ESG Policy and Regulation - continued progress on sustainability standards

In our February ESG Policy and Regulation round-up we explore the latest in developments to help you get ahead of the key changes shaping the market.

Table of Contents

Recent UK, EU and globally-significant policy developments and implications for investors, lenders, issuers, and borrowers

  • European Commission announced The Green Deal Industrial Plan

Other announcements and publications


  • A new ‘Department for Energy Security and Net Zero’ was created, following the split of the Department for Business, Energy and Industrial Strategy (BEIS)
  • The Green Technical Advisory Group (GTAG) published recommendations on how to promote international interoperability in the UK Green Taxonomy
  • The FCA published a ‘Dear CEO’ letter to Asset Managers setting a supervision strategy for sustainability claims
  • The FCA published a discussion paper “Finance for positive sustainable change: governance, incentives and competence in regulated firms”


  • European Council and Parliament reached provisional agreement on the EU Green Bond Standard
  • European Commission announced the Chair and members for the new mandate of the Platform on Sustainable Finance
  • European Central Bank (ECB) revealed details of further tilting of its corporate purchase programme portfolio towards issuers with better climate performance
  • ECB published new climate-related statistical indicators to narrow climate data gap
  • The European Securities and Markets Authority (ESMA) highlighted that greenwashing risks are coming into focus
  •  AFM (Dutch Financial Markets regulator) published supervisory expectations for sustainable bonds
  •  European Banking Authority (EBA) launched a survey to gather input from credit institutions on green loans and mortgages
  • European Insurance and Occupational Pensions Authority (EIOPA) published a report on impact underwriting: reflecting on insurers’ use of climate-related adaptation measures in non-life underwriting practices


  • SEC Division of Examinations announced its 2023 priorities

Recent policy developments and implications for investors, lenders, issuers, and borrowers

European Commission announced The Green Deal Industrial Plan

On 1 February 2023, the European Commission (EC) released its "Green Deal Industrial Plan" (‘The Plan’) [1], in response to the adoption of the Inflation Reduction Act (IRA) in the US. The Plan aims to provide a more supportive environment for the scaling up of the EU's manufacturing capacity for the net zero technologies and products required to meet Europe's ambitious climate targets.

The Plan is based on four "pillars":

  1. A coherent and simplified regulatory environment to support the deployment of net zero manufacturing capacities.
  2. Faster access to sufficient funding and avoiding the fragmentation of the Single Market.
  3. Ensuring that the European workforce is skilled in the technologies required by the green transition.
  4. Open trade for resilient supply chains, based on cooperation with the EU's partners to ensure diversified and reliable supplies and fair international competition.

To achieve these pillars, the Commission will aim to launch several initiatives. For example, a proposed Net Zero Industry Act (NZIA) will identify goals for net zero industrial capacity and provide a regulatory framework suited for quick deployment, ensuring fast-track permitting, promoting European strategic projects, and developing standards to scale-up technologies across the Single Market. The Commission aims to guarantee a level playing field within the Single Market, but also make it easier for the Member States to grant necessary aid that fast-tracks the green transition. The Plan would also establish Net Zero Industry Academies to roll out training programmes in strategic industries and build on the engagements with the EU's partners and the work of the World Trade Organization.

The Commission is expected to present draft legislation under the Plan in March 2023 for negotiation by the European Parliament and EU Member States, with adoption to follow thereafter.

Key considerations for sustainable finance market participants

Issuers / Borrowers

The Plan acknowledges that the largest part of the investments needed for the energy transition will have to come from private funding (in addition to amending the state aid rules to unlock private financing). However, The Plan does not include details for sectors important to decarbonisation and energy efficiency, such as construction or plans for heavy industry sectors like cement. For those issuers not explicitly covered by The Plan or able to realise the benefits of new state aid rules, it will be important to have  strong and transparent disclosures on how its strategy supports Europe’s net zero plan in order to attract private funding.

A key part of The Plan is the NZIA, which is intended to create a simplified regulatory framework for production capacity and to target key product sectors including batteries, wind-turbines, heat pumps as well as technologies including solar, electrolysers and carbon capture and storage (CCUS). For companies that produce these or related goods, the NZIA should allow for increased certainty regarding forecasts and planning. This can help issuers be more transparent to investors and stakeholders on planned capital expenditure and expected positive environmental and social impacts.

