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The initiative includes a competition law sustainability “sandbox” in which market participants could team up to work on sustainable business projects.

By David Little and Pierre Bichet

The Greek Competition Authority (HCC) has announced a public consultation on how competition law rules might be adapted to promote more sustainable business practices. The HCC published a Staff Discussion Paper and held a digital conference to launch the consultation.

The HCC’s exploratory proposals outline a number of novel concepts, including: (1) the creation of a competition law sustainability “sandbox” in which market participants could team up to work on sustainable business projects with some measure of protection from competition rules; and (2) the establishment of an “Advice Unit” comprising experts from different regulatory authorities who could provide informal advice on sustainability-related initiatives. The proposals also envisage the publication of general guidelines defining the contours of legitimate cooperation between rivals on sustainability projects.

By Paul Davies, Richard Butterwick, Terry Charalambous, and Catherine Campbell

In recent years, China has taken significant steps in developing its environmental policy. In 2014, China’s Premier Li Keqiang declared a “war on pollution”, which began in earnest in 2017. Since then, regulators have been more proactive in enforcing environmental regulations. Factory closures have become a key part of this strategy, causing significant disruption to the global supply chain this year.

In our view, M&A dealmakers and corporates should carefully consider environmental and supply chain due diligence in China, as companies work out how to navigate the factory shutdown process. Corporates should, as part of their environmental, social, and governance (ESG) strategy, review whether their group entities and target companies are likely to be affected in the event that critical supply chains are broken. Engagement with environmental agencies in China is useful, but environmental policy and consistent regulatory enforcement are still maturing. The appropriate level of due diligence could prove to be critical to a company’s ongoing operations.

Landmark ruling requires the European Commission to disclose impact assessments used as a basis for its legislative decision-making process.

By Antonio Morales and Rosa Espín

The Grand Chamber of the Court of Justice of the European Union recently issued a landmark judgment finding that impact assessments should be considered public documents. This decision sets a legal precedent in connection with the transparency, accountability, and decision-making processes of European institutions.

Case Background

A non-profit organization active in the field of environment protection had sought to access two impact assessment reports, which had played an influential role in the proposals of certain environmental laws.

By Paul Davies, Michael Green and Ei Nge Htut

On 13 July 2017, Principles for Responsible Investment (PRI) launched guidance on incorporating environmental, social, and governance (ESG) provisions in private equity fund terms. The publication, Incorporating Responsible Investment Requirements into Private Equity Fund Terms (the Guidance), followed a year-long consultation period with PRI signatories, expert counsel, and industry associations. The Guidance aims to demystify the concept of ESG provisions, outline the terms of these provisions and work towards a consistent industry approach on this aspect of responsible investment.

The Guidance identifies current and emerging best practices, as well as possible limitations. In particular, the Guidance offers practical solutions to limited partners (LPs) and general partners (GPs) that are considering how they may integrate responsible investment into fund terms. The Guidance includes:

By Paul Davies and Michael Green

The European Commission has recently published plans to integrate sustainability considerations into decisions made by investors within the EU. More specifically, the EU is looking to spell out in legislation, that the consideration of ESG issues should be incorporated into the fiduciary duties of EU asset managers.

The main proposal is to clarify that fiduciary duties of asset managers includes consideration of ESG issues, ensuring that sustainability is more central to corporate governance and promoting the effective incorporation of ESG performance in issuer credit ratings and key market benchmarks. The European Commission also renewed its commitment to the integration of sustainability and ESG factors in (i) rating methodologies and verification systems (e.g. green bonds), (ii) investment mandates of institutional investors and asset managers and (iii) upcoming reviews of financial legislation.

However, the European Commission will not formalise proposals to enact the suggested changes until 2018, when it is expected to implement a broader EU strategy on sustainable finance. Campaigners from WWF have praised this renewed focus on ESG issues, encouraging the European Commission to follow this up with an ambitious strategy the following year so that a clearer definition of ESG criteria can be set out. They argued that sustainability could be integrated “right away” to EU laws such as the law on alternative investment fund managers.

By Paul Davies and Michael Green

The Organisation for Economic Co-operation and Development (OECD) published a report (OECD Report) on investment governance and integration of environmental, social and governance (ESG) factors on 2 May 2017. The OECD Report develops work already carried out by the organisation on the regulation of investment companies and pension fund investments. It is also linked to certain OECD instruments, including (i) the OECD principles of private pension regulation (adopted in 2016) and (ii) the G20/OECD high level principles of long term financing by institutional investors (last published in September 2013).

The OECD Report looks into how pension funds, insurance companies and asset managers approach ESG risks and opportunities in portfolio investments. Specifically, it presents the findings of an international “stock taking exercise” of the legal and regulatory frameworks that applies to institutional investment in different jurisdictions. It focuses on how these are interpreted by institutional investors in terms of their ability and/or responsibility to integrate ESG factors into their governance processes. The interesting point here is whether these existing frameworks encourage or discourage the integration of ESG factors into decision making processes.

By Paul Davies and Michael Green

Commercial risks to businesses can no longer be neatly divided into financial and non-financial considerations. For example, there is growing recognition, particularly in the pensions sector, that a failure to take account for environmental and social governance (ESG) risks (in particular, climate change risks) can result in adverse financial consequences. While a revised EU directive  will impose an obligation on pension fund managers to consider ESG issues, pension trustees may already be subject to potential legal liability if they ignore material financial risks resulting from climate change (traditionally considered only a moral or ethical concern) in investment portfolios, according to legal counsel.