ESG Weekly Update – July 20, 2022 – Corporate Governance

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EU: taxonomy advisers recommend minimum guarantees for ‘S’ in ESG

On 11 July 2022, the EU Sustainable Finance Platform, the independent advisory body of the European Commission, published a draft report on minimum human and labor rights guarantees.

According to Article 18 of the EU Taxonomy Regulation, companies must comply with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. ‘man. The minimum safeguards provide guidance on how to assess companies’ compliance with these standards by referring to four main themes: human rights (including workers’ rights); bribery and corruption; Taxation; and fair competition. The purpose of these recommendations is to fill the gap until the Sustainability Due Diligence Directive and the Sustainability Reporting Directive are finalized.

The report recommends that companies be considered non-compliant with the taxonomy if any of the following are identified: (i) insufficient human rights due diligence processes; (ii) any final conviction in court relating to matters falling within the principal matters listed above; (iii) an adverse finding from National Contact Points (NCPs), a government-supported office set up to ensure the effectiveness of the OECD Guidelines for Multinational Enterprises, or a lack of collaboration with the NCP ; or (iv) fail to respond to allegations raised by the Business and Human Rights Resource Centre.

Connections:

Draft Sustainable Finance Platform Report on Minimum Safeguards



Japan: Japan publishes first code of conduct for ESG data providers

The Japan Financial Services Agency (FSA) has released a draft code of conduct for ESG assessment and data providers operating in Japan in response to concerns about assessment transparency and fairness. As institutions and investors move towards promoting ESG objectives, the growing popularity of ESG initiatives has led to a demand for ESG assessment. Following consultations with the International Organization of Securities Commissions (IOSCO) and data providers, Japan’s FSA released the draft code to ensure ESG data can be used across the investment chain. investment.

The draft code of conduct recommends increased monitoring of data provided to third parties. It requires data providers to ensure that there are sufficient human resources working at data providers to address the shortage of skilled workers in this field. To mitigate potential inaccuracies, data providers subject to the draft Japanese code will be asked to disclose their sources of information in cases where their clients rely on their data due to their submission to ESG ratings. The code also requires suppliers to implement quality control processes, for example to ensure that there are no discrepancies between methodologies and listed products. Data providers will be able to join the code on a voluntary basis through a public announcement. The FSA noted that companies can take a “comply or explain” approach to certain issues in the code.

In 2021, IOSCO called for measures to strengthen oversight of ESG assessments and data providers. The UK, EU and India have indicated they are considering similar measures.

Returns are expected by September 2022.

Connections:

FSA Code of Conduct

UK: FCA issues guidance on ESG integration in debt capital markets

On June 29, 2022, the UK Financial Conduct Authority (FCA) released a statement on ESG integration in UK capital markets, focusing on ESG-labeled debt instruments and ESG data and rating providers.

Following a consultation launched last year, the FCA has set out a number of key policy actions:

  • Where advertisements contain inaccurate or misleading information or information inconsistent with a prospectus, the FCA will consider the need for market monitoring or enforcement action.

  • In addition, the FCA encourages issuers and their advisers to consider voluntary adoption of relevant industry standards when issuing ESG-labeled debt instruments.

  • Issuers are encouraged to apply industry standards when selecting vendors and second-party opinion checkers (SPOs). Although the FCA has advised PPOs to consider implementing these standards themselves, PPOs are not directly subject to FCA oversight. However, the Authority is considering, alongside the Treasury, to include SPO providers in its regulatory scope in the future.

  • The FCA will continue to work with the Treasury to bring providers of ESG data and ratings within its regulatory authority, in line with IOSCO’s recommendations (detailed above).

The feedback statement was accompanied by Primary Market Bulletin 41, in which the FCA recommended that:

  • issuers of ESG-labeled debt instruments for product use voluntarily apply standards such as those developed by the International Capital Market Association;

  • issuers and other market participants ensure that the information contained in the prospectus or the advertisement is not misleading; and

  • issuers and their advisors take into account the expertise and professional standards of auditors and certifiers.

Connections:

ESG integration in UK capital markets: comments on CP21/18

Improve climate-related disclosures by listed companies and solicit views on ESG topics in capital markets

Primary Market Bulletin 41

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