The Green Deal Industrial Plan is focused on ensuring that the EU’s manufacturing capacity for the products listed above is strengthened. These investments will benefit all business by enabling a secure, affordable and sustainable energy supply. Therefore, companies can look to holistically understand the impact of these initiatives on their own net zero targets and plans and ensure that these benefits are captured and communicated externally.

Issuers with international operations (across US/Europe) would need to carefully calibrate investment plans between the different regional support regimes.

Investors / Lenders

Alongside the US Inflation Reduction Act (IRA), the EU’s Green Deal Industrial Plan will aim to accelerate the shift to renewable energy sources, not only in the EU, but should help speed up the transition globally; reinforcing the momentum and triggering international competition. If implemented as intended, the Green Deal Industrial Plan will accelerate the growth in supply of investable environmentally sustainable assets. This would then likely stimulate economic growth due to the provision of energy and technological security, creating and redefining jobs. Member States will be eligible for EUR 270bn of funds in total under the REPowerEU RRF programme. Member States are asked to integrate investments and reforms in their REPowerEU chapters that support the present and future competitiveness of EU clean tech industries. In this context, the Commission encouraged Member States to include three types of measures in their modified plans to support clean tech industries / value chains and to enhance competitiveness:

  • A one-stop-shop for permitting of renewables and clean tech projects to simplify and speed up the approval process for building and operating clean tech projects.
  • Tax breaks or other forms of support for green, clean tech investments, such as tax credits, accelerated depreciation, or subsidies linked to the acquisition or improvement of green investment assets.
  • Investment in reskilling the workforce for a greener future.

The new commitment and mechanisms to decarbonise the energy sector rapidly should provide investors with further clarity and confidence for them to deploy long term capital, including risk capital, which is key to the development of new and costly technologies. The plans around financing at the EU level of green manufacturing solutions will be important to follow, as they seek to support access to financing and hence overall creditworthiness and inevitability of firms in this area.

Other announcements and publications


New Department for Energy Security and Net Zero was created, following split of Department for Business, Energy and Industrial Strategy

The new Department for Energy Security and Net Zero, led by Grant Shapps MP, will focus on delivering security of energy supply, assuring well-functioning markets, greater energy efficiency and capturing opportunities of net zero [2]. It was created in response to public pressure on improving energy independence whilst simultaneously protecting the UK’s longer-term net zero commitment. The Department’s priorities for 2023 are:

  • Ensure security of energy supply this winter and longer term – bring down energy bills and reduce inflation
  • Ensure the UK is on track to meet its legally binding net zero commitments and speed up delivery of network infrastructure and domestic energy production
  • Improve energy efficiency of UK homes, businesses and public sector buildings to meet the 15% demand reduction ambition
  • Deliver current schemes to support energy consumers with their bills whilst considering long-term reform options to improve the electricity market for families and businesses
  • Seize the economic benefits of net zero
  • Pass the Energy Bill to support the emerging CCUS and hydrogen sectors, update governance of energy system and reduce time taken to consent offshore wind


Green Technical Advisory Group (GTAG) published recommendations on how to promote international interoperability in the UK Green Taxonomy

In its report “Promoting the international interoperability of a UK Green Taxonomy” [3] the GTAG (the dedicated technical expert group advising the UK Government) makes ten recommendations, grouped under three broad headings: (1) interoperable Technical Screening Criteria (TSC), (2) interoperable disclosures, and (3) international engagement. In short, GTAG recommends:

  • Adopt the same broad concepts, methodologies and metrics as the EU taxonomy where possible and advocate that other non-taxonomy countries do the same. In appropriate international fora, the UK Government should promote alignment to the UK Green Taxonomy concepts, methodologies and metrics to ease international interoperability, for new taxonomies.
  • Ensure UK Taxonomy TSC are robust and science-based to demonstrate international leadership.
  • Conduct 3-yearly reviews that assess the UK Green Taxonomy’s effectiveness in light of the changing international taxonomy landscape. The evaluations should determine if any adjustments are necessary to keep the taxonomy aligned with the real economy, including the inclusion of new sectors and TSC.
  • Streamline language and requirements where useful and appropriate to maximise interoperability with non-EU jurisdictions.
  • To promote international comparison – if not interoperability – in the short term, adopt green taxonomy-related rules and guidance that cover subsidiaries and assets held in as many jurisdictions as possible, regardless of the existence of any local green taxonomy.
  • Develop and publish a list of equivalent units, where needed, in the first instance, to allow for differences in the measurement practices carried out in respective jurisdictions and help with the comparison of data.
  • For non-OECD countries without a green taxonomy, lend support to work to develop general international base principles for reporting.
  • For the USA and non-taxonomy OECD countries, produce guidance to encourage reporting on a voluntary basis against the UK Green Taxonomy, for UK-based corporates and financial institutions that are required to report against the UK Green Taxonomy under Sustainability Disclosure Requirements (SDR).
  • Provide guidance on how companies and financial services firms can report on their performance abroad when using key performance indicators (KPIs) under the future UK reporting regime.
  • Advocate for the harmonisation of taxonomies and promote international cooperation to develop a list of core economic activities that can be deemed equivalent to the UK Green Taxonomy.

