The Sillion Briefing 28.06.2024
Need-to-know corporate sustainability and ESG news, delivered fortnightly
In this edition...
Manifestos summarised
ISSB endorses TPT
GRI consults on labour
EU nature law passes
ESMA name rule bites
Lidl & WWF partnership
Shell pauses biofuels
EU sustainable finance barriers
Government
Labour vs Conservative: blowing hot and cold on sustainability as election looms
The Labour party is widely expected to win the July 4th election, with a manifesto that is broadly strong on sustainability – particularly in the realm of green energy – but which contains no real surprises or major new sustainability commitments. As the last Briefing before votes are cast next week, we’ve rounded up the main sustainability-related policies below.
Labour: Great British Energy, backed by an initial £8.3bn in public funding over the next parliament, will be established to support capital-intensive energy projects, including support for technologies like carbon capture and storage and hydrogen. The proposed new entity is one part of Labour’s attempts to meet its highly ambitious target of a close to fully-decarbonised electricity system by 2030. The party has set goals of doubling onshore wind, tripling solar power, and quadrupling offshore wind. Nuclear will be supported, including small modular reactors. North Sea oil and gas and new coal licences will not be approved, and fracking will be banned. These plans are forward-thinking, optimistic, exciting – and have also come under huge criticism for being unrealistic and financially impossible. Energy isn’t the only area where Labour’s manifesto has raised an eye over costings, with commentators generally agreeing that the document is light on the specifics of how certain claims will be paid for.
The 2030 phase-out date for new internal combustion engine cars will be restored, reversing the Conservative government’s delaying the target to 2035. On nature, Labour has promised to take action to meet Environment Act targets, including protecting 30% of land and seas and halting declines in biodiversity. £6.6bn would be invested in upgrading and insulating around five million homes as part of the ‘Warm Homes Plan’, although heat pumps haven’t received any explicit focus.
A Labour government would also mandate FTSE100 companies, and financial institutions including banks and asset managers, to develop 1.5C aligned transition plans. The presence of this ruling in the manifesto indicates that a Labour government would be unlikely to wind back on other sustainability regulation facing corporates.
A Carbon Border Adjustment Mechanism (CBAM) is also supported which, like the EU’s CBAM, would place a tax on the import of high-carbon materials and goods from regions outside of the UK.
Conservative: The Conservative manifesto is less excited about sustainability and net zero, and leads with measured language on these topics, including the promise of a “pragmatic and proportionate” approach. Oil and gas will continue to be licenced in the North Sea, alongside promises on tripling offshore wind capacity and expanding nuclear power. Like Labour, a CBAM is supported. And like all other major parties, with the exception of Reform, the UK’s net zero 2050 goal is still backed.
Disclosures
ISSB endorses TPT framework
The Transition Plan Taskforce (TPT) framework, recognised as the leading framework for corporate transition plans, is set to be incorproated by the ISSB into its knowledge hub, with the standard setter stating that it will take on responsibiltiy for the disclosure-specific materials in the framework – tantamount to the ISSB’s endorsement of TPT as the best framework for developing transition plans. This was confirmed by the IFRS (the ISSB’s parent body) at the London Climate Innovation Forum this week, where it was also made clear that any explicit inclusion of TPT recommendations into the ISSB standards would be subject to a public consultation process first (so rest assured there will be no sudden changes!). The ISSB’s S2 standard on climate, which is closely similar to the TCFD recommendations, includes a line which advances on TCFD by requesting the disclosure of a company’s climate-related transition plan – with companies now assured that in the eyes of the IFRS, the TPT framework is a strong option for them to use when creating their own plans.
The news comes as part of a wider release from the ISSB, which recapped some previous announcemenets – summarised here:
The ISSB will be more closely involved with the GHG Protocol, the globally recognised emissions calculation and reporting standard, which ensures (unsurprisingly) that the Protocol will be endorsed by ISSB over the long term
The CDP’s platform for reporting will (also unsurprisingly!) be aligned with IFRS S2
The GRI and ISSB will continue to work together on ‘full interoperability’, although it is unclear exactly what this will look like at this stage
The ISSB will continue to consider how the Taskforce on Nature-related Financial Disclosures (TNFD) recommendations might be built into its standards – although any inclusions will be a long way off
GRI launches consultation on multiple labour standards
The Global Reporting Initiative (GRI), one of the most widely used reporting frameworks, has begun a global comment period running to October as it seeks to redraft and update its standards relating to employment practices and working conditions. The three standards specifically under review during this initial period are GRI 202: Market Presence, GRI 401: Employment and GRI 402: Labour / Management Relations – with topics including internships, turnover metrics, working time and up-skilling all in scope. The next stages of the review will focus on working life and career development, and after that, workers rights.
If your company currently reports using GRI’s labour-related standards, you may want to consider engaging in the consultation here.
Policy and Regulation
Landmark EU Restoration Law finally passed
After a hard-fought agreement, the EU's Nature Restoration Law has passed through the final stages of approval with a narrow majority, marking the first green law to pass since European Parliament elections earlier this month. The law sets a legally binding target for EU countries to rehabilitate at least 20% of the bloc's damaged land and sea areas by 2030, and 90% by 2050. The regulation has faced several delays after withdrawn support, most recently in April, largely fuelled by opposition from the centre-right European People's Party about the requirements for the agricultural sector. The controversy shows no signs of dying down - Austrian Green climate minister, whose vote is credited with saving the proposal, now faces legal action for alleged misuse of power. Nevertheless, the end to the stalemate has been hailed a victory by climate and wildlife groups, and will enter into force immediately once published in the Official Journal of the EU. A review on progress is anticipated before 2030.
ESMA name rule bites ESG funds – to the tune of $40bn
The European Securities and Market Authority’s (ESMA) guidelines on fund names would potentially force ESG funds to dump stocks totalling $40bn, if they fail to change their names – according to Morningstar. You may remember the EU’s fund names legislation from a Briefing in May. In short, ESMA’s rules stipulate that a fund can’t use words like ‘environmental’ or ‘sustainable’ in its name unless it meets a threshold of 80% of investments being related to sustainability characteristics or objectives, alongside other exclusion rules. Out of 4,300 sustainability-named funds in the EU, Morningstar found that 1,600 breached this new rule, meaning they may have to either divest certain shares or rename. The number of funds affected can broadly be taken as a sign that the rule is doing its job, as part of the gradual raising of standards for green claims across the sustainable investment universe.
Calendar
Q4 2024 | SBTi: Draft Corporate Net-Zero Standard V2 Public Consultation
December 2024 | EU Deforestation Law due diligence obligations imposed
Q1 2025 | UK Sustainability Reporting Standards (SRS) published
FY24 reporting | CSRD: EU firms already subject to NFRD (and large non-EU subsidiaries) to report ESRS
FY25 reporting | CSRD: Large private companies to report ESRS
FY25 reporting | CSRD: Non-EU companies (incl. UK) to report ESRS for large subsidiaries
FY26 reporting | ISSB S1 and S2 standards become effective in the UK
FY26 reporting | Transition planning, likely through TPT framework, to potentially become mandatory through UK SRS
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