The Situation: The European Union continues to roll out its Action Plan for Financing Sustainable Growth with its latest proposal concerning climate-related disclosures and the European Commission's launch of a public consultation process to close on March 20, 2019.
The Result: Certain EU entities will have increased climate-related disclosure obligations; the bar is being raised, in particular, for large entities, banks, and insurance companies.
Looking Ahead: New final guidelines are expected by June 2019, and covered entities will need to take a fresh, in-depth look at their business models, policies, and due diligence processes in order to provide specific information on environmental outcomes, principal risks and their management, and key performance indicators that are traceable, relevant, and consistent over time.
The "E" for "environmental" in environmental, social, and governance ("ESG") has skyrocketed to prominence worldwide. Regulatory proposals and certification schemes by governments and industry offer fresh perspectives and opportunities. However, without a common technical and legal foundation, investors, issuers, and the financial industry find measuring "greenness" to be nebulous at best.
In perhaps the most far-reaching attempt to confront such challenges to date, in March 2018, the European Commission released an action plan setting forth a multi-pronged approach to finance sustainable growth. Key elements of the action plan include promoting transparency and standardization to shift private sector resources toward environmentally friendly and socially responsible initiatives. The European Commission considers that covered entities will benefit from effecting such changes by potentially lowering their cost of capital and fostering a more diverse investor base and better corporate reputation.
To this end, the European Commission is taking steps to update its nonbinding guidelines on non-financial disclosure obligations ("Guidelines") under EU law for covered entities. The proposed updated Guidelines seek to integrate the concepts contained in the Non-Financial Disclosure Directive 2014/95 ("Directive") and the recommendations published by the G20 Financial Stability Board's Task Force on Climate-Related Financial Disclosures ("TCFD"). The updated Guidelines also reflect the recommendations in the January 2019 report published by the European Commission's Technical Expert Group and related public feedback. The European...