ESG View - March 2023

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Welcome to the March edition of ESG View. Three global developments of note this month were the release of the seminal IPCC report (see update below), the release of the fourth and final beta framework for the Taskforce on Nature-related Financial Disclosures (TNFD), and the news that a total of 105 UN Member States officially co-sponsored a UN Resolution requesting an Advisory Opinion from the International Court of Justice on the legal obligations of countries in the context of climate crisis. An Advisory Opinion would likely increase state accountability for climate action and start a legal conversation on issues of climate justice and the rights of future generations.

Meanwhile, anyone who believes in the old adage 'blue and green should never be seen' should look away now as this edition highlights how the blue and green worlds of ESG converge.

We start with a deep-dive into the oceans and the blue economy. Sustainable Development Goal (SDG) 14: Life Below Water is the least funded of the 17 SDGs and yet critical to solve the triple planetary crises (i.e. pollution, climate change and biodiversity loss). This month saw history being made with the agreement of the UN High Seas Treaty after nearly two decades of negotiations. Read more about this and other ocean updates in our "global developments" section. On a related note, we hope to hold an event on the blue economy in early June bringing together stakeholders across finance, business, policy and science. If you are interested in getting involved or are actively involved in the blue economy, we'd love to hear from you so please get in touch using this link.

With the promise of spring around the corner, "green" is a buzzword on everyone's minds: "green bonds", "green claims", and "greenwashing". This month we saw regulators around the world voice expectations and bring enforcement action on green claims. Whether these developments bring clarity or confusion remains to be seen. Meanwhile as a bonus treat for those fashionistas among you who are looking to spruce up your spring wardrobe, check out why "Green is the new IT colour."

Best wishes,

Sonali Siriwardena
Partner - Global Head of ESG
sonali.siriwardena@simmons-simmons.com 

Global developments

1. Making waves: momentum swells for the oceans (multi-sector)

UN High Seas Treaty

"Ladies and gentlemen, the ship has reached the shore" announced Ambassador Rena Lee, of Singapore, concluding two weeks and a previous 19 years of negotiations on the UN High Seas Treaty. The announcement marks a historic step towards fulfilling the pledges of the Kunming-Montreal Global Biodiversity Framework (see our January ESG View for more information).

Two-thirds of the world's oceans fall into the category of "high seas", which means they are beyond the national jurisdiction of any state. There are no national and few international rules governing this space, particularly when it comes to environmental protections. The UN High Seas Treaty offers a solution to address this gap and promises to protect 30% of the world's oceans using Marine Protected Areas. This will help protect and restore ecosystems and will enable the ocean to be an effective tool against climate change.

The treaty also introduces rules on the equitable use of the high seas for commercial and scientific purposes. It creates rules on how countries and companies access, share, and benefit from the commercialisation of "marine genetic resources", including biological material from marine plants and animals. These new rules can be significant drivers of innovation for sectors like pharmaceuticals, food and cosmetics. The treaty also stipulates that environmental impact assessments must be completed for new commercial activities. One limit of this new requirement is that it won't extend to activities that are already overseen by existing international bodies, including the controversial area of deep-sea mining.

Looking ahead: The treaty still needs to be formally adopted by UN Member States and the rules will need to be adopted and ratified by national governments for the treaty to enter into force. However, the finalising of the treaty text marks a huge hurdle that has been overcome to ensure a thriving ocean.

Panama Ocean Conference

The agreement on the UN High Seas Treaty comes off the back of the eighth annual Our Ocean Conference hosted in Panama (2-3 March 2023). This annual conference offers the opportunity for countries, corporates and not-profits to come together and discuss the global ocean agenda. This year it drew 341 pledges worth nearly $20 billion for marine biodiversity commitments. These new commitments, alongside the UN High Seas Treaty show a catalysing moment for ocean action.

