[co-author: Diane Gilhooley, Eversheds Sutherland (International) LLP Team]
Welcome to the latest edition of our monthly ESG Insights providing you with a summary of the key developments from around the world.
IFRS Foundation releases jurisdictional adoption guide for ISSB Standards
On May 28, the International Financial Reporting Standards Foundation released a guide to help jurisdictions design and plan their journey to the adoption of International Sustainability Standard Board (ISSB) Standards. The guide aims to show market participants how jurisdictions are progressing towards the delivery of globally consistent and comparable sustainability-related information. It includes ways in which jurisdictions may use ISSB Standards and describes jurisdictional approaches to the adoption of ISSB Standards.
China: 2024 Legislative Work Plan published
On May 8, the Standing Committee of the National People’s Congress released its legislative work plan for 2024. The Plan schedules 39 legislative projects for review in 2024: 17 that were already pending before the Plan was approved, and 23 that would be reviewed for the first time. Among these legislative projects, several ESG proposals are detailed, including:
- draft Energy Law
- draft Law on the Safety of Hazardous Chemicals
- interim Regulations on the Administration of Carbon Emission Trading
- regulations on Ecological Protection Compensation
Hong Kong: Hong Kong Taxonomy for Sustainable Finance published
On May 3, the Hong Kong Monetary Authority (HKMA) published the Hong Kong Taxonomy for Sustainable Finance. The taxonomy aims to enable informed decision-making on green and sustainable finance. Currently, it encompasses 12 economic activities under four sectors, namely power generation, transportation, construction, and water and waste management. As the taxonomy develops, the HKMA will seek to expand the coverage of the taxonomy to include more sectors and activities, including transition activities.
Hong Kong: Green and Sustainable Finance Grant Scheme extended
On May 3, The Hong Kong Monetary Authority (HKMA) confirmed the extension of the Green and Sustainable Finance (GFS) Grant Scheme by three years to 2027. The scope of subsidies granted was also expanded to cover transition bonds and loans. The decision aims to encourage industries to utilize the transition finance to move towards decarbonization.
Updated guidance on the GFS Grant Scheme can be viewed here.
EU: Net-Zero Industry Act adopted
On May 27, the European Council formally adopted the Net-Zero Industry Act (NZIA). The NZIA aims to establish a framework of measures for strengthening Europe's net-zero technology products manufacturing ecosystem. The NZIA intends to increase investment in green technologies by:
- simplifying the permit-granting process for strategic projects
- facilitating market access for strategic technology products, in particular in public procurement or the auctioning of renewable energies
- enhancing the skills of the European workforce in these sectors, such as net-zero industry academies and net-zero acceleration valleys
- creating the net-zero Europe platform to co-ordinate EU action in this area
For more information, please view our Flash Update.
EU: Ecodesign for Sustainable Products Regulation adopted
On May 27, the European Council formally adopted the Ecodesign for Sustainable Products Regulation. The Regulation will introduce new requirements, such as product durability, reusability, upgradability, and reparability, all to promote product circularity. Information on product sustainability will be stored on a Digital Product Passport. Each product will be required to have a digital passport, which is easily accessible through a scanner. The Digital Product Passport aims to help consumers and businesses make informed choices when purchasing products.
EU: Regulation on methane emissions reduction in the energy sector adopted
On May 27, the European Council formally adopted the Regulation on methane emissions reduction in the energy sector. The regulation aims to reduce direct methane emissions from the oil, fossil gas, and coal sectors. Operators will be required to measure and report methane emissions, which will be verified independently. Detected methane leaks must also be repaired by operators who should also carry out surveys of methane leaks in different types of infrastructures at set intervals.
EU: Corporate Sustainability Due Diligence Directive adopted
On May 24, the European Council formally adopted the Corporate Sustainability Due Diligence Directive. The Directive will impact companies of more than 1,000 employees with a turnover of more than €450 million, requiring them to ensure that human rights and environmental obligations are respected along their chain of activities. When violations are identified, companies must act to prevent, mitigate, cease, or reduce adverse impacts from their operations, subsidiaries, and business partners’ activities.
For more information, please view our briefing.
