committee (‘LAC’) approved and expanded on new corporate sustainability due diligence requirements. The European Commission had initially adopted a proposal relating to corporate sustainability due diligence on 23 February 2022. The proposed rules would require EU-based companies with over 250 employees and an annual turnover above EUR 40 million to conduct due diligence on their partners in the manufacturing, supply, distribution and transport of their products. Furthermore, non-EU companies that generate at least EUR 40 million from their activities in the EU, would be subject to these rules – if their turnover is above EUR 150 million. The LAC have suggested fines of at a minimum, five percent of a company’s net annual turnover for non-compliance. The LAC has also brought the financial services industry within the remit of the proposed rules, requiring them to conduct environmental and human rights due diligence on companies they interact with as clients. Once the proposal is adopted by the EU Parliament plenary, the final text of the new legislation, will be negotiated with the European Council.
The Reserve Bank of India issues framework for green deposits
On 11 April, the Reserve Bank of India (‘RBI’), the central bank and regulator of the banking sector in India, issued a framework for the acceptance of green deposits, which is applicable to scheduled commercial banks and deposit accepting non-banking financial institutions regulated by the RBI. Payment banks, local area banks, and regional rural banks have been excluded from this framework. Under the new framework, the allocation of proceeds raised from the green deposits can only be used on sectors outlined in the document, such as renewable energy, energy efficiency, clean transportation and climate change adaptation – on a provisional basis, until the finalisation of the Indian green taxonomy. The document also outlines which sectors the proceeds cannot be invested in, including any new or existing fossil-fuel based project, nuclear power generation, direct waste incineration, large-scale hydropower plants and landfill projects. The allocation of proceeds from green deposits are to be subject to independent third-party verification/assurance every financial year. The third-party verification must cover how these proceeds are used and the policies and internal controls provided by the financial institutions during the investment process. The framework is scheduled to come into effect from 1 June 2023. No finalisation date has been announced in relation to the Indian green taxonomy.
Hong Kong Stock Exchange proposes mandatory climate-related disclosures for listed companies
On 14 April, The Hong Kong Stock Exchange (‘HKEx’) published a consultation paper that proposes new mandatory climate-related disclosures for listed companies, that are aligned with the International Sustainability Standards Board (‘ISSB’) Climate Standard. ISSB was formed in 2021 during the COP 26 in Glasgow, with the aim of creating global standards for sustainability disclosures. The proposed mandatory climate disclosures would indicate a change from the previous ‘comply or explain’ approach followed by listed companies in Hong Kong. The new disclosures relate to governance, strategy, metrics and targets, as well as risk management. Under the HKEx’s proposal, listed firms are to disclose their climate-related opportunities and risks, how these may impact the company’s corporate strategy and operations, and what measures the company has taken to minimise or address the risks. Furthermore, the companies are also to make quantitative disclosures on the current and anticipated impacts of climate risk to their financial positions. Market participants have until 14 July to voice their opinion on the proposed requirements, which are expected to come into effect on 1 January 2024.
Monetary Authority of Singapore launches finance for net zero action plan
On 20 April, the Monetary Authority of Singapore (‘MAS’), the central bank and financial regulator of Singapore, announced the launch of the MAS Finance for Net Zero Action Plan (‘FiNZ’). The new plan is an extension of MAS’ Green Finance Action Plan (‘GFAP’), a plan issued in 2019, which outlined MAS’ grand strategy to develop green finance in the country. FiNZ expands the GFAP, with the inclusion of transition finance defined as the “investment, lending, insurance, and related services to progressively decarbonise areas such as power generation, buildings, and transportation”. The new action plan focuses on four strategic outcomes: promoting reliable and comparable climate data and disclosures; fostering environmental risk management; supporting financial institutions on adopting transition plans; and promoting innovation and credible green and transition financing solutions. MAS also reports to have set aside SGD 15 million (USD 11.2 million) until 2028, to provide incentives for issuers or borrowers to adopt entity-level sustainability disclosures.
Singapore and China establish green finance taskforce
On 21 April 2023, the Monetary Authority of Singapore (‘MAS’), Singapore’s central bank and financial regulator, announced that it had agreed with the People’s Bank of China (‘PBC’), the central bank of China, to establish the China-Singapore Green Finance Taskforce (‘GFTF’). The GFTF aims to improve bilateral cooperation in green and transition finance between the countries. GFTF will focus on three main areas: achieving interoperability between Singapore and China’s sustainable finance taxonomies and definitions, under the guidance of the International Platform on Sustainable Finance – a multinational forum established in 2019 to promote sustainable finance; increase the access and connectivity between Singapore and China’s sustainability bond markets; and, develop and leverage technologies that would facilitate sustainable finance – such as through the implementation of digital green bonds with carbon credits. The GFTF will be chaired by representatives of MAS and PBC, as well as senior representatives and experts from financial institutions in Singapore and China.
Tel Aviv Stock Exchange launches its first ESG questionnaire
On 17 April 2023, Tel Aviv Stock Exchange (‘TASE’) published its first ESG questionnaire for TASE-listed companies, to provide investors with greater access to information in relation to ESG and to assist companies who have yet to publish their ESG reports. The questionnaire is in English and consists of 40 questions that address various ESG-related issues. TASE currently has three ESG indices, and aims to launch more, based on the questionnaire, in collaboration with international index editors. The questionnaire is intended to increase the TASE-listed companies’ exposure to international ESG rating firms and foreign investors. While the questionnaire is voluntary, if completed, it will be published on both the company’s and TASE’s website.