A Sharp Eye on Sustainable Finance - Season 2, Episode 13

Welcome back! Bringing you what caught my eye in the rollercoaster towards sustainable finance and impact investing.

And that’s two! Last week I taught a great and full class of 60 postgraduate students from all over the Asia-Pacific on International Finance Law & Practice at the The University of Sydney Law School . We explored a wide-ranging suite of topics, from the banking regulation challenges arising from the SVB demise and 瑞信 debacle and impact on convertible debt to renewable project finance risk allocation and we dipped our toes in green bonds, private equity and funds as well as the enforcement challenges for regulators in greenwashing in Australia and beyond.

A huge thank you to all involved. Especially my co-lecturers Peter Block of MinterEllison , Caroline Smart of Ashurst , Sarah Madew , formerly of DEG , and Richard Lorenzo of Grant Samuel , and everyone at the Law School who generously made time to assist and support: Jason Harris , Aliyah Leung, Danny Liu , David Corey, Lana Kolta, among others. Also grateful to Désirée L. , Rosemary Addis and Linda Romanovska for sharing their insights.

This week a special bumper edition: linking the news items to potential research topics and questions for the students involved in both of my lecture series. Feel free to add!

[A] In the Public Domain

1. Credible Transition & Corporate Responsibility? If you’re thinking about the transition: The European Commission is proposing a new Critical Raw Materials Act to ensure that the EU has access to a secure and sustainable supply of critical raw materials which are crucial to clean energy transition, briefing here. If you read it next to the directive on the human rights and environmental due diligence directive (HREDD), does the regulation address the dilemma of human rights and environmental issues in critical materials?

2. Strategy in court? The other week there was a furor of pushback against big oil, as it changed strategy and doubled down on oil and the short-term gains of the higher oil prices. Leading to a bigger question: can (changes of) strategy be successfully challenged in court? – a topical question given the release of the green finance strategy. Here's a summary of it here. And, if we take it to the other side of the pendulum: Proparco launched its new strategy, Acting together for greater impact.

3. Ratings Regulation - do we need regulation of ESG ratings? HM Treasury consults on regulating ESG ratings providers – of course ESMA has been doing the same earlier. As the effects of a new banking crisis (?) ripple through the financial markets, should we apply the same regulatory reform as done for credit rating agencies after the GFC? What lessons are learnt from the CRA reform?

4. Beyond Climate: Nature. For those with an interest in nature: the release of the fourth and final beta framework for the Taskforce on Nature-related Financial Disclosures (TNFD). What are the differences and similarities with TFCD (and any lessons learnt)? A few examples of nature-based transactions: Nature-based solutions for climate resilience are catching on in World Bank projects: Less gray, more green and blue, and, following on the debt for nature swaps reported on earlier, check out the debt-for-adaptation swaps: A financial tool to help climate vulnerable nations.

If you’re looking for a parallel with carbon credits, then check out the new landscape for biodiversity credit markets, from Pollination , here.

5. A small step to marine life: this month saw history being made with the agreement of the UN High Seas Treaty after nearly two decades of negotiations – Will this impact the recent emergence of deep-sea mining for the harvesting of valuable metals in the depths of the oceans with unclear consequences for marine life? (Picture above seems straight out of the Matrix...)

6. Greenwashing. In a bid to tackle greenwashing and the multitude of environmental labels, the EC published a proposal for a new “Directive on Green Claims”.?The Directive forms part of the EU’s Circular Economy Action Plan. See also this summaries: European Commission publishes proposal for a Green Claims Directive to combat greenwashing (Linklaters). And briefing (Clifford Chance).

[B] Deals, deals, deals

7. Sustainable Bonds: if you’re exploring greenwashing / rights of bondholders under green and sustainable products, check out this overview from the ICMA: The Asian International Bond Markets: Development and Trends here: Green, social, sustainability and sustainability-linked (GSSS) bonds experienced a 22% decline in issuance to USD 80 billion during 2022, though as a proportion of all international issuance in Asia, GSSS bonds rose from 16% to 23%, evidencing the attractiveness of sustainable bonds as a financing instrument for issuers.

You can include actual transactions and second party opinions from providers such as Sustainalytics: for instance, Ahold Delhaize. What are the challenges for the supermarket industry – think of packaging, plastics, fair price for farmers and recycling. And what type of sustainable finance is Ahold using? Another (SLB): Eltel.

For SLBs of interest: The SBTi announces independent body to strengthen technical decision making. Does this provide more certainty to the market? Or is this comparable to the solution ISDA provided for the credit derivatives market - setting up its own committee to stay clear of the courts?