Ocean Investment

Financial flows into the blue economy have historically been low despite the immense opportunities it holds. In 2020, research commissioned by the High Level Panel for a Sustainable Ocean Economy found that at least $5 is gained for every $1 invested in areas like offshore wind energy, decarbonising shipping, sustainable ocean food production, and conserving and restoring mangroves. It appears the tides are slowly changing as financial institutions are turning their sights on the ocean. Some exciting case studies from the last few months include:

• Ocean 14 Capital fund, focusing exclusively on the multi-trillion-dollar 'blue economy', has now raised €130 million since launching its growth-stage impact fund in November 2021. In February, the fund received €30 million in funding from Ingka Investments, the parent company of furniture retailer IKEA, which represents the investor's first-time investment in the 'blue economy'.
• Ping An, one of the largest Chinese insurance firms, launched its first ocean carbon sink index insurance policy for marine ecosystem protection. The ocean can absorb approximately 2 billion tonnes of carbon dioxide a year from the atmosphere, which is 20 times that of terrestrial ecosystems, e.g. forests. Ping An's policy provides 400,000 RMB ($58,681) of coverage across 8,866.67 square meters of kelp, shellfish and algae.

It should be noted that some aspects of the blue economy are not without controversy: deep-sea mining being a case in point. The debate on the pros and cons of industrial-scale mining of the sea bed will likely gather pace in 2023 as the International Seabed Authority (the UN body with jurisdiction over the high seas) is due to receive the first application for commercial seabed mining in international waters later this year.

It's been a great month for the world's oceans and water!

On 13 June 2022, the Albanian government signed a memorandum of understanding with Patagonia to designate the Vjosa River - one of the last wild rivers in Europe - a wild river national park. Less than a year later, on 13 March 2023, the protection of the river was signed into law. The Vjosa and three of its main tributaries are now protected, forever. It introduces a new model for global water conservation!

On 2 March 2023, the Government of Ecuador also announced that it will declare the first eight nautical miles (14.8 kilometres) of its entire continental coast a nature reserve, a strip that covers an area of 1.5 million hectares, where only artisanal fishing will be allowed. The new marine reserve will form part of the National System of Protected Areas, "guaranteeing balance and health of bio-aquatic ecosystems." The US is also taking a similar approach, with President Biden announcing new actions to conserve and restore lands and waters across the nation.

If you are looking for a primer on the blue economy, here is a recent report that was published by Leonard, the VINCI Group's foresight and innovation platform, and Sustainable Ocean Alliance.

2. IPCC AR6: synthesis report on climate change published (multi-sector)

On 20 March 2023, the IPCC published AR6 Synthesis Report: Climate change 2023. This is the final part of the IPCC's Sixth Assessment Report (AR6) (see press release). The IPCC provides the United Nations Framework Convention on Climate Change (UNFCCC) and policymakers with regular scientific assessments on climate change, its implications and potential future risks, as well as information on adaptation and mitigation options.

The first part of the synthesis report to be published, the summary for policy makers, is divided into three sections:

• Current status and trends: human activities, principally through emissions of greenhouse gases (GHGs), have unequivocally caused global warming, with global surface temperature reaching 1.1°C above 1850--1900 in 2011--2020.
• Future climate change, risks, and long-term responses: continued GHG emissions will lead to increasing global warming, with considered scenarios and modelled pathways showing the best estimate of when 1.5°C will be reached is in the near term. Every increment of global warming will intensify multiple and concurrent hazards. Deep, rapid and sustained reductions in GHG emissions would lead to a discernible slowdown in global warming within around two decades, and also to discernible changes in atmospheric composition within a few years.
• Responses in the near term: climate change is a threat to human well-being and planetary health. There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all. The choices and actions implemented in this decade will have impacts now and for thousands of years.

The UNFCCC states that it will publish the more detailed sections of AR6 soon.

EU developments

1. Greenwashing standards for green bonds (multi-sector)

What: On 28 February, the EU reached a provisional agreement on the regulation of European green bonds (EuGB). These are the first standards in the world on the green bonds market.

