ESG Market - Alert November/December 2024

Corporate key takeaways from Hogan Lovells ESG Gamechangers Summit (with Professor Brian Cox as keynote speaker)

Our recent annual ESG Gamechangers Summit focused on the competitive advantage of proactively addressing ESG challenges, ranging from reducing carbon footprints to fostering social responsibility and improving governance standards. As ESG factors continue to shape the expectations of investors, regulators, and consumers, companies are increasingly recognising the strategic value of integrating sustainability into their core focuses.

A panel of industry professionals from Anergi Group, BNP Paribas and M&G Investments discussed the approach to ESG as a consideration in future transactions. Ultimately, the conference emphasised that robust ESG strategies are not only about compliance but are key drivers of long-term business resilience, reputation, and financial performance.

The key takeaways for our corporate-minded readers were:

1. Allocation of funding for corporate deals is increasingly reliant on proof that projects are robust from an ESG perspective.

   • Highlights importance of rigorous DD in relation to ESG metrics/performance.

   • The lack of satisfactory ESG performance is likely to have a negative long-term impact on the reputation of a company and returns to investors.  

2. An incoming “tsunami” of ESG reporting regimes – the importance of standardisation.

   • The transition period for establishing ESG reporting standards is likely to have a period of uncertainty for businesses in the short term.

   • The key to overcoming the uncertainty will likely require analysis and setting realistic targets for companies internally.

3. The most important part of ESG to focus on is stakeholder engagement.

• This includes the importance for businesses of interacting with stakeholders and focusing on showing a genuine net positive benefit in the countries they operate in.

Click here for more insights and to watch our video with Professor Brian Cox for an exclusive behind-the-scenes look at the event.

A Second Trump Term: what ESG may look like under the President-Elect

Following the results of the U.S. election on 5 November, former President Donald J. Trump has been re-elected for a second term in office, which is likely to have wide-reaching impacts on the ESG space both within the U.S. and on a global scale.

As discussed in our October alert, deregulation was a central tenet of Trump’s election campaign, particularly in relation to the fossil fuel industry. Since becoming President-Elect, Trump has continued to be vocal with regard to his intention to expand oil and gas exploration on federal land, which may slow the momentum pushing large corporations in this industry towards clean energy alternatives. Trump has made promises regarding several “Day One” actions, which includes a reversal of Biden’s electrical vehicle mandate, halting offshore wind projects and rolling back environmental policies. Conversely, as part of Trump’s focus on reducing U.S. dependence on China, Trump has expressed an intention to broaden initiatives relating to mining critical minerals deemed to be essential for clean technologies, such as lithium batteries, highlighting that the development of certain sustainable alternatives is less at risk than other areas, such as wind power, which is an area that is likely to lose any tax credits currently available under the Inflation Reduction Act (IRA).

However, despite Trump’s vocal opposition to the IRA, which provides numerous tax credits for ESG-related activities, it is yet to be seen the extent to which the IRA will be repealed. Since its inception, 48.3% of the 271 major clean energy projects announced have been located in Republican states, with almost 80% of the funding distributed at a state level going to Republican backed-enterprises, making a complete roll-back of the IRA unlikely in order to retain the backing of voters who benefit from the IRA. It is also worth noting that, regardless of U.S. deregulation, the more stringent reporting requirements imposed by the European Corporate Sustainability Reporting Directive will still apply to a large number of European subsidiaries of U.S. businesses, which may impact decisions regarding reporting within U.S. companies with a significant presence in Europe.

UK Budget: A continuing commitment to ESG

The UK’s October Budget prioritised ESG goals with significant investments in clean energy and green infrastructure. ESG investors will likely be reassured by the government's £1.4 billion commitment to clean hydrogen and carbon capture projects in 2024–2025, which will increase to £3.7 billion in 2025–2026, alongside funding for 11 green hydrogen initiatives. Additionally, the government enhanced support for electric vehicles (EVs) by increasing grants for Plug-in Van and charging infrastructure, as well as extending tax incentives to 2030. The government also reaffirmed its objective to phase-out of combustion engines by 2030. However, ESG investors should be aware that challenges remain in stimulating EV demand and promoting green energy, further hindered by rising project costs for hydrogen and carbon capture projects.

Takeaways from COP 16

COP 16 took place with the intention of implementing the Kunming-Montreal Global Biodiversity Framework (GBF), which has the goal of reversing nature loss by 2030 by setting clear and concrete action points.

Whilst many of the negotiation themes remained unaddressed, and COP 16 will be reconvened early in 2025 to close out the proceedings, the following main themes were discussed:

• Indigenous peoples and local communities: a new programme of work on Indigenous peoples and local communities was agreed, which should enable the rights contributions and traditional knowledge of Indigenous peoples and local communities to be embedded in the global agenda.
• Benefit sharing: it was agreed that companies benefitting from digital sequence information on genetic resources (which can be used by companies to make various products such as drugs, cosmetics and food) should make a voluntary contribution to the “Cali fund”. This fund is intended to be used to support the self-identified needs of Indigenous peoples and local communities as well as capacity building and technology transfer.
• Finance for nature and environmentally harmful subsidies: whilst the establishment of the “Cali fund” may be promising, COP 16 failed to agree (i) a financial mechanism to distribute funds for the restoration and conservation of nature and biodiversity, and no strategy was agreed to raise the remaining monies required, and (ii) how to achieve target 18 of the GBF which seeks to reduce and eliminate the large amounts of environmentally-harmful subsidies being provided each year, using the savings to fund nature-positive incentives.
• Conserving ecologically significant marine areas: a global agreement to conserve ecologically or biologically significant marine areas in international waters was approved and focus areas for the conservation and sustainable use of marine, coastal and island biodiversity were introduced. Although this does not enable inherent protection, it helps identify areas which should be conserved and sustainably managed based on a scientific criterion whilst respecting the rights of States over their national waters.

ESG Counsel

The Hogan Lovells ESG team is here to help, including on all the issues raised in this snapshot. Hogan Lovells is one of the leading ESG firms in the world, delivering uniquely tailored cross-practice and geographic holistic advice as ESG Counsel to clients globally. Our holistic and solutions-driven approach to managing ESG issues draws on the full scope of our global practice and sector capabilities (including our leading global corporate, environmental, governmental relations and regulatory, employment, and dispute resolution teams) to drive sustainable value and maximize positive impact for clients. Please contact us to discuss next steps or for our latest ESG-related materials, including our ESG Academy.

Upcoming events

To hear about upcoming UK events in our Hogan Lovells ESG Gamechangers series, please contact Sarah Laughton to be added to our mailing list.

Authored by John Connell, Nicola Evans, John Livesey, Alastair Young, Zuzanna Krzyzos, Scott Prior, Srishti Chhajer, Hannah Dingemans, Kieran Farrelly, Emily Louise, Beatrix Mosey, Aphrah Raja, and Makar Rozhkov.