FCA published ‘Dear CEO’ letter to Asset Managers setting supervision strategy for sustainability claims

The UK Financial Conduct Authority (FCA) set out its supervisory expectations for asset managers in relation to environmental, social and governance and sustainable investing claims, which can be grouped into four categories:

  1.  2021 Dear Chair Letter [4] setting out expectations on the design, delivery and disclosure of ESG and sustainable investment funds. The FCA will publish results of a review of some firms’ ESG oversight practices. Asset Managers should consider the findings of the review to benchmark their own practices.
  2. In the first half of 2023 (in scope) Asset Managers will make their first Task Force on Climate-Related Financial Disclosures (TCFD) aligned disclosures.
  3. Final decision on the SDR and investment labels proposals – setting out our rules for product disclosure and labelling. The FCA will employ these new sources of information and applicable rules when considering firms’ conduct in relation to ESG products.
  4. In support of the Government’s Net Zero commitments, the FCA encourages asset managers to outline an assessment of the extent to which net zero commitments have been considered in transition planning.

Among other steps, the FCA will seek to ensure that governance bodies are appropriately structured to oversee and review management information about product development, ESG and sustainability integration in investment processes, third-party and proprietary ESG information providers, and other ESG and sustainability claims made by the firm.

FCA published a Discussion Paper “Finance for positive sustainable change: governance, incentives and competence in regulated firms”

In the Discussion Paper [5] the FCA highlight that they’re interested in how firms embed a clear purpose, how this relates to sustainability objectives, and the strength of the ‘tone from the top’ on sustainability-related matters. They welcome feedback on how firms’ governance, incentives and competencies align with their integration of sustainability-related considerations and their commitments to contribute to positive change. This paper forms part of the commitment made in the FCA strategy for positive change to begin stakeholder engagement on ESG governance, remuneration, incentives and training/certification in regulated firm. The deadline for response to the discussion paper is 10 May 2023.


European Council and Parliament reached political agreement on the EU Green Bond Standard

The agreement is provisional as it still needs to be confirmed by the Council and the European Parliament and adopted by both institutions before it is final. Whilst the final text of the (voluntary) EU Green Bond Standard is yet to be published, there are several key points that would be different from the initial proposal back in 2021. The Standard will:

  • Taxonomy alignment: Require 100% taxonomy alignment of the use of proceeds for sectors covered by the Taxonomy, and provide a 15% flexibility pocket for sectors not yet covered by the taxonomy and “certain very specific activities”. The flexibility pocket will allow for economic activities that comply with the core taxonomy requirements (significant contribution to environmental objectives, principle of do no significant harm and minimum social safeguards) but for which no technical screening criteria would have yet been established, to determine if that activity contributes to a green objective. In practice it means that if a company raises EUR 100mn under EU Green Bond Standard (GBS), 85mn must be allocated to activities that fully comply with the EU Taxonomy requirements, including all technical screening criteria. 15mn can be allocated to activities that can be proven to be environmentally sustainable but for which TSC have not been developed yet.
  • Transition plans: Companies choosing to use the standard when marketing a green bond will be required to disclose information about how the bond’s proceeds will be used but are also obliged to show how those investments feed into the transition plans of the company as a whole.
  • Additional disclosures: Voluntary disclosure templates will be provided for all environmentally sustainable bonds and sustainability-linked bonds (SLBs) issued in the EU. The disclosure requirements can be used by companies issuing bonds which cannot fulfil all the requirements to comply with the EU GBS. The intent is for these companies to be able to opt in the ambitious transparency requirements and, as a result benefit from better trust among investors.
  • External reviewers: External reviewers for EU GBS will be subject to a registration system and supervisory framework – the independent entities responsible for assessing whether a bond is aligned to the EU GBS. Any actual or potential conflicts of interest will have to be properly identified, eliminated or managed, and disclosed in a transparent manner. Technical standards may be developed specifying the criteria to assess the management of conflicts of interest.