The regulation fights greenwashing in the bond markets, setting out template formats, enabling investors to identify high quality of green bonds, clarifying to bond issuers which economic activities can be undertaken with bond's proceeds, setting in place clear reporting process on the use of proceeds from the bond sale and standardising the verification work of external reviewers which will improve trust in the review process. When marketing a green bond the standards will require firms to:

• disclose information about how the bond's proceeds will be used;
• show how those investments feed into the transition plans of the company as a whole; and
• engage in a general green transition.

Timing: The agreement is still provisional. It needs to be confirmed and adopted by the Council and the European Parliament before it is final. It will apply 12 months after its entry into force.

2. Green claims and labels (multi-sector)

In a bid to tackle greenwashing and the multitude of environmental labels currently being used (over 200 in the EU), on 22 March 2023 the European Commission published a proposal for a new "Directive on Green Claims". The Directive forms part of the EU's Circular Economy Action Plan and will apply to all products and services on sale in the EU single market, unless they are covered by existing or upcoming EU rules, such as financial services.

Under the new rules:

• Companies will be required to verify their voluntary environmental claims and prove them with scientific evidence from an independent third party. They will also be required to identify environmental impacts, as well as any possible trade-offs. 
• New environmental labelling schemes will not be allowed unless developed at EU level, with new schemes approved only if they demonstrate greater environmental ambition than existing ones. They must also be reliable, transparent, independently verified and regularly reviewed. 
• Member states will be responsible for ensuring that the Directive is enforced and will be required to introduce penalties that are "effective, proportionate and dissuasive", amounting to at least 4% of revenue or exclusions of up to a year from public procurement processes or subsidies. 

The proposal has already been criticised by consumer and environmental groups for being weakened by heavy lobbying from industry bodies.

3. Sustainability-linked loan principles (the SLLPs) updated (financial institutions)

The LMA (Loan Market Association) together with the LSTA (the Loan Syndications & Trading Association) and the APLMA (the Asia Pacific Loan Market Association) recently published an updated version of the SLLPs, which retain the five core components:

• Selection of key performance indicators (KPIs): The credibility of SLLs as a product will rest on the selection of the KPIs, therefore it is important to their success to avoid the proliferation of KPIs that are not credible.
• Calibration of sustainability performance targets (SPTs): The SPTs function as an expression of the level of ambition a borrower is prepared to commit to. 
• Loan characteristics: A key characteristic of a SLL is that an economic outcome is linked to whether the selected SPTs are met, for example, through a reduction of the margin where the SPTs are achieved and vice versa.
• Reporting: Borrowers should provide the lenders with an annual sustainability confirmation statement and a verification report. Borrowers are also encouraged to publicly report information on the SPTs in order to increase transparency in the SLL market.
• Verification: Borrowers must obtain independent and external verification of their performance against each SPT for each KPI for any date/period relevant for assessing the SPT performance leading to a potential adjustment of the SLL economic characteristics, until after the last SPT trigger event of the loan has been reached.

4. Boost for technologies supporting net zero (multi-sector)

What: On 16 March 2023, the EU Commission adopted a proposal to strengthen Europe's net-zero technology products manufacturing ecosystem (NZIA). The NZIA aims to scale up the manufacturing of technologies that are key to achieve climate-neutrality. It will simplify the regulatory framework for the manufacturing of these technologies and therefore help increase the competitiveness of the net-zero technology industry in Europe.

The big news: A target of an annual 50Mt injection capacity in strategic CO2 storage sites in the EU by 2030 has been set out. This will help to develop CO2 capture and storage as an economically viable climate solution reducing emissions, but also boost technological carbon removal methods that rely on geological storage. Member States will need to publicly share data on areas where CO2 storage sites can be permitted. Member States are also required to annually report (1) CO2 capture projects, estimating the corresponding need for CO2 injection and storage capacities, (2) storage projects in progress, and (3) national support measures to help with the first two areas.

