I started my legal career nearly three decades ago working in-house for a grocery company, Food Lion, which is held by the global grocery giant Ahold Delhaize. I was a young securities lawyer, cutting my teeth and learning the ropes from my friend Sam Wolff - then a lawyer with Akin Gump and now with Hunton. Sam was a true mentor, helped me to find my way to the SEC, and in an important way set the course of my career. He also invited me to write a chapter for a book he published each year called Emerging Trends in Securities Law, which I still contribute to - this year with an update on the ESG reporting landscape. I also met my future husband during that time. He also worked at Akin Gump and represented Food Lion. Needless to say, this was an important time in my life that set the stage for everything that followed, personally and professionally.
The grocery business is neither glamorous nor easy. Margins are tight. Competition is fierce. The business needs to be managed closely to ensure profits and shareholder returns. The scale is huge with complex operations across stores, distribution centers, and complicated supply chains. Ahold Delhaize USA was the sixth largest grocery chain in the US in 2021, with over 2,000 US stores and nearly $54 billion in annual sales.
Ahold Delhaize has committed to reach net zero for its scopes 1 and 2 emissions by 2040 and for scope 3 by 2050. It recently declared that it will ask its suppliers to report their emissions and to set science-based emission reduction targets. On November 29, the company announced updated interim targets to reduce scope 3 emissions by 37% by 2030. It plans to meet its target by working with its suppliers and farmers in its deep supply chain to reduce upstream CO2 emissions, providing a broader assortment of plant-based protein products, and supporting customers in making low carbon choices.
Ahold Delhaize’ announcement stands in stark contrast with the pitched objections to the SEC’s proposed climate disclosure rules, particularly by certain members of congress. I have previously discussed how these representatives’ arguments are misplaced. The objections nonetheless continue to roll in. For example, on September 29th, Congressman Lucas, Republican from Oklahoma, introduced the “Protect Farmers from the SEC Act,” which would prohibit the SEC from requiring issuers to disclose value chain emissions if those emissions arise from farms and ranches.
The announcement of the bill includes some editorial flourishes about the SEC’s climate proposal, including that “the proposed climate rule is so unwieldy and convoluted that publicly traded companies will be forced to require small, independent, family farms to report on-farm data regarding individual operations and day-to-day activities.” This interpretation of the SEC’s proposal is inaccurate - as I’ve previously noted, and as Chair Gensler explained to the Senate Banking Committee on September 15th. The proposal would allow companies to use estimates of the emissions in their value chains and would not require small farmers to report their actual emissions.
This discussion is rendered somewhat academic by the companies, like Ahold Delhaize, that are marching ahead, setting reduction targets and asking their suppliers to do the same. The rules that the SEC ultimately issues will be important. But in the interim, companies are moving ahead - even beyond what the SEC’s proposed rules would require.
News from Regulators and Standards Setters
Latest ISSB staff recommendations would require financial institutions to disclose their financed emissions
The International Sustainability Standards Board (ISSB) released the agenda and staff recommendations to be deliberated at its December meeting. Perhaps the most consequential of the staff recommendations coming out of the meeting is a change to the disclosure requirements for financed emissions: financed emissions disclosure requirements for asset managers, commercial banks, and insurers would be moved from Appendix B of the climate-related disclosures rules into the main body, effectively making them required from the get-go. Such a change, if adopted, would significantly increase the pressure on financial institutions to manage their scope 3 emissions on an accelerated timeline. The staff recommendations do carve out an exception for facilitated emissions—those resulting from investment banking and brokerage activities—citing a lack of accepted calculation methodologies.
The UN Biodiversity Conference (COP 15) kicks off in Montreal
The UN Biodiversity Conference, also known as COP 15, kicked off on Thursday in Montreal, Canada. The conference—a lower profile event than the UN climate change conference that took place in Egypt last month—convenes governments from around the world with the hope of creating a new 10-year plan to tackle biodiversity loss and fulfill a “shared vision of living in harmony with nature.” Among the 20+ targets being discussed is one that would direct countries to protect 30% of the planet’s surface by 2030. The vision for COP 15 is ambitious. The hurdles facing any agreement are also immense: a 2020 UN report showed that not one of the targets set in 2010 had been fully met, and around 1,400 phrases or clauses of the draft remain “bracketed,” indicating a lack of agreement.
Mandatory climate reporting on the horizon for Australia
The Australian government has launched a consultation paper for a mandatory climate-related financial disclosure framework for companies and financial institutions. In the consultation paper, the government writes that Australia must remain aligned with other major international markets to be credible and comparable to other jurisdictions. Because of this, the consultation requests input on the costs and benefits of pursuing alignment with international practices and frameworks from the TCFD and ISSB, as well as input on the inclusion of assurance requirements, materiality assessments, transition plan disclosures, and “considerations that should be applied to requirements to report material Scope 3 emissions.” The consultation period will remain open until February 17, 2023.