The Standard will start applying 12 months after its entry into force.

Our broad view is that, while unlikely to fully monopolise the European corporate green bond market, EU GBS may well emerge as a “gold standard” that, typically, commands broader corporate investor interest. This could translate into an enhanced ability to compete on pricing and achieve a greenium for a transaction or, more generally, stronger access to capital markets.

The European Council press release can be accessed here and the European Parliament here.

European Commission announced the Chair and members for the new mandate of the Platform on Sustainable Finance

The European Commission selected 28 members and five observers from the private sector for the Platform on Sustainable Finance [6]. The Platform will advise the Commission on the EU Taxonomy and the EU sustainable finance framework more broadly, with a reinforced focus on usability. Members were selected based on their expertise in environmental and sustainable finance. The seven permanent members among EU agencies and bodies have been re-selected and the nine EU institutions and international organisations have been invited as observers. The Platform will reach out to stakeholders on new activities that could be included in the EU Taxonomy or on possible amendments to technical screening criteria of existing activities.

ECB revealed details of further tilting of its corporate purchase programme portfolio towards issuers with better climate performance

The European Central Bank announced details around further tilting of its corporate purchase programme portfolio towards issuers with better climate scores. As a reminder, in September 2022, the ECB announced [7] an initial methodology around the decarbonisation of its corporate bond holdings. In December 2022, the ECB also communicated that from the beginning of March 2023 the asset purchase programme (APP) portfolio will decline gradually, as the Eurosystem will not reinvest all of the principal payments from maturing securities. In February 2023, the ECB stated that for the private sector programmes (ABSPP, CBPP3 and CSPP), primary market purchases will be phased out and partial reinvestments will be conducted. The Eurosystem’s market presence during the period of partial reinvestment will be focused on secondary market purchases. However, non-bank corporate issuers with a better climate performance and green corporate bonds will continue to be purchased in the primary market. The ECB also decided on a stronger tilting of its corporate bond purchases towards issuers with a better climate performance during the period of partial reinvestment.

ECB published new climate-related statistical indicators to narrow climate data gap

The European Central Bank (ECB) has published [8] a series of climate-related statistical indicators aimed at improving the assessment of impacts on the financial industry by climate-related risks and monitoring developments in sustainable and green finance.

The project includes three sets of analytical indicators covering sustainable finance, financed emissions and climate-related physical risks on loans. The ECB has noted that these indicators are a work in progress and are intended to engage key stakeholders to better capture data on climate-related risks and the green transition. The development of these indicators is a step towards fulfilling commitments made in the ECB’s climate action plan published in July 2022, which detailed initiatives to incorporate climate change considerations into its monetary framework.

ESMA highlighted greenwashing risks coming into focus

In its report [9] on Trends, Risks and Vulnerabilities, the European Securities and Markets Authority stated that greenwashing risks have come into focus; as well as the shades of ‘greenness’ under Sustainable Finance Disclosure Regulation (SFDR) and risks to investors; and sustainability-linked bonds facing scrutiny. In the absence of an EU-wide labelling regime for ESG funds, some managers have also used Article 8 and 9 as proxy labels for communication purposes. It was reiterated that SFDR was not intended to be a labelling regime and does not include the type of requirements usually attached to voluntary labels, prompting further concerns of potential greenwashing. As a reminder, last year European Supervisory Authorities (ESAs) launched a call for evidence to better understand greenwashing risks - read more on this in our previous newsletter [10].

AFM (Dutch Financial Markets regulator) published supervisory expectations for sustainable bonds

The Dutch Authority for the Financial Markets (AFM) released its expectations around the information to be included in prospectuses when a sustainable bond is issued [11]: The expectations would be relevant to issuers supervised by the AFM; at the EU level there is not yet a uniform law prescribing what information needs to be included in the prospectus of sustainable bonds marketed in the EU, however such a law is being developed by the European Commission. It is also worth reminding that in 2019 AFM, jointly with the French Markets Regulator, published a position paper on the content of the green bond prospectus which will seek to influence the development of the law across the EU:

