SustainabilityConnect Newsletter May 2023

Hong Kong Exchange Requires Climate Disclosures from 2024.

Hong Kong's Stock Exchange is set to require all listed companies to provide climate-related disclosures in line with the International Sustainability Standards Board's (ISSB) upcoming Climate Standard. The new rules will be in force from January 1, 2024, and are expected to significantly increase the reporting of many companies, particularly in Scope 3 emissions and scenario analysis to determine climate resilience.

The new proposal also includes interim provisions to help issuers ramp up their climate reporting, with quantitative disclosures required for the first two years in some areas. The disclosures will cover various topics, including transition plans, Scope 3 emissions, scenario analysis-based climate resilience, and governance of climate-related risks and opportunities.

According to a few experts, the proposal aims to accelerate the building of resilience and the sustainability journey for issuers. Climate change is a global concern for which investors demand more information on the impacts of climate issues and related policy changes on issuer's assets, business operations, and financials.

The proposed rules call for reporting on internal carbon prices and disclosure of the use of climate-related considerations in executive remuneration. It also requires mandate disclosure of metrics and targets, such as the amount and percentage of assets vulnerable to transition and physical risks aligned with climate-related opportunities.

Updapt Views: The new rules are expected to drive companies to develop and implement more robust climate strategies, ultimately reducing greenhouse gas emissions and increasing climate resilience. By requiring reporting on Scope 3 emissions and scenario analysis, companies will be better equipped to address climate-related risks and opportunities.

The Reserve Bank of India has proposed a new framework for accepting green deposits in India.

To encourage regulated entities to offer green deposits to customers, The Reserve Bank of India (RBI) has released a new guideline for regulated entities to boost green finance and mitigate climate-related financial risks.

To protect the interest of the depositors, help the customers achieve their sustainability agenda, and address greenwashing concerns, the new framework will come into effect from the 1st of June and applies to small finance banks and deposit-taking non-banking financial companies. While large banks like Federal Bank, IndusInd Bank and DBS Banks in India already accept green deposits.

According to the RBI's framework, lenders can issue green deposits on a cumulative or non-cumulative basis, which the depositor could renew or withdraw on maturity. All conditions applicable to other public warranties will also be relevant to green deposits. The proceeds from such deposits will be utilized for various sustainable activities like renewable energy, energy efficiency, clean transportation, and others.

A comprehensive policy with the details of all the aspects of the issuance and allocation of green deposits is yet to be approved. Where a financing framework for an adequate distribution of green warranties covering the eligible green activities, the process for project evaluation, the allocation of proceeds, and the particulars of the temporary allocation will be prepared and be presented to carry out an external review to receive opinions from the external reviewer before the implementation.

Updapt Views: The announcement of the new framework came out just in time when environmental, social and governance are gaining focus in India. Green deposits provide more significant opportunities to create a greener future and encourage financial institutions to integrate more ESG factors into their investment decisions. Such central-driven initiatives help support India's commitment to the Paris Agreement and SDGs.

New Net Zero Standard by IIGCC for Oil and Gas Companies.

The Institutional Investors Group on Climate Change (IIGCC) brings the investment community together to work towards a net zero and climate change, supporting investors in generating returns.

The new framework draws investor expectations and corporate engagement priorities for oil and gas companies and acts as a comprehensive assessment framework for investors to assess the alignment in their transition plans with net zero and 1.5 0 climate scenarios.

The framework supplements the Climate Action 100+ Net Zero Company Benchmark by aligning with all the 90 metrics. The standard will be used for initial public assessments of the largest European and North American oil and gas companies in the last quarter of 2023, where the list of companies for assessment will be finalized by June 2023.

This is a result of IIGCC's two-year collaborative process with the investor groups and the Transition Pathway Initiative (TPI), where a pilot study was tested in September 2021 with five major European oil and gas companies. The results of the pilot study project greater transparency over decarbonization plans including from setting targets to offsets. However, the pilot study also states the requirement to improve the alignment of targets to the 1.5o C scenario.

Updapt Views: Oil and Gas are one of the major sectors to face challenges in the transition to a low-carbon economy. For such companies, the IIGCC net zero standard helps provide clear guidance on how to work on the strategies and what investors would like to expect in the assessment of a net zero transition plan. It is also said that this framework would level the disclosure landscape for the sector.

G7 Urges Global Adoption of Mandatory Climate-Related Financial Disclosures.

G7 climate and environment ministers have called for mandatory climate-related financial disclosures to accelerate sustainable finance and help achieve global climate goals. The call comes as several major economies are implementing sustainability reporting regimes, such as the EU's Corporate Sustainable Reporting Directive (CSRD), set to take effect in 2024, and the US SEC's anticipated climate disclosure rules.

The G7 ministers highlighted the International Sustainability Standards Board's importance in developing a practical, flexible, and interoperable global baseline. They called for mandatory climate reporting beyond the G7 and urged more partners to join this effort.

The Sapporo summit's communique pledged to increase renewable energy generation, accelerating a broad range of renewable energy sources. The ministers set collective goals to advance offshore wind capacity by 150 GW and increase solar PV to over 1 TW by 2030.

The communique included a section on natural gas and LNG investment, stating that investment in the gas sector could be appropriate to address potential market shortfalls provoked by the crisis, but only if implemented without creating lock-in effects and consistent with climate objectives.

Updapt Views: This move is crucial to increase transparency and accountability among businesses and encourage investors to make informed decisions about where to invest their money. The momentum towards climate reporting is expected to change with the upcoming release of the IFRS Foundation's International Sustainability Standards Board's sustainability-related and climate-related disclosure standards. These efforts could positively impact the world economy by promoting sustainable investment and reducing environmental risks.

New launch - CDP's annual reporting includes plastic-related disclosures from 2023.

CDP has included a new set of questions and metrics related to plastic in its environmental disclosure to encourage companies nearly 7,000 and more to start reporting on it. The framework is out with requests from more than 740 investors with US$136 trillion in assets.

The companies are asked to report on their production, consumption and disposal of plastic polymers, durable plastics, and plastic packaging that is incorporated into CDP's water security questionnaire.

The questions are built on the existing UNEP's Global Commitment Framework and are working to widen the scope with consulting expertise and support from The Ellen MacArthur Foundation, The Pew Charitable Trusts, and Minderoo Foundation. The current details also cover the potential impacts on the environment, business risks, and targets in relevance with the negotiations of the UN Plastics Treaty.

Especially the highly impacted sectors such as packaging are one of the largest users of plastics globally, food and beverage that uses plastic packaging for their products and petrochemical companies that produce a majority of all single-use plastic waste and others like fashion/apparel, with their online stores contribute to plastic packaging waste.

The plastic pollution crisis cost not just financial and legal risks but also significant physical, technological, regulatory, and reputational risks for both companies and investors of any and every industry globally.

Corporate liability is no joke, where more than six large companies faced a shareholder petition in 2022 asking for more disclosures on reducing plastic waste. In the same year, more than 55 financial institutions formed a Plastic Solutions Investor Alliance to work with publicly traded companies on plastic pollution.

Updapt Views: Tracking and reporting plastic-related information by CDP will help capital markets and supply chain members in their financial or procurement decisions. Many countries like Canada and India have recently introduced laws to ban the use of single-use plastics and include recycled content requirements for plastic packaging and labelling to be detailed.

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