5. New "right to repair" proposed rules by the European Commission (multi-sector)

Discarded products can often times be viable goods that can be repaired but are often tossed prematurely, reportedly resulting in 35 million tons of waste, 30 million tons of resources and 261 million tons of greenhouse gas emissions in the EU every year. In March, the European Commission tabled a new proposal on rules making it easier and more cost-effective for consumers to repair goods and avoid simply replacing them. The proposal introduces a new 'right to repair' for consumers, both within the legal guarantee of the product and beyond the legal guarantee. This proposal, if passed by the European Parliament and Council, would apply to numerous product categories, including TVs, washing machines, vacuums, smartphones, and tablets and it would put new requirements onto producers to support a consumer's right to repair.

UK developments

1. Competition Markets Authority releases its long-awaited Draft Sustainability Guidance (multi-sector)

What: On 28 February 2023 the UK's Competition and Markets Authority (CMA) opened a consultation on its intended approach towards agreements between businesses that pursue environmental sustainability goals (the Draft Guidance). The Draft Guidance covers "environmental sustainability agreements" and climate change agreements but does not cover agreements pursuing broader societal objectives, such as improving working conditions. This more limited scope diverges from the approach adopted by other European competition watchdogs, including the Dutch Authority for Consumers and Markets (ACM) and the European Commission.

Our view: Whilst competition authorities globally have recognised the role of antitrust law in enabling countries to meet net zero targets, there remains lack of consensus on approach -- including whether benefits are assessed by reference to consumers alone (as per the Draft Guidance) or society at large. Broadly, the CMA and the ACM appear to be adopting a more progressive approach compared with the European Commission. Read our detailed note on this development here.

Looking ahead: Uncertainty remains on the approach that should be adopted by businesses seeking to collaborate on environmental sustainability issues, which is a key challenge as climate change agreements are likely to be cross-border. Perhaps recognising the lack of clarity, the CMA makes clear its "open door" policy, providing an opportunity for companies that are considering entering into an environmental sustainability agreement to receive informal guidance. Another helpful development is the CMA's proposed policy that it will not fine companies that implement an agreement discussed with the CMA in advance. In practice, the efficacy of the Draft Guidance will largely rest on how the CMA chooses to enforce its policy and to what extent it will give collaborating firms the benefit of the doubt on any necessary restrictions on competition.

Timing: The Draft Guidance remains open for comment until 11 April 2023.

2. PRA report on climate-related risks and capital frameworks (financial institutions)

On 13 March 2023, the UK Prudential Regulation Authority (PRA) published a report on climate-related risks and the regulatory capital frameworks for banks and insurers. The report sets out the PRA's latest thinking in this area and identifies future work. Topics covered include the following:

• Capability gaps. Existing gaps create uncertainty over whether banks and insurers are sufficiently capitalised for future climate-related losses. The PRA is focused on ensuring firms make progress to address "capability gaps" to improve their identification, measurement and management of climate risks.
• Regime gaps. The characteristics of climate risks mean that their capture by capital frameworks requires a more forward-looking approach. Scenario analysis and stress testing will play a key role in in progressing on this.
• Capitalisation timelines. Current evidence suggests that the existing time horizons over which risks are capitalised by banks and insurers are appropriate for climate risks. However, the PRA will continue to explore how climate risks can be calibrated within the timelines embedded in existing capital frameworks.

Looking Ahead: The PRA recognises that substantial further work is needed, notably to close potential regime gaps to capture systemic risks from climate change and unintended consequences. It will continue to address these questions as part of its supervision and policymaking.

Interestingly, Canadian regulators (the Office of the Superintendent of Financial Institutions) have taken a similar step. It published Guideline B-15: Climate Risk Management, which sets out OSFI's expectations for the management of climate-related risks. This is Canada's first prudential framework that is climate sensitive and recognised the impact of climate change on managing risk in Canada's financial system.

3. UK Financial Conduct Authority published findings of ESG benchmarks review (ESG benchmark administrators)

What: On 20 March, the UK Financial Conduct Authority (FCA) published a Dear CEO letter, sent to benchmark administrators, setting out the findings of its preliminary ESG benchmarks review. Under the review, the FCA assessed the quality of disclosures made by a sample of UK benchmark administrators. It found that, overall, the quality was poor.

