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

1. UK Developments 

Chancellor of the Exchequer sets out future for sustainable finance in the UK in her first Mansion House speech

On 14 November 2024, the Chancellor of the Exchequer, Rachel Reeves, outlined a number of key policy initiatives for the UK financial services sector in her inaugural Mansion House speech.  This is the new government’s first expression of its intentions for the financial sector. Other initiatives were also announced at COP 16. 

The main initiatives were as follows:

(a) HM Treasury opens consultation on the UK Green Taxonomy

On 14 November 2024, the HM Treasury opened a consultation on the UK Green Taxonomy.  The aim of the Green Taxonomy is to support investment in sustainability-focused activities that are aligned with the UK’s net-zero and sustainability goals and to help mitigate greenwashing.

HM Treasury is seeking views on the value of a UK Taxonomy and whether a UK Taxonomy would be complementary to existing sustainable finance policies and help support market participants in sustainable investment decisions.  The consultation closes on 6 February 2025. See here for further information.

(b) UK government publishes consultation response and draft legislation proposals for regulation of ESG ratings providers

On 14 November 2024, the UK government published its consultation response and draft legislation proposals for the regulation of ESG ratings providers. ESG rating providers, both in the UK and overseas providers that have business relationships with UK users, will need to be authorised by the FCA. Read our briefing here for more information. 

(c) Integrity principles for voluntary carbon and nature markets

The government has launched a set of integrity principles for voluntary carbon and nature markets (VCNMs), which are intended to address a number of concerns with the current use of voluntary carbon credits, such as buyers using credits instead of undertaking the internal actions needed to further environmental goals.  The government announced that it will consult on these principles in the new year, which will include clarifying the government’s expectations and elaborating on the proposed principles.

(d) Promoting the development of transition finance

In support of the UK’s stated intention to become a global hub for financing the energy transition, two announcements in relation to transition finance were made by the UK’s representative at COP29. 

• Consultation on transition plans:The government will consult in the first half of 2025 on how best to take forward its manifesto commitment on transition plans.
• Transition Finance Council:The government is co-launching a Transition Finance Council with the City of London Corporation (as recommended by the Transition Finance Market Review), which it is intended will act as a central hub of thought leadership and provide a governance and delivery function for tracking and implementing the TFMR recommendations.

(e) Remit Letters

The Chancellor has issued new growth-focused remit letters to the FCA, the Bank of England’s Prudential Regulation Committee and Financial Policy Committee (FPC) and the Payment Systems Regulator.  These remit letters outline the priorities that the government would like the regulators to consider when carrying out their functions. 

Although this is not the first time that ESG considerations have been included in remit letters for the UK regulators, the new letters affirm the commitment of the government to ESG considerations.  In addition, some of the points of emphasis are different to those from previous remit letters, which may mean that the regulators approach ESG considerations differently.  For example, the letter to the FPC recommends consideration of climate risk over the near and longer term, and to ensure that sufficient time horizons are considered, could lead to the Bank of England setting more robust climate stress tests as well highlighting the importance of nature and the materiality of nature-related financial risks.  The Chancellor reinstated sustainable finance as one of the government’s priorities which the FPC should support.

Read more about the Mansion House speech more generally here and, for a deeper dive into sustainable finance developments, here.

2. EU and International developments

2.1 European Budapest Declaration adopted setting out the New European Competitiveness Deal

On 8 November 2024, EU leaders adopted the Budapest Declaration laying out the new European Competitiveness Deal.  The basis for the meeting was the recent report by Mario Draghi.  Commission President Ursula von der Leyen highlighted that urgent action is needed to reduce regulatory barriers to innovation.  From an ESG regulatory perspective, one of the more interesting conclusions was that reporting requirements are to be reduced by at least 25% in the first half of 2025.  Omnibus legislation has been muted as a possible way to streamline obligations on businesses and to enact changes simultaneously to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Taxonomy. However, President Ursula von der Leyen has confirmed that it was agreed in internal council that: “The content of the laws is good.  We want to maintain it and we will maintain it.  But the way we get there, the questions we are asking, the data points we are collecting – thousands of them - is too much often redundant, often overlapping. So it is our task to reduce the bureaucratic burden without changing the content of the law that we all want.”  So it appears that the EU's intention is not to significantly impact the current obligations under the CSRD, CSDDD and EU Taxonomy. Rather, the EU's priority is to streamline the reporting requirements so as to minimise the burden and overlap, which we anticipate in-scope companies would welcome.