EU: Critical Raw Materials Act enters into force
On May 23, the Critical Raw Materials Act (CRMA) entered into force. The CRMA aims to establish a framework for ensuring a secure and sustainable supply of critical raw materials. The CRMA sets non-binding targets to extract 10%, process and refine 40%, and derive from recycled materials 25% of the EU’s annual consumption of Strategic Raw Materials by 2030.
EU: News rules for the hydrogen and decarbonized gas market published
On May 21, the European Council adopted new rules for the internal market concerning renewable and natural gases and hydrogen. These rules aim to facilitate the EU’s transition to decarbonization. The rules include a framework for natural gas and hydrogen markets, with specific rules for transport, supply, and storage, along with a 10-year EU network development plan.
EU: Final agreement reached on the Artificial Intelligence Act
On May 21, the European Council approved the Artificial Intelligence Act (AIA). The AIA aims to set a global standard for AI regulation based on transparency for high-risk AI systems, including a fundamental rights impact assessment before deployment. AI systems will be categorized by risk level, with high-risk systems subject to stringent requirements and limited-risk systems facing minimal obligations. Certain AI practices, like social scoring and cognitive behavioral manipulation, will be banned under the AIA.
EU: Shipments of Waste Regulation enters into force
On May 20, the Revised Shipments of Waste Regulation 2024 entered into force. The Regulation imposes new rules for waste shipping outside the EU. Only non-hazardous waste exports are allowed to non-members of the Organization for Economic Co-operation and Development that can sustainably manage waste and comply with international labor conventions. Moreover, EU operators can only export waste to non-EU waste management facilities if an independent audit confirms the facility’s environmentally sound treatment.
For more information, please view our Flash Update.
EU: Guidance released to accelerate renewable energy roll-out
On May 13, the European Commission released guidance and recommendations to member states to further accelerate the deployment of renewable energy and reduce Russian fossil fuel imports. The guidance and recommendations include:
- documents that aim to streamline permitting procedures and improve the design of auction and renewables
- guidance on designation areas for fast-tracked renewable energy projects to ensure quick deployment of technologies
- an updated Union Renewables Development Platform to enhance visibility and predictability for investors in renewable energy actions across the EU
EU: Council adopt Directive on sustainability reporting standards time limits
On April 29, the European Council adopted a Directive on time limits for the adoption of sustainability reporting standards for certain sectors and third country undertakings. This is the last step in the legislative process.
The Directive, which amends the Corporate Sustainability Reporting Directive, will postpone the adoption of sector-specific sustainability reporting standards for EU companies and general sustainability reporting standards for non-EU companies to June 30, 2026. The decision intends to allow companies to focus on the implementation of the first set of European Sustainability Reporting Standards and allow more time to develop sustainability standards for non-EU companies.
The Directive is now expected to come into effect once signed into the EU Official Journal.
EU: Parliament adopts Right to Repair Directive
On April 23, the European Parliament adopted the Right to Repair Directive (RRD), which aims to make repairing goods easier and more cost effective.
Under the RRD, products repaired under the warranty will have an additional one-year extension of the legal guarantee. Manufacturers will be required to repair common household products after the legal guarantee has expired. To make repairs more affordable, each member state will have to implement at least one measure to promote repair. This could include repair vouchers and funds, conducting information campaigns or offering repair courses. The EU will also provide consumers with information forms to aid in assessing and comparing repair services.
Abu Dhabi: Air Quality Law
On May 10, the Air Quality Law was issued in Abu Dhabi to preserve the environment, improve ambient air quality, reduce air pollutants emitted from stationary, and mobile sources and regulate noise levels.
The law will apply to all projects and companies operating in the Emirate of Abu Dhabi, which will require an environmental license from the Environment Agency – Abu Dhabi. The Authority will develop executive decisions, practice manuals and guidelines to implement provisions and issue them as supplementary documents. It will also monitor and assess air quality through environmental monitoring to ensure air pollutants remain within approved limits.