Looking Ahead: The FCA expects all CEOs, senior leadership and boards of benchmark administrators to carefully consider the messages set out in the letter as they apply to their business. Benchmark administrators must ensure they have appropriate strategies to address the issues and risks identified, and they should be prepared to explain these strategies on request.

The FCA intends to do more work in this area across the portfolio and where firms fail to consider the FCA's feedback, it will make use of its formal supervisory tools and, where appropriate, consider enforcement action.

4. UK Pensions Regulator review climate-related disclosures by occupational pension schemes (pension schemes)

On 23 March, the UK Pensions Regulator published preliminary observations and feedback to industry, based on a review of a selection of the first tranche of climate-related disclosures published by occupational pension schemes. From 1 October 2021, the Climate and Governance Regulations came into effect for trustees of certain schemes, aimed at improving governance and reporting of climate-related risks and opportunities. The Pensions Regulator review offers useful information for those preparing future climate change reports on good practice and areas of improvement for reporting.

Middle East developments

1. DIFC-chaired Dubai Sustainable Finance Working Group defines UAE's approach to ESG innovation, net zero and sustainability-linked lending (multi-sector)

The Dubai Sustainable Finance Working Group and Dubai Financial Market has released three reports in relation to ESG innovation, sustainability-linked lending and net zero strategy, aiming to assist businesses in the UAE to adapt to climate change and strive towards a net zero economy:

• The white paper entitled "Unlocking the Potential of ESG Innovation in the UAE and across the World" aims to provide actionable recommendations that may assist the UAE to foster an impact-driven ESG innovation ecosystem.
• "The Sustainability Linked Loan Guide" seeks to encourage businesses to consider sustainability linked loans for the purposes of satisfying their financing requirements while keeping their sustainable goals in check, and provides an overview of the key concepts, benefits and difficulties relating to sustainability linked loans.
• Lastly, the "Net Zero Guide" provides a toolkit for businesses to tailor their processes with the aim of achieving net zero targets and includes sector specific guidelines for large industries across the UAE for developing sectoral decarbonisation strategies.

Asia developments

1. South Korea introduces rules on greenwashing fines (multi-sector)

What: The South Korean Ministry of Environment has introduced a draft law proposing fines of up to three million won (USD 2,300) for companies that mislead the public about their environmental impacts. The new regulation is expected to clarify and simplify the process for issuing fines and is likely to strengthen the Ministry's stance on greenwashing, despite the low-level of the fine.

Some have noted that the new regulation has arisen in parallel to growing numbers of disputes. The first-ever legal action in South Korea on greenwashing was brought against energy giant SK E&S before the Korea Fair Trade Commission (KFTC) and the Ministry of Environment on its greenhouse gas emission in 2021. More recently, in October 2022, greenwashing cases were filed before the KFTC against SK Lubricants, a South Korean base oil producer (recently rebranded as SK Enmove). 

Our view: these developments in regulation and disputes demonstrate that scrutiny on greenwashing is not limited to Europe so companies should take a global approach to mitigate this risk.  

2.India considering draft ESG regulation on ratings, assurance and disclosure (multi-sector)

What: The Securities and Exchange Board of India (SEBI) published a new regulatory framework proposal aimed at creating greater transparency and simplicity for ESG disclosures by listed entities, ESG ratings in the securities market, and ESG investing by mutual funds.

SEBI has already made strides in improving ESG transparency. As of this year, it's mandatory that the top 1,000 listed entities make ESG disclosures in alignment with the Business Responsibility and Sustainability Report (BRSR) guidelines. This will be a significant rise from the 175 companies that had submitted voluntary disclosures in the previous year. The new SEBI proposal emphasises the need for assurance in order to ensure credibility and investor confidence in these disclosures. To solve for this, SEBI introduced "BRSR Core", outlining selected ESG KPIs that can and should be assured, with proposed mandatory assurance for the top 250 companies beginning next year and increase to 500 companies in the following year. The proposal also identifies the need for ESG disclosures across supply chains, and suggests ESG disclosures be mandated for the top 250 companies on a comply or explain basis from the financial year 2024-25 (with assurance only to be mandated from 2025-26 onward).