CSRD clears major milestones on the path to implementation
Europe’s Corporate Sustainability Reporting Directive (CSRD) reached two major milestones over Thanksgiving. First, on November 23, the European Financial Reporting Advisory Group (EFRAG) submitted its first set of draft sustainability reporting standards to the European Commission. These standards, once finalized, will form the comprehensive set of sustainability-related disclosures mandated by the CSRD. Second, on November 28, the CSRD was formally adopted by the European Council. Once the CSRD is signed by the presidents of the European Parliament and Council, it will enter into force 20 days afterward. From there, two major milestones remain: in June 2023 the finalized ESRS are expected to be adopted as delegated acts, and 18 months after the CSRD comes into force all EU member states must have implemented the rules.
EU Commission adopts carbon credit regulation proposal
As part of the European Green Deal, the European Commission has decided to adopt a proposed system of regulating carbon removals. As businesses seek to improve their environmental impact, many have looked to the market of carbon removal credits to help offset the emissions that they cannot reduce. However, with it being such a fresh market, the credits offered often lack the proper certification and verification to ensure buyers are getting accurate and reliable credits that truly offset their emissions. While this newly adopted proposal has come under criticism for not being specific or strict enough to truly combat greenwashing, it is an important first step in improving the carbon credit market, and more broadly, moving the EU closer to a green economy.
EU proposes new packaging regulations
The European Commission recently proposed new regulations to address the abundance of packaging waste produced by the EU market. These proposed rules, which are slated to be in full effect by 2030, aim to better encourage buyers and sellers to reduce, reuse, and recycle their packaging. They will require companies to start utilizing reusable, refillable, and/or recycled packaging, as well as recyclable packaging that is clearly labeled as such. They will also ban some single-use packaging, implement eco-friendly design criteria, and offer return systems for reusable packaging. The Commission hopes to reduce GHG emissions by 23 million tonnes of CO2e, water use by 1.1 million cubic meters, and cost of environmental damages by €6.4 billion ($6.7 billion) by 2030.
Stock Exchange of Hong Kong: ‘Prepare for TCFD & ISSB reporting’
The Stock Exchange of Hong Kong (HKEX) has begun to prepare issuers for upcoming climate disclosure requirements. “Issuers are strongly encouraged to get familiar with the new International Sustainability Standards Board (ISSB) climate [disclosure] standards, for planning and building the necessary infrastructure and system in preparation of the enhanced climate-reporting requirements,” wroke the HKEX in a report released November 25th. While there is no timeline available yet for HKEX listed companies to expect mandated ISSB-aligned reporting, Hong Kong has already required ESG reports to be published alongside annual financial reporting.
The Financial Conduct Authority develops code of conduct for ESG data
It has been a lively few weeks for ESG and regulatory news in the UK. Earlier this month, the FCA announced the formation of a new working group which aims to develop a code of conduct for ESG data and ratings providers. The group, aptly named the Code of Conduct Working Group, will play a significant role in the development of consistent global standards for ESG Data and Ratings providers. One of the group's core goals is to be internationally consistent, so it will take into account IOSCO’s recommendations as well as developments in other jurisdictions. In addition, it strives to promote best practices on transparency, governance, systems and controls, and management of conflicts of interest.
The UK and Singapore join forces in sustainable finance
The UK and Singapore have renewed the UK-Singapore Financial Partnership in an effort to continue COP27’s momentum of implementation. Both countries agreed to join forces in their efforts towards transition finance, climate-related financial disclosures, combating greenwashing, and protecting natural capital and biodiversity. They affirmed their commitment to implementing the ISSB disclosure standards and their continued collaboration with IOSCO and other organizations. Both countries mutually agreed on the importance of mandatory climate-related financial disclosures. What’s more, they also recognised the necessity of a globally consistent framework for nature-based disclosures.
The Federal Reserve Board releases proposals on climate risk management
Last week, The Federal Reserve Board issued proposals providing big banks with over $100 billion in total assets a framework for managing their exposure to climate-related financial risks. In the Board’s ‘Principles for Climate-related Financial Risk Management,’ it explains that the economic impacts of climate change and the transition to a low carbon economy “pose an emerging risk to the safety and soundness of financial institutions and the financial stability of the United States.” Because of that risk, the principles cover six key areas for banks to address: governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. It is important to remember this guidance is not finalized, and that public comment period has been opened for 60 days.
Images for this newsletter were provided by: USGS, Ryan Mac and Geran de Klerk on Unsplash.