Consultations published on Emissions Trading Scheme
On May 23, the UK government’s Emissions Trading Scheme (ETS) Authority announced the launch of two consultations. The first consultation will assess how to expand the UK ETS to include fossil CO2 emissions from energy and waste incineration from 2028. This includes a 2-year phasing-in period for the sector from 2026. During this period emissions will be monitored, reported and verified, with no obligation to purchase or surrender UK ETS allowances until 2028. The second consultation will consider how greenhouse gas removal technologies could be integrated into the UK ETS.
The consultations include:
UK: Government publish SDR implementation update
On May 16, the UK Government published an implementation update on the UK Sustainability Disclosure Requirements (SDR).
The update intends to provide stakeholders a summary of how SDR fits together across the financial services sector, wider economy and when engagement with the proposals is needed. The updates include:
- government plans to consult on UK green taxonomy this year, considering both voluntary and mandatory disclosures. No decision has been made whether to introduce mandatory disclosures against taxonomy, this will be subject to further consultation
- the government is expected to consult on its approach to transition plan disclosures for UK companies in the second quarter of this year. The Financial Conduct Authority will consult on strengthening transition plan disclosure expectations in 2025
- a timeline that sets out details of planned consultations on UK sustainability reporting standards by both the government and FCA in 2024 and 2025
UK: Updated approach on managing nuclear waste
On May 16, the UK updated its approach to handling nuclear waste and radioactive substances to continue prioritizing safety, the environment and quicker decommissioning.
The changes aim to encourage waste treatment techniques to minimize the adverse impacts on the environment and help reduce the amount of waste determined for disposal. Future plans include a shallow disposal facility for less hazardous waste to be established within the next ten years and a geological disposal facility for the most hazardous waste expected in the 2050s. Ultimately, the most hazardous nuclear waste in England and Wales will be disposed of deep underground, in facilities which safely contains the waste. The framework also intends to clarify that lightly contaminated rubble and substructures can be disposed of on-site if safe to do so.
UK: DEFRA publishes draft UK EPR Regulations
On May 2, the Department of Environment, Food and Rural Affairs published the draft Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations 2024. The Regulations will implement the UK Extended Producer Responsibility for packaging regime, which is being introduced under the Environment Act 2021. According to the new rules, packaging producers will be required to pay all the costs of collecting and disposing of their packaging when it becomes waste.
UK: DfT announces introduction of the SAF Mandate
On April 25, the Department of Transport announced the introduction of the Sustainable Aviation Fuel (SAF) Mandate, which is the first in the world to be put into law.
The SAF Mandate is expected to come into force in January 2025, subject to Parliamentary review. The new rules will:
- require 2% of all jet fuel used in flights from the UK to come from sustainable sources in 2025, increasing annually from 10% by 2030 and 22% by 2040
- impose strict sustainability criteria to determine which fuels constitute SAFs
- introduce a certificate trading scheme under which certificates are awarded to SAF suppliers in proportion to greenhouse gas emission reductions
US: Voluntary Carbon Markets Joint Policy Statement published
On May 28, the Biden administration released the Voluntary Carbon Markets Joint Policy Statement and Principles. The document aims to strengthen the integrity of voluntary carbon markets. The key principles outlined include:
1. carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization
2. credit-generating activities should avoid environmental and social harm
3. corporate buyers that use credits should prioritize measurable emissions reductions within their value chains
4. credit users should publicly disclose the nature of purchased and retired credits
5. public claims by credit users should accurately reflect the climate impact of retired credits and should only rely on credits that meet high integrity standards
6. market participants should contribute to efforts that improve market integrity
7. policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs
US: EPA issue final rule to strengthen methane emissions reporting requirements for petroleum and natural gas systems
On May 6, the Environmental Protection Agency (EPA) issued a final rule to strengthen, expand and update methane emission reporting requirements for petroleum and natural gas systems under the EPA’s Greenhouse Gas Reporting Program. The final revisions aim to ensure greater transparency and accountability for methane pollution from oil and natural gas facilities by improving the accuracy of annual emissions reporting from these operations. This complements the Biden-Harris Administration’s initiative to cut methane emissions from every sector of the economy under the U.S. Methane Emissions Reduction Plan.
Co-authored by, Millie Wilkinson and Nathan Handoll (ESG Researchers in Knowledge).
[View source.]
