ESG Essentials: Milestone SEC ruling and deep sea mining

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SEC approves scaled back climate disclosure rule

The US Securities and Exchange Commission (SEC) marked a major milestone in approving climate-related disclosure for US public companies, requiring them to provide information in annual reports and registration statements on climate risks and plans to address them. 

Under the new legislation, reporting requirements include disclosing climate-related risks with a material impact on business strategy, operations, or financials. The new rule also requires quantitate and qualitative descriptions of material expenditures, or financial impact, of any plans to mitigate climate-related risks. 

The new ruling requires greater oversight from the board of directors as well as their companies’ processes for identifying, assessing, and managing material climate risks. 

The finalised SEC ruling significantly scales back the original requirements of the initial proposal, specifically the requirement for companies to report scope 3 emissions. The weakened ruling also allows more time for companies to report on emissions, pushing the deadline back to 2026 and easing assurance requirements. 

Sexual harassment silencing by NDAs to be banned

A report on sexism in the City of London, released on International Women’s Day, has called for UK finance firms to be banned from silencing sexual harassment and abuse victims using non-disclosure agreements (NDAs).

The progress in tackling sexism and misogyny in the financial industry is moving at ‘snails pace’, according to the report’s committee leader. Last year the use of NDAs to silence sexual misconduct complaints was banned in higher education, yet such misconduct is most prevalent in the financial services

Campaign groups argue that NDAs perpetuate sexism and discrimination, force victims into lying to their loved ones and future employers, and prevent bosses from fixing toxic workplace cultures. 

The government has eight weeks to respond to the report, which will hopefully outline much needed changes within the financial services industry. 

ESG rating regulations incoming

In this year’s Spring Budget the UK government announced its intention to regulate ESG rating providers within the country. The Financial Conduct Authority (FCA), eager to implement stricter industry regulations, had been awaiting an expansion of its regulatory remit to facilitate this move.

While the FCA has previously advocated for enhanced regulatory oversight of ESG data and ratings providers, a consultation conducted by the UK Treasury last year only addressed potential provisions for ESG ratings. The government’s latest statement specifically focuses on ESG ratings, acknowledging the need for closer scrutiny in an industry that has been surrounded by controversy.

ESG ratings have faced criticism worldwide, with concerns raised about their potential impact on investment decisions. For example, some politicians in the US have accused them of favouring Chinese firms and disadvantaging American fossil-fuel companies. 

As regulatory developments unfold in the UK and the EU, a focus remains on addressing the limitations and controversies surrounding ESG ratings.

Planet Tracker report finds deep-sea mining could incur $500 billion in lost value

A new report from Planet Tracker has found that deep sea mining (DSM) could result in over $500 billion in value destruction, with between $30 and $132 billion coming from the mining sector itself.

The report highlights the positive financial impact of respecting nature, as sectors dependent on preserving intact ecosystems have outperformed those exploiting resources threefold over the last three decades. It emphasises the need for a paradigm shift in how investors engage with nature and calls for a moratorium on DSM. 

While some investors expect significant financial returns from DSM, the report finds this to be a false narrative. In comparison, other investors have voiced strong opposition, with 37 financial institutions co-signing a statement last year, calling on governments not to proceed with DSM activities until the full scope of their environmental, social, and economic risks is understood. 

Norway became the first country to sign off on commercial-scale DSM in national waters but this decision violated its Seabed Minerals Act. The UN Environment Programme Finance Initiative has stated that DSM is not aligned with its Sustainable Blue Economy Financial Principles.

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