Looking ahead: the call for input closed on the 6 March 2023 and we should anticipate outputs from the proposal consultation in the coming months.

3.Hong Kong issues First Government Tokenized green bond

In February 2023, the HKSAR Government successfully issued HK$800 million (US$102 million) of tokenised green bond (Tokenised Green Bond) under the Government Green Bond Framework, using distributed ledger technology. The one year, Hong Kong dollar (HKD) dominated, Tokenised Green Bond was priced at a yield of 4.05%. Unlike other digital issuances in other jurisdictions, the Tokenised Green Bond issuance covers both primary issuance and secondary trading. The full lifecycle processes of the Tokenised Green Bond will happen on-platform, including settlement of secondary trading, coupon payment, all the way to maturity redemption. Payment is done with HKD cash tokens minted by the Hong Kong Monetary Authority (HKMA) rather than fiat cash provided by the banks. Clearing and settlement of the transactions are completed through the Central Moneymarkets Unit of the HKMA. The on-chain records on the private blockchain network will be the legally definitive and final records of ownership of the bond tokens and cash tokens for the parties on the platform. As compared to conventional bond issuance, the Tokenised Green Bond issuance is more efficient, transparent, tamper-proof, and immutable.

This issuance marks an important milestone as it showcases the determination and willingness of the HKSAR Government to promote the application of innovative technologies in the financial market, especially in relation to green and sustainable finance. More information can be found here.

ESG litigation round-up

1. BNP Paribas lawsuit under the French Corporate Duty of Vigilance Law

What: On 23 February 2023, three French NGOS, Les Amis de la Terre France, Oxfam France and "Notre Affaire à Tous", summoned the bank BNP Paribas before the Tribunal Judiciaire of Paris for failing to comply with its obligations under the French Corporate Duty of Vigilance Law. Our full summary of the case can be found here.

The three NGOs allege that the bank's vigilance plan has not taken effective measures to prevent human rights and environmental abuses throughout its chain of operations, as required by the French Corporate Duty of Vigilance Law. In a press release, the three associations indicate that they are asking "BNP Paribas to end its financial support for new fossil fuel projects".

Prior to summoning BNP Paribas, the three NGOS sent a formal notice on 23 October 2022, which notably detailed that, contrary to what the French Corporate Duty of Vigilance Law provides, BNP's due diligence plan did not comply with the bank's obligations to limit the climate risks resulting from its activities. In their formal notice, NGOs notably criticised BNP for financing new oil and gas projects and the companies planning to develop such projects.

A few days before it was summoned, BNP had attempted to respond by announcing that it had set the goal of reducing by 30% its liabilities related to gas extraction and production, and by 80% those related to oil extraction and production by 2030. However, such commitments were deemed insufficient by the three NGOs.

Looking ahead: In February, campaigners were dealt a blow, as the court dismissed a similar case against energy major TotalEnergies. Many will be watching to see what the court will decide in this instance as it will likely have significant implications for financial institutions captured by the French regulation moving forward.

2.UK's Advertising Standards Authority bans Lufthansa advert for misleading customers

What: A poster for Lufthansa in June 2022 featured an image of the front of a plane in flight. The underside of the plane was represented by an image of the earth. The advert included text: "LUFTHANSA GROUP. CONNECTING THE WORLD. PROTECTING ITS FUTURE. #MakeChangeFly". The ASA challenged Lufthansa on the basis that the advert gave a misleading impression of Lufthansa's environmental impact.

