To hear our thoughts on how business should prepare to respond to policy changes, be sure to check out the full article here.
Five key learnings from COP26
- Government commitments translate to business reality. The increased pressure on governments to legislate for climate change is expected to place increasing regulatory and economic burden on businesses to adapt.
- Climate action is a competitive sport – “a bit better” isn’t good enough. Companies need to take substantive action to maintain their competitive advantage and mitigate risk.
- Show me the money! Further reforms to green finance will have a knock-on effect on both borrowers and issuers through their balance sheet.
- A global carbon market is coming. Rules for a framework for a global market in carbon offsets and emissions trading have been agreed, creating a new framework with a centralised system open to the public and private sectors and a separate bilateral system whereby countries can trade credits to help meet their decarbonisation targets.
- Pivot to the rainforests – don’t forget biodiversity when you talk about climate change. More than US$19 billion of public and private funds were pledged to end and reverse deforestation, with a goal for the reversal to start by 2030.
A focus on the UK
The outcomes from COP26 are likely to change regulations on companies’ energy use and environmental practices, and such changes are already underway in the UK – particularly in light of Boris Johnson’s 10-point plan for a green industrial revolution announced last year.
We outline below some key updates.
Mandatory climate-related financial disclosures – what, when, how?
On 28 October 2021, the Department for Business, Energy and Industrial Strategy (BEIS) published the UK government’s response to its spring 2021 consultation on proposals to introduce mandatory climate-related financial disclosures for publicly quoted companies, large private companies and LLPs.
As a result of the consultation process, two policy changes have been made:
- the introduction of a qualitative scenario analysis requirement, and
- closer alignment of the regulations to the language used in the Task Force on Climate-related Financial Disclosure (TCFD) recommendations themselves.
Following the consultation, draft regulations have been published and, subject to parliamentary approval, will come into force on or after 6 April 2022. Please do reach out if you want to know more about the key provisions and how this is likely to affect you.
UK corporate governance requirements – scaling back?
The corporate governance reforms were initially intended to comprise legislation requiring directors to sign off on companies’ internal controls and effectiveness, but there is ongoing speculation that they are being scaled back following backlash from businesses during the consultation due to the likely associated costs.
Instead, a more “business friendly” regime is expected to aid post-Brexit and post-Covid-19 recovery. Although the government has not yet confirmed this change, similar provisions are expected to be included in the UK corporate governance code, which will capture fewer businesses and be more difficult to enforce. We will report on this further once the government confirms its position.
ESG Counsel ™
The Hogan Lovells ESG team is here to help, including on all the issues raised in this snapshot. Hogan Lovells is one of the leading ESG firms in the world, delivering uniquely tailored cross-practice and -geographic holistic advice as ESG Counsel to clients globally. Our holistic and solutions-driven approach to managing ESG issues draws on the full scope of our global practice and sector capabilities (including our leading global corporate, environmental, governmental relations and regulatory, employment, and dispute resolution teams) to drive sustainable value and maximize positive impact for clients. Please contact us to discuss next steps.
How we can help:
Our knowledge of ESG matters, coupled with our sector-focused expertise and experience can help businesses navigate this complex area. In particular, we can help by:
- bringing clarity to the complex and fast developing legal and regulatory background driving ESG considerations and helping your business shape its response to those requirements, opportunities and risks;
- engaging effectively with policy-makers and regulators that will shape the environment in which your business operates;
- undertaking a sustainability and business integrity ‘healthcheck’ to identify and establish corporate purpose and clear ESG initiatives/targets;
- evaluating supply chains and procurement processes to ensure that they appropriately deal with ESG considerations;
- ensuring that governance structures are “fit for purpose” and drive appropriate behaviours within your organisation;
- evaluating best practice with regards to talent management, diversity and inclusion, employee engagement, corporate purpose, culture, reward and remuneration and tax practices; and
- in cases of crisis, assisting in responding to and dealing with that crisis.
Our recent ESG public markets experience
- Advising SABMiller plc on governance transitions and reforms.
- Advising a number of companies and stakeholders on ESG-related activist and stakeholder engagement.
- Advising ITV on ongoing corporate governance matters.
- Advising Shaftesbury on numerous corporate governance matters.
- Advising an international ride-sharing company on its governance arrangements in the UK in the context of an ongoing license appeal.
- Advising Brookfield on the environmental aspects of its acquisition of Greenergy, including its interest that owns Thames Oilport and Thames Enterprise Park.
Authored by Amy Cleaves, Nicola Evans, Patrick Sarch, Maegen Morrison and Adrian Walker.
