On December 16, 2021, the Office of the Comptroller of the Currency (“OCC”) issued draft principles (the “Proposal”) on the identification and management of climate-related financial risks by OCC-supervised banks with more than $100 billion in total consolidated assets (“covered banks”). The Proposal is intended to provide a high-level framework for the safe and sound
On Thursday, October 21, 2021, the Financial Stability Oversight Council released a Report on Climate-Related Financial Risk (the “Report”). The Report represents the culmination of a deliberative process that began on May 20, 2021, when President Biden signed an Executive Order on Climate-Related Financial Risk. The Report is a milestone for the Biden Administration, and…
The European Commission has published a proposal for a Corporate Sustainability Reporting Directive (2021/0104) (“CSRD”), which forms just one part of a comprehensive package of sustainable finance measures (see our blog here). The Commission has put forward these measures in response to demand for stronger and wider sustainability reporting standards, over and above what the EU Non-Financial Reporting Directive currently provides. The CSRD seeks to mandate sustainability reporting and assurance through the amendment of existing EU laws, including the Transparency Directive, the Accounting Directive, and the Audit Directive. More fundamentally, according to the Commission, it will move the EU one step closer to realizing its aim of having sustainability reporting be “on a par” with financial reporting, in terms of attached weight and importance. This is reflected in the change of terminology used in the CSRD proposal, from a focus on “non-financial” information reporting, to “sustainability”.
We cover below the background and detail, but in summary, these are the key elements of the CSRD proposal that corporates should be aware of:
- Scope: The CSRD reporting requirements will apply to all large EU companies and all listed companies, including listed small and medium-sized enterprises (“SMEs”). This is estimated to cover around 49,000 companies.
- Reporting: The so-called “double materiality” principle remains, but in-scope companies will now have to report according to mandatory sustainability standards. Simpler and “proportionate” standards will apply to listed SMEs.
- Audit: The CSRD will require, for the first time, a general EU-wide audit (assurance) requirement for sustainability information.
- Digitization: The sustainability information must be published in companies’ management reports — and not separately reported — and the information will need to be digitized or “tagged” so it can be incorporated into a planned European Single Access Point.
- Timing: If the proposal is adopted and standards can be agreed in line with current ambitious estimates, large in-scope companies must comply from financial years starting on or after 1 January 2023, publishing reports from 2024; whilst SMEs have to comply from 1 January 2026.
The European Commission has presented a package of key enabling legislation on sustainable finance (the “Sustainable Finance Package”). This includes the much-awaited first technical screening criteria under the Taxonomy Regulation — outlined in the Taxonomy Climate Delegated Act (“TCDA”) — and a proposal for a Corporate Sustainability Reporting Directive (“CSRD”), which significantly revises and expands on the existing Non-Financial Reporting Directive’s remit and disclosure rules for corporates. While the former is directly aimed at financial institutions and investors, and the latter at large and listed entities, the package has broader implications for all corporates.
Continue Reading The EU’s Green Capitalism Takes Shape: Taxonomy Screening Criteria and Corporate Sustainability Reporting
The Market Risk Advisory Committee (“MRAC”) of the Commodity Futures Trading Commission (“CFTC”) met last week to discuss reports from its subcommittees on the following issues: Climate-Related Market Risk, CCP Risk and Governance, Market Structure, and Interest Rate Benchmark Reform. The meeting also featured a panel discussion on diversity and inclusion in the derivatives and related financial markets. The discussion on Climate-Related Market Risk featured discussion of the Climate-Related Market Risk Subcommittee’s report: Managing Climate Risk in the U.S. Financial System (“Report”), which it previously released on September 9, 2020. Subcommittee Chair Robert Litterman addressed the MRAC to discuss the Report’s findings and issue a call to action on climate change.
Continue Reading CFTC MRAC Meeting Features Discussion of Climate Risk