The ASA approached its investigation in two stages:

• How would a consumer interpret the claim? Whilst the ASA agreed with Lufthansa that the claim was in isolation ambiguous, and not explicitly an environmental claim, the statement, which was superimposed across a picture of the globe, was likely to be interpreted by consumers as an environmental reference to how Lufthansa's approach to aviation was 'protecting [the earth's] future'.
• Could Lufthansa support this interpretation with a "high level of substantiation"? The ASA considered that the initiatives and targets Lufthansa used to back up its claim, were targets aimed to deliver results only years or decades into the future. The ASA then noted that there were currently no environmental initiatives or commercially viable technologies in the aviation industry which would substantiate the absolute green claim "PROTECTING THE EARTH'S FUTURE".

On 1 March 2023, the ASA banned the advert on the basis that the claim had not been adequately substantiated -- the advert therefore breached the advertising code.

This comes in the wake of the Committee of Advertising Practice (CAP) and Broadcast Committee of Advertising Practice (BCAP) publishing updates to their advertising guidance last month to help companies make claims that are less likely to mislead. The updated guidance was based on research conducted by the ASA which found that there was little consensus as to the meaning of some of most commonly used claims such as 'carbon neutral' and 'net zero'. The ASA used this opportunity to remind companies that unqualified claims are likely to breach existing rules, and issued a gentle reminder that the ASA will take proactive action where necessary

Our view: This decision by the ASA is further evidence of its increasing willingness to take proactive action against advertisers making unqualified claims. This is not the first brand to face an ASA ban in recent years, and we suspect it won't be the last.

3. Australian Financial Regulator launches first Court proceedings alleging greenwashing

What: The Australian Securities and Investments Commission (ASIC) launched its first court action against alleged greenwashing conduct in Australian Federal Court against Mercer Superannuation (Australia) Limited (Mercer) for allegedly making misleading statements about the sustainable nature and characteristics of some of its superannuation investment options.

ASIC alleges that Mercer misled members by investing its Sustainable Plus fund, which promotes its sustainable credentials, in companies involved in sectors including fossil fuels, alcohol, and gambling. This was despite Mercer marketing the investment option as suitable for members who are "deeply committed to sustainability" because the fund excluded investments in companies involved in carbon-intensive fossil fuels and other non-ESG sectors.

Although this is the first legal case brought by ASIC in relation to greenwashing allegations, we have seen an increase in enforcement action from the regulator in this space. In June last year, the regulator warned that it was cracking down on alleged greenwashing. It then announced that it was investigating a number of listed entities, super funds and managed funds in relation to their green credentials claims. Since then, ASIC has issued infringement notices against multiple companies. ASIC's sister regulator, the ACCC has also announced that greenwashing is one of its compliance and enforcement priorities for 2022/2023.

Looking ahead: Asset managers should continue to remain vigilant to any greenwashing risks in sustainable portfolios and ensure that a sustainable fund's investments align with its goals. Contact us using this link to know more about how we are helping your peers on this point.

ESG consultation round-up

Some notable ESG policy consultations in flight across the globe that are currently open for comment. Such engagement is a great opportunity to influence the direction of travel for ESG matters.

1. IAIS consults on part one of climate risk supervisory guidance

What: The International Association of Insurance Supervisors (IAIS) published a consultation document on part one of draft climate risk supervisory guidance.

Following the gap analysis it carried out in 2022, the IAIS has decided to consult on changes to guidance on various Insurance Core Principles (ICPs) and to develop supporting material in several consultations over the next 18 months. In its first consultation, the IAIS:

• Provides an update on the overall work programme of the IAIS in promoting a globally consistent supervisory response to climate change within the insurance sector;
• Outlines proposed changes to the ICP Introduction, which positions climate risk within the global framework for insurance supervision;
• Discusses whether it is necessary to make changes to the existing supporting material related to corporate governance (ICP 7), risk management and internal controls (ICP 8); and
• Seeks stakeholder feedback on the overall climate-related work as it relates to supervisory guidance.

Timing: The consultation closes on 16 May 2023. The IAIS intends to hold a public background session via webinar on 29 March 2023 to discuss the paper.