Policy makers and regulators seem keen to adopt both a “carrot” and “stick” approach to channelling private finance sustainably.
Financial services regulators have been particularly vocal in the last 12 months, specifically about the impact on the financial services sector as the world experiences, and attempts to respond to, climate change.
Mark Carney, outgoing governor of the Bank of England, highlighted how pressing an issue climate change is for the sector in October 2019, stating that, “ … changes in
Companies are facing increasing pressure to report on environmental, social, and governance (ESG) matters in terms of their legal obligations, stakeholder pressure, and reputational issues. Companies are subject to both mandatory and non-mandatory non-financial reporting obligations. For the first time, in 2018, under the Non-Financial Reporting Directive (NFRD), certain companies must publish in their annual reports information relating to environmental, social, and employee matters, respect for human rights, and anti-corruption and bribery matters. The NFRD therefore bolsters existing mandatory disclosure obligations under the Modern Slavery Act 2015 and the Climate Change Act 2008. The forthcoming Conflicts Minerals Regulation will further strengthen these obligations.
The public trust doctrine is the principle that certain natural and cultural assets are preserved for public use and that it is the government’s obligation to protect and regulate these, both now and for future generations. Although the doctrine is established in English common law, it is not regularly deployed by the English courts. However, a new piece of legislation, the Well-being of Future Generations (Wales) Act 2015 (WFA), geared towards improving the social, economic, environmental and cultural wellbeing of Wales, captures many of the values of the public trust doctrine. In particular, it focuses on the long term impact of public body decisions and how they should promote a good quality of life for both current and future generations.
Royal Philips, a health technology company, has recently agreed to an innovative revolving credit facility agreement with a margin linked to the company’s year-on-year sustainability performance improvement. The agreement was entered into by a consortium of 16 international banks (led by ING, as Sustainability Coordinator) and provides for a commitment of €1 billion. Royal Philips’ current sustainability performance was benchmarked by the environmental, social and governance rating agency Sustainalytics: if the sustainability rating increases, the interest rate decreases and vice versa.