April 5 in 5

Members of European Parliament adopt plans to decarbonise the real estate sector

The proposed revision of the Energy Performance of Buildings Directive intends to progressively reduce greenhouse gas (GHG) emissions and energy consumption in the EU building sector, which currently accounts for 36% of EU GHG emissions, and make it climate neutral by 2050.

By 2030, all new buildings should be zero-emission, with the same required for new buildings occupied or owned by public authorities as of 2028. Residential buildings will require a reduction in average primary energy use of at least 16% by 2030 and at least 20-22% by 2035. Treasurers of corporates with large real estate portfolios should identify action plans to reduce the emissions of their building stocks and identify the best financing solutions to fund this. For non-residential buildings, member states will need to renovate the 16% and 26% worst-performing by 2030 and 2033 respectively, though some exemptions such as agricultural and heritage buildings will apply.

SEC pauses climate disclosure rules amidst legal challenges

The implementation of recently released disclosure rules which require companies to report on GHG emissions and climate-related risks has been paused by the U.S. Securities and Exchange Commission (SEC), whilst it awaits a court review of the rules following multiple legal challenges by business groups and several states. The SEC has said in a statement that, despite deciding to pause the rules for the time being, it will continue to vigorously defend the new climate disclosure requirements as “consistent with applicable law and within the Commission’s long-standing authority”.

First green light on EU bill on firms’ impact on human rights and environment

The Legal Affairs Committee have adopted the revised Corporate Sustainability Due Diligence Directive (CSDDD), obliging companies to mitigate their negative impact on human rights and the environment. The rules will apply to EU and non-EU companies and parent companies with more than 1,000 employees and with a turnover exceeding EUR450 million and to franchises with a turnover of over EUR80 million providing at least EUR22.5 million was generated by royalties.

As well as integrating due diligence into their policies and risk management systems, companies will also have to adopt and put into effect a transition plan making their business model compatible with the 1.5°C limit under the Paris Agreement. Once formally approved by the European Parliament and the member states, the directive will enter into force on the twentieth day following its publication in the EU Official Journal.

SBTi to allow increased role for carbon credits in net-zero targets

The Science Based Targets Initiatives (SBTi) announced that it would permit company transition plans to use environmental attribute certificates (EACs), which includes voluntary carbon credits, to tackle Scope 3 value chain emissions as part of its standard for corporate net-zero target setting. As part of SBTi’s net-zero standard, credits are currently permitted to be used to address no more than 10% of Scope 3 emissions. Following the announcement, more than 30 members of SBTi’s technical and scientific advisory groups are calling for the statement to be retracted immediately so that there can be a more thorough exploration of the issue.

ESMA proposes more transparency on ESG integration in credit ratings

The European Securities and Markets Authority (ESMA) has launched a consultation on proposed amendments to Commission Delegated Regulation (EU) No 447/2012 and to Annex I of the Credit Rating Agencies Regulation (CRAR). The objective of the proposal is to ensure a better incorporation of ESG factors in credit rating methodologies and subsequent disclosure to the public, as well as to enhance transparency and credibility in the credit rating process.

In particular, they aim to ensure that the relevance of ESG factors within credit rating methodologies is subject to systematic documentation, enhance disclosures on the relevance of ESG factors in credit ratings and rating outlooks, and deliver a more robust and transparent credit rating process through the consistent application of credit rating methodologies.

Human rights violated by Swiss inaction on climate, ECHR rules in landmark case

In a case brought by over 2,000 Swiss women, the European Court of Human Rights (ECHR) ruled that the Swiss government had violated the human rights of its citizens because of its failure to do enough to tackle climate change. It’s expected that this landmark ruling will set a precedent for future climate lawsuits and empower more communities to bring climate cases against governments.

GRI: New guidance documents released

The GRI (Global Reporting Initiative) has released three guidance documents focusing on double materiality, due diligence, and the Corporate Sustainability Reporting Directive (CSRD) to assist policymakers in promoting better disclosure and standards-based policymaking. The guidelines stress the importance of understanding the link between a company’s societal and environmental impacts and its financial performance, integrating due diligence into reporting standards, and aligning with EU sustainability reporting standards.

