On October 26, 2022, the United Nations Climate Change Conference secretariat released a report assessing nationally determined contributions ("NDCs") under the Paris Agreement as of September 23, 2022. NDCs are countries' climate action plans to cut emissions and adapt to climate impacts. Each party to the Paris Agreement is required to establish an NDC and to update it every five years.
The report estimated that total greenhouse gas ("GHG") emissions in 2025 will be around 53.7% higher than in 1990 and 12.6% higher than in 2010. By 2030, emissions are expected to be 50.8% higher than in 1990 and 10.6% higher than in 2010.
The report notes that projections of global mean temperatures are uncertain, but the best estimate of the global temperature increase between pre-industrial times and 2100 is in the range of 2.1°C to 2.9°C, materially in excess of the Paris Agreement goal of limiting global warming to 1.5°C.
The projected total global GHG emissions level, assuming full implementation of all NDCs, shows that it is more likely than previously thought that global emissions will peak before 2030. The report stresses that in order to achieve a 2030 peak, all elements of the NDCs need to be implemented. For many regions in the world, such achievement will depend on access to enhanced financial resources, technology transfers and technical cooperation; the availability of market-based mechanisms; and the capacity of forests and other ecosystems to absorb carbon from the atmosphere.
Global: ISSB Confirms Scope 3 Emissions to Be Included in IFRS's Climate Disclosure Standard
The International Sustainability Standards Board (the "ISSB")—part of the International Financial Reporting Standards (the "IFRS") Foundation—has announced that Scope 3 emissions will be included in the corporate disclosure standards it is developing. Scope 3 emissions originate in a company's value chain but are beyond its direct control.
The move reflects an increasing demand from stakeholders and investors towards a more transparent disclosure environment, where companies' management of climate risks and impact are more openly scrutinized. The decision is particularly significant because the UK, U.S. and EU sustainability reporting requirements for companies are expected to be informed by the ISSB's standards.
Scope 3 emissions often account for the majority of companies' carbon footprints but are particularly controversial. This is due to the difficulty of monitoring and calculating emissions outside of companies' direct control (i.e., in their value chains). The IFRS voted unanimously to include Scope 3 emissions in its reporting guidelines but noted that they will provide "relief provisions" to help companies fulfill this obligation, which may include safe harbors and deadline extensions.
The ISSB intends to issue its final standards by early 2023.
EU: Consumer Organization Sues German Funds for Misleading ESG Claims
A German consumer nonprofit organization, Verbraucherzentrale Baden-Württemberg ("VBW"), launched a claim against DWS Invest ESG Climate Tech Fund (the "Fund") for misleading advertising. The Fund is advertised as investing "worldwide in companies whose business activities are predominantly geared to counteracting climate change or mitigating its effects. The management focuses on companies that contribute to sustainable energy generation, the expansion of an efficient energy network, the increase of energy efficiency and thus the reduction of greenhouse gases." According to VBW, DWS had also stated that investments in the Fund would not generate revenue from coal or armaments, and that the Fund's emissions are 90% lower than a reference value based on the MSCI AC World Index.
VBW argued that DWS did not provide any evidence to support these assertions. Further, portfolio companies in the Fund may generate up to 14.99% revenue in the coal industry, which VBW argues is inconsistent with statements in DWS's advertisement. In relation to emissions, VBW stated that DWS did not explain how it calculates the Fund's emissions or how the MSCI AC World Index works. According to VBW, the index contains reports from roughly 3,000 companies from both developed and emerging markets, based on disclosures made voluntarily that cannot be verified or on disclosures made in accordance with different reporting requirements. VBW considers the statement to be misleading because it presents the advantages of the fund compared to a reference value that was not explained.
VBW also sued Commerz Real, a subsidiary of Commerzbank, in relation to claims that its impact fund, klimaVest, has a measurable ecological impact. This is the second time VBW has sued klimaVest. In January 2022, VBW secured a Stuttgart court ruling finding that a previous advertisement was likely misleading to consumers.
Other regulators have received similar complaints. As reported last week, the UK Advertising Standards Agency found, for the first time in the United Kingdom, that sustainability-focused advertisements published by HSBC were misleading.
Japan: Government Releases Human Rights Guidelines
On September 13, 2022, Japan's Ministry of Economy, Trade and Industry released its Guidelines on Respecting Human Rights in Responsible Supply Chains (the "Guidelines"). Although the Guidelines are not legally binding, they are part of a series of measures under Japan's national plan for 2020−2025 to promote business and human rights in line with the UN Guiding Principles on Business and Human Rights.
The Guidelines target all enterprises, regardless of size, that engage in business activities in Japan. They cover upstream and downstream supply chains as well as any other business partners. Companies are encouraged to engage in efforts covering the following issues (in line with the UN Guiding Principles):
- Human rights policies, meaning that companies should express their commitment to respect human rights in a clearly presented policy;
- Human rights due diligence, which requires companies to identify, assess, and prevent and mitigate adverse human rights impacts, monitor the effectiveness of the measures implemented and disclose information on their activities; and
- Remedies, which require companies to remedy adverse impacts they have caused or contributed to, and to use their leverage with other companies that have done so.
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