ESG Regulation Watch: UK Developments

King & Spalding

Implementation of TCFD Style Reporting

In November 2020, the UK government published a road map (the Roadmap) towards mandatory climate-related disclosures across all sectors of the UK economy aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

The UK Government is one of the first to endorse the TCFD’s recommendations in this way and roll out such a wide-ranging plan.

The Roadmap sets out an indicative path, over the next five years - with most action occurring over the first three years - towards UK leadership’s stated goal of ensuring the publication of comprehensive and high-quality information on how climate-related risks and opportunities are being managed across the UK economy.

The Roadmap covers seven categories of organization:

  • listed commercial companies;
  • UK-registered companies;
  • banks and building societies;
  • insurance companies;
  • asset managers;
  • life insurers and FCA-regulated pension schemes; and
  • occupational pension schemes.

Since publication of the Roadmap, new TCFD aligned reporting requirements have been introduced on a comply or explain basis for premium listed companies, legislation has been introduced in relation to TCFD reporting for large occupational pension schemes and the UK government has just recently published a consultation regarding mandatory TCFD climate-related disclosures for other publicly quoted companies (including large banks and insurers already subject to climate related reporting), large private companies and limited liability partnerships.

Building on these initial steps, the UK Government and regulators plan consultations on further measures for asset managers, life insurers, and other pension schemes over the course of 2021.

Global groups operating in the UK will similarly be required to track progress of the requirements and ensure compliance at a local level for in-scope subsidiaries, business lines and pension schemes.

UK Competition and Markets Authority (CMA) Guidance on Environmental Sustainability Agreements

Further demonstrating the potential reach of ESG considerations, the CMA has recently published guidance for businesses and trade associations in relation to the application of UK competition law to “sustainability agreements”, which are agreements to cooperate (at an industry level or otherwise) in the attainment of sustainability goals, such as grouping together to purchase common inputs for research and development.

The CMA wants to ensure that competition policy does not create an unnecessary obstacle to sustainable development by deterring businesses from partnering in sustainability initiatives, which do not breach competition law.

The guidance focuses on the environmental aspect of sustainability agreements and covers expectations in relation to:

  • the steps that should be taken to ensure that sustainability agreements which constitute standard-setting agreements are established on a fair basis (e.g. enable all competitors in the affected market to participate; ensure that the standards are non-discriminatory);
  • avoidance of restrictions on competition and anti-competitive behavior (e.g. by ensuring that competitively sensitive information is not shared and that arrangements do not include price fixing or market sharing agreements); and
  • use of exemptions and allowances (including guidance on the exemptions, safe harbours (e.g. thresholds) and allowances most relevant for sustainability agreements).

The EU is also considering the potential impact of competition law but from the angle of how competition policy can support sustainability objectives and ensure that the right incentives are provided to move to a greener economy without stifling competition.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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