GRI and the IFRS Foundation have been collaborating since March 2022 in an effort to achieve coordination in their standard-setting activities and sustainability-related work programmes. The CSRD has mandated sustainability reporting for European companies and those listed in the EU market. In the new guidance documents the GRI emphasises the need for global policy alignment.

Bloomberg survey reveals ESG data coverage as ‘top challenge’ for firms in Europe

Bloomberg surveyed around 200 financial market participants in Europe regarding ESG data, which revealed their top priority to be accessing ESG data (35%), followed by meeting climate risk and net-zero goals (18%). Concerns about the quality and coverage of company reported ESG data was the most prevalent among respondents.

Managing constantly evolving ESG data content is the biggest data management challenge (41%), other challenges include linking ESG data to existing entity data (25%), meeting reporting requirements (18%), and managing multiple ESG vendor feeds (16%).

Deloitte/Tufts survey shows 80% of global investors now have sustainable investment policies in place

Deloitte and The Fletcher School surveyed over 1,000 asset owners, asset managers, and advisers globally to understand ESG investment policies and drivers among professional investors. 79% of investors have sustainable investment policies, an increase from 20% recorded five years ago.

Regulatory requirements (39%) improved financial performance (36%), and stakeholder pressure (34%) are key drivers for integrating sustainability considerations into the investment decision-making process, U.S investors also cite talent retention and attraction (37%) as a significant driver.

Challenges include integrating ESG information effectively, inconsistency in ESG ratings data, and over- or under-regulation. Investors trust in-house proprietary data systems (70%) and audited corporate disclosure (69%) the most.

Primary and Secondary Market

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EU Emissions Trading System sees 15.5% reduction in carbon emissions in 2023

The European Union's Emissions Trading System (ETS) experienced a historic 15.5% decrease in carbon dioxide emissions in 2023, driven by a surge in renewable power generation. The EU ETS, which regulates about 45% of the EU's greenhouse gas emissions, achieved its most significant annual reduction since its inception in 2005, with the power sector witnessing a 24% drop in emissions primarily due to increased renewable energy production. However, emissions from the aviation industry rebounded by approximately 10% following a post-pandemic recovery in air travel.

Royal London Asset Management ventures into agriculture with £260m farmland acquisition

Royal London Asset Management, in collaboration with South Yorkshire Pension Authority, has acquired 21,000 acres of farmland for £260m, marking its inaugural investment in agriculture. With a focus on sustainability and innovation, the venture aims to enhance agricultural productivity while employing environmental strategies such as regenerative farming techniques and nature-based solutions, contributing to Royal London's commitment to net-zero goals and sustainable investment practices.

Mirova's Climate Fund for Nature Raises €195 Million to Support Nature Restoration

Mirova's sustainable investing affiliate, through its Climate Fund for Nature, has secured over €195 million to back projects dedicated to protecting and restoring nature, particularly in emerging markets. With a focus on fostering a low-carbon, nature-positive transition, the fund engages corporate partners like Capgemini and Unibail-Rodamco-Westfield, emphasising the importance of large corporations in driving funding for environmental initiatives.

Regular articles from us on market-moving themes, and updates on events either upcoming or that have recently taken place:

• Exclusionary policies: far from binary
• Tesco and NatWest join forces to help farmers reduce costs and decarbonise
• NatWest Group announces new £5bn UK social housing sector lending ambition

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Or, for Corporates looking to discuss any of the above further, please reach out to our authors:

• Dr Arthur Krebbers, Head of Corporate Climate and ESG Capital Markets
• Gustavo Brianza, Head of Debt and ESG Advisory
• Daniel Bressler, Climate and ESG Capital Markets
• James Lander, Credit Trader
• Philippe Bradshaw, Head of European Syndicate
• Rui Zu, ESG Advisory
• Thomas Gidman, ESG Advisory
• Dean Shahfar, Sustainable Finance UK
• Pietro Stimamiglio, Climate and ESG Capital Markets
• Niceasia Mc Perry, Climate and ESG Capital Markets

*For any unfamiliar terms used within this article please refer to our Insights glossary