  • Issuers should not present themselves as more sustainable than they are. If an issuer presents itself as "sustainable" in the prospectus, the basis for this must be described. Information that suggests greenwashing (e.g. in the risk factors) will not be accepted.
  • The prospectus should contain as much objective information as possible, instead of the inclusion of (too) subjective information in the prospectus.
  • For the sake of comprehensibility, sustainable terminology (including sustainability targets) should be specifically explained and substantiated.
  • If the prospectus contains information relating to sustainability claims such as net-zero claims, it is relevant, also in connection with the specificity and comprehensibility of the information, that the prospectus contains specific information regarding such claims.
  • The use of proceeds of the issuance must be described in the prospectus in detail. In case of a base prospectus: if the specific use of the proceeds will be specified in the final terms, then the form of final terms should include specific placeholders to ensure that with every issuance, the allocation of the proceeds is adequately described in the final terms.
  • A specific description of the (intended) impact/reduction pre-issuance at the individual issue level or, if in specific cases only a so-called portfolio approach is used instead of at the individual issue level, at the portfolio level.
  • Information on whether the transaction/issue aligns with one or more ESG market standards and at least a clarification whether or not the issue aligns with the EU Taxonomy.
  •  It is important to describe how the bond contributes to the issuer's transition plans or sustainability goals. In addition, it is desirable to include information on how the sustainable bonds align with the issuer's broader business, strategy and objectives.
  • If the issuer has a framework, such as a green bond framework, then the AFM expects that the most important information of this framework is integrally included in the prospectus (including a link to the framework if it is published on the issuer’s website), for instance in the use of proceeds section.
  • If the prospectus states that the issuer intends to publish post issuance information with respect to the sustainable bonds, then it should be specified how investors will be notified of this information and/or where exactly this post issuance information can be obtained.

EBA launched a survey to gather input from credit institutions on green loans and mortgages

The European Banking Authority launched an industry survey [12] to receive input from credit institutions on their green loans and mortgages as well as market practices related to these loans. This follows on from the EBA receiving a ‘Call for Advice’ from the European Commission on the definition and possible supporting tools for green loans and mortgages to retail and SME borrowers in November 2022. The purpose of the survey is to collect both quantitative and qualitative information the EBA can use to advise the European Commission. The EBA plans to organise an industry workshop with institutions participating in this survey and the deadline for the call for input is 7 April 2023.

EIOPA published a report on impact underwriting: reflecting on insurers’ use of climate-related adaptation measures in non-life underwriting practices

The European Insurance and Occupational Pensions Authority published a report [13] on the Implementation of Climate-Related Adaptation Measures in Non-Life Underwriting Practices.

The report emphasised that the EU market appears to be at an early stage regarding the implementation of adaptation measures in non-life underwriting practices, however already showing interesting and promising examples.

It was noted that as risk-based insurance premium levels are expected to rise in several lines of business due to climate change, risk prevention in terms of adaptation measures is considered by the participants as an important and effective approach for maintaining the long-term availability and affordability of non-life insurance products covering climate-related hazards.

Three main challenge areas emerged from the pilot exercise:

  1.  The lack of policyholder awareness about the influence of climate change on their physical risk exposures and corresponding preventive actions.
  2.  Difficulties for insurance undertakings to implement adaptation measures in standardised insurance contracts.
  3. The material costs associated with adaptation measures that would require financial incentives for an effective stimulation of climate change adaptation in non-life insurance.

Finally, it was highlighted that EIOPA will continue its work on impact underwriting to foster climate change adaptation in non-life insurance in the EU and will contribute with its work programme for 2023 to help overcome some of the challenges arising from the pilot exercise.


SEC Division of Examinations announced its 2023 priorities

The SEC Division of Examinations released its 2023 examination priorities. Consistent with the Division’s 2022 priorities, ESG investments will continue to be an area of focus for the Division in 2023 [14].

Specifically, the SEC announced it will focus on three aspects of ESG-related advisory services and fund offerings:

  1. Whether ESG funds are operating in the manner set forth in their disclosures
  2. Whether ESG products are appropriately labelled
  3. Whether ESG-related product recommendations are made in the best interests of retail investors

The SEC originally added ESG issues to the priority list in 2022, highlighting the Division’s concern with regard to misleading or materially false disclosures, the lack of standardisation in ESG investing terminology, and the risk that differing approaches to ESG investing can misinform investors.

For those looking to discuss any of the above further, please reach out to our authors:

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