8. Sustainable Lending. Looking at the loan side, you will be ware of the work of the LMA in updating the various principles for sustainable finance. Here is another summary: key Updates of Green, Social and Sustainability-Linked Loan Principles ?And what do you need to know about the revised Principles?

Looking for an example in the loan market: sustainability and gender diversity linked loan. Curious as to any views - this is a loan for the re-financing of ten LNG carriers. So is the diversity link a sweetener to attract green funds or genuinely ambitious and integral to the strategy of the borrower (as per the SLLP?). And is it sustainable at all (energy security?).

?9. Private and Public Equity: let’s start with public equity: The GIIN releases roadmap for impact investing in listed equities - Can investors achieve impact when investing in stocks? The GIIN’s just-published guidance, the result of a collaboration involving more than 100 investors, aims to assist those seeking to generate impact in public equities. Guidance for Pursuing Impact in Listed Equities.

For development in the (private) fund side, head to ELTIF 2.0 – New opportunities for the fund management industry. And Asset managers take aim at ‘unstable’ EU green fund rules. This naming of funds remains a challenging issue, and comparison with the US fund rules comes to mind. Taking a slightly broader perspective on disclosure, here's a look back on the implementation of Level 2 of the SFDR.

?10. Carbon credits lovers or haters: check Climate Impact X's new Nature X platform, it represents a basket of 11 carbon credit projects that support Reducing Emissions from Deforestation and Forest Degradation, the conservation and sustainable management of forests, and the enhancement of forest carbon stocks (REDD+). The platform supports the purchase of REDD+ credits for corporate carbon portfolios.

Also check out Bloomberg News’ article on Overhyped offsets (5 to 8): The factor by which the company South Pole overestimated the climate benefits of its flagship Kariba deforestation?project in Zimbabwe, according to two carbon rating firms: flawed credits.?And KWM’s Glasgow, Egypt and the carbon market breakthrough: the promise of Article 6. Information aplenty.

[C] Strategic Litigation

11. Climate Liability per Country. Thinking of strategic litigation, the historic victory of Vanuatu! It secured a vote at the United Nations that will allow the world’s highest court to establish, for the first time, the obligations countries have to address climate change. It speaks to the outsized role that Pacific Island nations and their residents — politicians to youth activists to sporting enthusiasts — are playing in the climate debate, as well as the oversized risks they face, here is more from the NYT. The question on everyone’s mind: can countries be sued for weak climate action? See also this article Bloomberg Green.?Check out this very insightful blog from the Sabin Center, highlighting where the case could have a significant impact: The ICJ’s Advisory Opinion on Climate Change: What Happens Now?

More government accountability litigation: the European Court of Human Rights heard cases on climate change and human rights: ?????#KlimaSeniorinnen?v. Switzerland and ?????Damien Careme?v. France. Next, after the summer break, the ECtHR will hear the biggest climate case ever: Duarte Agostinho v. 32 governments, also known as?#Youth4ClimateJustice. Six Portuguese youths between the ages of 10 and 23 are taking 32 European governments to court for their failure to tackle the climate crisis.

12. Investment or Divestment, and Big Oil itself. Shell's sale of Nigerian oil assets helps meet climate change goals, with unintended consequences - The Washington Post.

13. Hedge Funds and ESG. If you’re looking at short-selling and ESG, you might find this article from ISDA helpful. ISDA has also released a few papers on the emergence of sustainable derivatives – all on their website; what's new is Transparency in CDS: In the face of increased bank turmoil, questions are being asked about the role of credit default swaps (CDS), levels of transparency in this market and whether these products should be cleared. It all feels a bit like 2008, but there are important differences.

For a broader overview, see the ESG Disputes Bulletin. For more inspiration and the state of play, also on fossil fuels!

14. Banks and Fossil Fuel: More on BNP Paribas for failing to comply with its obligations under the French Corporate Duty of Vigilance Law; summary of the case can be found here.

15. Enforcement: ASIC means business: The Australian Securities and Investments Commission (ASIC) launched its first court action against alleged greenwashing conduct in Australian Federal Court against Mercer Superannuation (Australia) Ltd for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options. Word has it many other superfunds are re-examining their green claims...

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[D] What else is on the table?

For those looking at the mining sector, this could be a new area for litigation: Mining company agrees to multimillion-dollar settlement over misleading ESG disclosure.

And also valuable, with articles on the Paris Agreement and net zero transition: TDM 1 (2023) - International Investment Arbitration - Environmental Protection and Climate Change Issues | TDM Journal.

Enjoy the week!?

#sustainablefinance?#parisagreement?#humanrights?#esginvesting?#greenwashing?#sustainablecoffee?#reducinginequalities?#esglawyers?#impactlawyers?#greenbonds