UK/EU/International ESG Regulation Monthly Round-Up – October 2024

1. UK Developments

1.1 SDR: FCA publishes pre-contractual disclosure examples relating to SDR and investment labelling regime

On 1 November 2024, the FCA published several illustrative examples to demonstrate how applicants can meet the pre-contractual disclosure requirements under the Sustainable Disclosure Requirements (SDR) and investment labelling regime. The SDR and investment labels regime enters into force on 2 December 2024.

1.2 UK Policy and Strategy developments

a. UK Government publishes policy paper on National Wealth Fund: Mobilising Private Investment

On 14 October 2024, HM Treasury published a policy paper – “National Wealth Fund: Mobilising Private Investment”.  The National Wealth Fund (NWF) builds on the success of (and replaces) the UK Infrastructure Bank, broadening the mandate of the NWF beyond infrastructure and to work alongside the British Business Bank for smaller companies.

The NWF is intended to catalyse investment into clean energy and support the delivery of the UK’s new Industrial Strategy - tackling economic growth and climate change as joint goals.  The policy paper sets out the key first steps in launching the NWF, including forging new partnerships with businesses to support UK’s clean energy transition.

b. FCA interim Regulatory Initiatives Grid

On 15 October 2024, the Financial Conduct Authority (FCA) published an interim version of its Regulatory Initiatives Grid, in which it sets out its current and proposed regulatory initiatives.  The FCA normally publishes the Grid every six months, but the version that was scheduled for H1 2024 was postponed because of the general election. 

There are no new proposals in relation to sustainability (that is, that have been introduced since the previous version of the Grid), but there are updates in relation to the timeframes for various initiatives.  In particular, the Grid says that the FCA will be releasing a consultation paper in Q1 2025 to update Supervisory Statement 3/19 on the management of climate-related risks. 

c. Transition Finance Market Review report published

On 17 October 2024, the comprehensive report and recommendations of the Transition Finance Market Review were published.

The report sets out a blueprint for the UK transition finance market, giving wide-ranging recommendations on policy framework, decarbonisation pathways and financial markets needed to support the UK’s net-zero transition, including the establishment of three bodies: Transition Finance Council, Net Zero Council and Transition Finance Lab. 

Scaling finance for transition assets and activities is a big theme (and a big opportunity for the UK economy) and blended finance is highlighted as a mechanism to de-risk and support the commercial viability of transition activities (both in the UK and globally). 

d. Ruth Davis and Rachel Kyte appointed UK’s Special Representatives for nature and climate

On 20 October 2024, Ruth Davis was appointed as the UK’s first Special Representative for Nature.  She will report to the Foreign Secretary and the Environment Secretary, and will be responsible for championing the UK’s ambition to put climate and nature at the heart of foreign policy. 

Ms Davis’ appointment follows the appointment of Rachel Kyte as the UK Special Representative on Climate on 26 September 2024.  Dr Kyte will report to the Foreign Secretary and the Energy Secretary.

e. UK 2024 Autumn Budget and the UK’s climate change strategy

On 30 October 2024, the UK Chancellor of the Exchequer, Rachel Reeves, delivered the UK 2024 Autumn Budget.  There were wide-ranging changes introduced, but little specifically in relation to sustainability.  However, it has been reported that the Chancellor will be writing to the Governor of the Bank of England to ask the Bank to reinstate climate change as one of the Bank’s key priorities.

We await the Mansion House speech on 14 November 2024 for the government to outline further plans for financial services and sustainability.  New remit letters for the financial regulators (including the Bank) will be published alongside the Mansion House speech.

1.3 Climate Risk: Climate Financial Risk Forum guides published covering nature, short-term risk and adaptation finance

On 10 October 2024, the Climate Financial Risk Forum (CFRF) published three new guides tackling three key areas of climate risk. The guides have been developed by industry for industry and aim to help the financial sector develop its approach to climate-related financial risks and opportunities. The guides cover nature-related risk, short-term scenarios and mobilising adaptation finance to build resilience.

