Answer ... The ESG landscape continues to develop at pace in Ireland, aligned with the speed of developments at EU level and the growing importance placed on ESG – and in particular, the management of climate risks – by regulators (eg, the Central Bank and the European Central Bank (ECB)) and stakeholders.
A number of EU legislative proposals are expected to progress significantly over the next 12 months.
Ireland is involved in negotiations on the European Commission’s ‘Fit for 55’ package, proposed in July 2021, which comprises proposals to amend existing legislation as well as new initiatives in climate, energy and fuels, transport, buildings and land use, and forestry (for more information, see here).
The Corporate Sustainability Reporting Directive (CSRD) is expected to be adopted by the European Commission later this year, and reporting obligations will commence on a phased basis from 1 January 2024. The European Financial Reporting Advisory Group is due to submit the first set of draft EU sustainability reporting standards to the European Commission by November 2022. The proposed Directive on Corporate Sustainability Due Diligence will progress through the usual EU legislative process; however, it is not currently anticipated that the directive will be adopted before 2023.
A delegated act specifying the technical screening criteria in relation to the four remaining environmental objectives under the EU Taxonomy Regulation (water and marine resources, circular economy, pollution prevention and control, biodiversity and ecosystems) is expected to be published later this year. Once adopted, this delegated act will apply with effect from 1 January 2023. The European Commission’s Complementary Climate Delegated Regulation of 9 March 2022 covering nuclear and fossil gas activities will apply from 1 January 2023. We expect to see further EU-level discussions on an extension of the EU Taxonomy ‘beyond green’ and the possible development of a ‘social taxonomy’ following recent reports from the Platform on Sustainable Finance (Extended Environmental Taxonomy: Final Report on Taxonomy extension options supporting a sustainable transition (March 2022) and Final Report on Social Taxonomy (February 2022)) (for more information on the proposal to extend the EU Taxonomy ‘beyond green’, see here. For more information on the proposals for a ‘social taxonomy’, see here).
At the time of writing, the European Parliament has confirmed its negotiating position on the Regulation for an EU Green Bond Standard (EUGBS) and trilogue negotiations are beginning (for more information, see here).
Work is also underway to progress sustainability-related disclosures in the securitisation market (for more information, see here). The European Banking Authority (EBA) has also reviewed how EU regulations on sustainable finance could be applied to securitisations and recently recommended that, instead of establishing a new dedicated framework for green securitisation, the proposed EUGBS regulation should be amended to apply to securitisations (for more information, see here).
We expect transition planning for banks to be a key theme later in 2022, with the ECB expected to be given greater supervisory responsibilities in that area.
Looking further ahead, following the launch by the European Commission of its banking package in October 2021, we expect to see more on its proposals to:
- expand the scope of ESG disclosures to all institutions;
- explicitly empower supervisory authorities to incorporate ESG in the supervisory review and evaluation process and in stress testing; and
- encourage institutions to have robust governance arrangements and concrete plans signed off by the management body to deal with ESG risks.
The European Commission has also asked the EBA to assess whether and how capital requirements could be differentiated depending on the environmental and social impact of the assets held by institutions. The final results of that analysis are not, however, expected until 2023.
In infrastructure and construction projects, we expect the high level of interest from lenders, employers and contractors in using existing, and developing innovative new contractual mechanisms to drive all aspects of ESG principles to continue. For example, stakeholders are continuing to engage with new climate mechanisms drafted by the NEC and the Chancery Lane Project in the United Kingdom.
Domestically, the Circular Economy, Waste Management (Amendment) and Minerals Development (Amendment) Bill 2022, which aims to support Ireland’s transition to a more sustainable pattern of production and consumption that will minimise waste with a view to significantly reducing greenhouse gas emissions, is currently going through the legislative process. Other anticipated relevant legislation includes:
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the new individual accountability framework (for more information, see here);
- the Work-Life Balance Bill; and
- the Amendment of the Constitution (Role of Women) Bill.