2.2 Updates on EU ESG regulations

(a) EU Taxonomy Regulation: FAQs on interpretation and implementation published

On 8 November 2024, the European Commission published a Commission Notice (third Commission Notice) in the Official Journal (they had previously published a draft Notice).  The purpose of the Notice is to provide interpretative and implementation guidance to financial undertakings in the form of replies to frequently asked questions (FAQs) on the reporting of their KPIs under the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation.  

On 29 November 2024, the European Commission published a Draft Commission Notice on the interpretation and implementation of certain legal provisions of the Environmental Delegated Act, the EU Taxonomy Climate Delegated Act and EU Taxonomy Disclosures Delegated Act.  The FAQs contain additional technical guidance regarding how to apply the technical screening criteria for economic activities relating to the non-climate environmental objectives, which are contained in the Taxonomy Disclosures Delegated Act. The Commission have also answered other questions relating to the Do No Significant Harm criteria, interoperability and third party verification.  Formal adoption of the draft Notice will happen after all official language translations are available.

(b) CSRD: FAQs published

On 13 November 2024, the European Commission published Frequently Asked Questions (FAQs) on the Corporate Sustainability Reporting Directive (CSRD).  The FAQs aim to clarify the interpretation of certain provisions under the CSRD and do not introduce any additional requirements.  The FAQs also address certain provisions in the Sustainable Finance Disclosure Regulation (EU 2019/2088).

(c) EU Deforestation Regulation: European Parliament approves 12 month delay

On 14 November 2024, the European Parliament approved the Commission’s proposal to delay the EU Deforestation Regulation (EUDR) by one year.

Companies will now have until 30 December 2025 to comply with the EUDR. The delay is in response to concerns raised by EU member states and non-EU countries that they would not be able to fully comply with the requirements before 30 December 2024.

The Parliament also approved a number of other amendments to the EUDR, including a new category for countries that have ”no risk” on deforestation.  Countries classified as “no risk” will face significantly less stringent requirements.  For these changes to enter into force, the amendments must be added to the original text, endorsed by both the Council and Parliament and published in the EU Official Journal.

(d) CSDDD: The Netherlands opens a public consultation on the implementation of CSDDD

On 18 November 2024, the Ministry of Foreign Affairs (Ministerie van Buitenlandse Zaken) opened a public consultation on its a draft bill on the Corporate Sustainability Due Diligence (CSDDD).  The public consultation is open until 29 December 2024.

2.3 COP updates – news from the nature and climate COPs

(a) COP 16

COP 16 on Biodiversity was held in Cali, Colombia from 21 October 2024 to 1 November 2024.  COP 16 was intended to be the “implementation COP” recognising the need for clear and concrete action to achieve the commitments under the Kunming Montréal Global Biodiversity Framework (GBF) which were adopted at COP 15. 

Read more on the outcome of COP 16 in our briefing here.

(b) COP 29 

COP 29 on Climate Change was held in Baku, Azerbaijan from 11 November 2024 to 22 November 2024. The focus of COP 29 was climate finance and adaptation projects, loss and damage funds and the transition to net-zero by 2050. See our briefing here for more information.

Some of the key talking points were:

• the New Collective Quantified Goal (NCQG) which was set at $300 billion with an aim to scale up to $1.3 trillion;  
• an agreement on carbon market standards under Articles 6.2 and 6.4 of the Paris Agreement;
• Plans for the reduction of methane and CO2 emissions from the US, EU and others; and
• the COP 29 Declaration on Green Digital Action, which was endorsed by more than 1,000 organisations and stakeholders.

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.