2. EU and International Developments

2.1 ESMA updated its Sustainable Finance implementation timeline

On 14 October 2024, the European Securities and Markets Authority (ESMA) updated its Sustainable Finance implementation timeline.  Upcoming publications include the EU Green Bond Regulation consultation on remaining technical standards (in March-June 2025) and various implementation milestones under the Corporate Sustainability Reporting Directive.

2.2 SFDR: ESA publishes a Joint Report on principal adverse impacts disclosures

On 30 October 2024, the European Supervisory Authorities (ESAs) published their annual joint report assessing principal adverse impact (PAI) disclosures under the Sustainable Finance Disclosure Regulation (SFDR) for the period from 1 January 2023 to 31 December 2023.  

Amongst other things, the joint report includes a qualitative assessment of the entity-level PAI statements and of some of the PAI indicators.  It also contains an assessment of statements currently in the market, with examples of good and bad practice.

This joint report was foreshadowed in the ESAs’ 2025 Work Programme published on 16 September 2024. 

Other relevant SFDR workstreams from the ESAs include:

• monitoring the practical application of the SFDR to determine if Q&As or other level 3 tools to promote supervisory convergence are needed; and
• further advice in relation to their review of SFDR, as a follow up of the ESAs’ joint Opinion on the SFDR Level 1 framework published in 2024 (if they are requested to do so by the European Commission).

2.3 EFRAG publishes draft transition plan guidance

In early November 2024, the European Financial Reporting Advisory Group (EFRAG) published the first public draft of its implementation guidance on transition plans for climate change mitigation.  It covers transition plan structure, target compatibility, actions, decarbonisation levers and investment and funding.  It has been made public ahead of its discussion at a Technical Expert Group on Monday 11 November 2024.  The public feedback period is intended to begin in January 2025.

2.4 HL CSRD Transposition Tracker

Despite the deadline to transpose the requirements of the Corporate Sustainability Reporting Directive (CSRD) into national law having passed on 6 July 2024, the status of transposition remains patchy across the EU. 

See our Engage article here and our CSRD Transposition Tracker here for more information.

2.5 Nature

a.Biodiversity COP 16

The United Nations Conference of the Parties 16 on biodiversity (COP 16) in Cali, Colombia ran from 20 October 2024 until 1 November 2024. 

COP 16 was the implementation COP.  Negotiations were held on many themes, including:

i. implementation of commitments agreed in the Kunming-Montreal Global Biodiversity Framework, including financing the 30x30 commitment for ecosystem restoration;

ii. inclusion of Indigenous Peoples and local communities in dialogue and recognition of their role and traditional knowledge in preserving biodiversity;

iii. delivery of the National Biodiversity Strategies and Action Plans (NBSAPs) and

iv. discussions about digital sequence information on genetic resources (DSI) to implement a viable access and benefit-sharing system.#

b. Nature Transition Plans

On 27 October 2024, the Taskforce on Nature-related Financial Disclosures (TNFD) published a discussion paper on nature transition plans.  The paper sets out draft guidance for financial institutions and corporations that are developing and disclosing their nature transition plans, including what a nature transition plan should include and how a plan should be presented and disclosed.

On 29 October 2024, GFANZ issued three papers, including one on Nature in Net-zero Transition Plans.  This guidance is intended to supplement the guidance already provided by GFANZ on transition plans.

c. TNFD published a discussion paper outlining the roadmap to upgrade market access to decision-useful nature-related data

On 26 October 2024, TNFD announced a discussion paper outlining its road map to upgrade market access to decision-useful nature-related data, including a beta version of its nature data public facility. The facility is intended to address public needs for data quality, timeliness and assurance, and should be available in 2025. 

d. High Level Principles for Biodiversity Credits published

The Biodiversity Credit Alliance, the World Economic Forum, and the International Advisory Panel on Biodiversity Credits released a set of 21 high-level principles for biodiversity credits.  

Our global Sustainable Finance & Investment group brings together a multidisciplinary global team that provides clients with best-in-market support.  We are following developments in ESG regulation very closely so please get in touch if you would like to discuss.

This note is intended to be a general guide to the latest ESG developments. It does not constitute legal advice.

Authored by Rita Hunter, Julia Cripps, Emily Julier, Dominic Hill, and Jessica Dhodakia.

Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.