UK PM postpones deadlines for selected decarbonisation policies while reconfirming Net Zero goal
On 20 September, Rishi Sunak, UK Prime Minister (PM), announced a new approach to meeting Net Zero emissions, focussed on “a ‘fairer’ path to meeting international commitments”. CEOs of the UK Sustainable Investment and Finance Association (UKSIF) and Principles for Responsible Investment (PRI) sent the PM a letter, supported by 32 investors, stating that they are “deeply concerned” by the decision. The policy updates focus on cars, boilers and insulation, amongst others. As a result, new cars with combustion engines will be banned from sale by 2035, rather than by 2030 (as originally planned); similarly, the phase out of the installation of gas boilers will only target 80% by 2035 (vs the initial 100% target). In terms of insulation, the policies no longer demand that homeowners achieve energy efficiency targets. It has been suggested that the measures: 1) may not save British families any money; 2) are likely to undermine investor confidence and therefore divert investment away from the UK as businesses demand certainty; and 3) are contrary to the conclusions which the Independent Review on Net Zero drew earlier in 2023.
EU Parliament votes to double renewable energy share by 2030
Members of the European Parliament have overwhelmingly approved changes to the Renewable Energy Directive (RED), thereby demanding that at least 42.5% of the EU’s energy consumption derives from renewables by 2030, with Member States being encouraged to aim for 45%. Once the EU Council provides its formal approval, the 2030 target will nearly double the share of renewable energy in the EU’s energy mix, which in 2021 stood at 22%; the proposed target is more ambitious than the recommendations originally outlined in the “Fit for 55 package” in 2021. The RED will speed up the process to obtain permits for green power plants such as solar panels and wind turbines. Furthermore, a number of high-emitting sectors will be required to set more ambitious targets: buildings, for instance, will have to source at least 49% renewable energy by 2030, whereas the transport industry will have to reduce emissions by 14.5%, in part through the use of hydrogen from renewable fuels of non-biological origin.
ECB’s climate stress test findings
Following its inaugural test in 2021, the European Central Bank (ECB) performed its second economy-wide climate stress test, seeking to assess the impact of different transition pathways on families, businesses and financial institutions in the Euro area. According to the ECB, not only does slowing the green transition negatively affect firms’ profitability and households’ purchasing power, but it will also increase credit risk for banks by more than 100% by 2030 (vs 2022). Similarly, further delaying the transition will result in a failure to achieve the Paris Agreement targets, which in turn will exacerbate the impact of physical risks. The ECB adopted three separate transition scenarios: 1) ”accelerated”, whereby green policies and investment are frontloaded, with emissions reducing in line with the Paris Agreement; 2) “late-push”, which despite not accelerating until 2026 would still be sufficiently intense to achieve the emissions reduction goals; and 3) “delayed”, which would start in 2026 and would be insufficiently ambitious to meet the Paris goals. Under the most ambitious scenario, the ECB has estimated that €2 trillion ought to be invested by 2025.
European Securities Market supervisor sets expectations on sustainability disclosures in prospectuses
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has issued a Public Statement on the sustainability disclosure expected to be included in prospectuses. The statement sets out ESMA’s expectations on how the specific disclosure requirements of the EU Prospectus Regulation (PR) relate to sustainability-related matters in equity and non-equity prospectuses. A prospectus shall contain the necessary information which is material to an investor for making an informed assessment of: (1) the assets and liabilities, profits and losses, financial position, and prospects of the issuer and any guarantor; (2) the rights attaching to the securities; and (3) the reasons for the issuance and its impact on the issuer (emphasis added).
