In this month’s ESG Market Alert, we cover:

• The SEC’s recent proposal for climate-related disclosure rules in the US.
• The new carbon emissions template published by the IA, PLSA and ABI to assist pension schemes with complying with their reporting obligations.
• What’s new in market practice: Corporate acquirers are facing increased pressure to conduct full value chain verification on targets as part of their due diligence exercises.
• We are also kicking off our ESG webinar series: A year of corporate governance 2022 with “ESG 101: the essentials in 2022 and onwards”; further details are below.

SEC releases its proposal for climate-related disclosure rules for issuers with publicly listed securities in the U.S.

On 21 March 2022, the U.S. Securities and Exchange Commission ("SEC") proposed its much anticipated rules requiring climate-related disclosure for issuers with securities trading in public U.S. capital markets in a consultation paper running to just under 500 pages. The proposed rules, which are intended to provide investors with consistent, comparable and reliable climate-related information, are modelled in part on the Task Force on Climate-Related Financial Disclosure (“TCFD”) framework and also draw upon the Greenhouse Gas Protocol.

The proposed rules would require domestic and foreign registrants to include certain climate-related information in registration statements and annual reports (on Form 10-K or Form 20-F for foreign private issuers) in:

• a new section that would include GHG emissions data (including Scope 3 emissions, if material) attested to by a third-party expert, the registrant’s targets on emissions or similar matters (including annual status updates), a forward-looking discussion highlighting expected future impacts of climate-related risks on the financial statements, and detailed disclosure on climate-related risks and the registrant’s management of those risks; and

• a new note to the financial statements that would include quantitative disclosure of climate-related impacts on financial statement line items, capital expenditures, and key accounting assumptions.

Click here for a summary of the proposed rules and their key disclosure requirements.

The Investment Association (“IA”), Pensions and Lifetime Savings Association (“PLSA”) and Association of British Insurers (“ABI”) jointly launched a new Carbon Emissions Template for pension schemes

The IA, PLSA and ABI working group’s Carbon Emissions Template sets out criteria to enable pension schemes to calculate their carbon emissions and better understand the environmental impact of their investments.

The template introduces a standardised set of data based on the TCFD framework, and is aimed at helping pension schemes deliver on their new reporting obligations under the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021. These Regulations have applied to the largest UK pension schemes since 1 October 2021 (i.e. trust-based occupational pension schemes with relevant assets of at least £5bn, along with authorised master trusts and (in future) any authorised collective money purchase schemes). Schemes with at least £1bn of relevant assets will also need to comply with these reporting obligations from 1 October 2022, with the Regulations' applicability to smaller schemes being reviewed in 2023. This template is expected to standardise emissions reporting, thereby providing clarity for trustees and members of occupational pension schemes on the environmental impact of their scheme’s investments by setting out key information using a set of objective criteria as well as enabling the comparison of emissions data between different schemes.

Click here to read the IA's full press release.

What’s new in market practice: Increasing due diligence of a Target’s value chain

Corporate acquirers are facing increased pressure to extend their due diligence beyond the target itself to cover its entire value chain. This is in response not only to the potential serious reputational risks which could be incurred due to a failure to scrutinise a target’s value chain, but also as a consequence of the growth of mandatory supply chain due diligence legislation. An example of this is the Supply Chain Act in Germany, which is due to come into effect on 1 January 2023 and obliges companies to ensure compliance with human rights and environmental provisions in their supply chains or risk incurring a fine. The EU has also indicated that it will propose such legislation in the near future.