EU unveils new green claim rules to prevent greenwashing and empower consumers
Welcome to this week’s ESG policy roundup. A home to find out some of the week’s headlines in the ESG world.
ESG policy is a key instrument to guide and support the transition to a low-carbon and sustainable economy, as well as to create value for investors, businesses, and society at large. In this policy roundup, we bring you some of the latest developments in ESG policy from different regions and sectors and highlight their implications and opportunities for the green market. The past week has seen several developments in the field of ESG policy, as governments and regulators around the world seek to address the challenges and opportunities of the green transition. This week:
The EU Commission proposed new rules to combat greenwashing and protect consumers from misleading claims about the environmental performance of products and services.
The Biden administration announced a $250 million funding allocation for energy conservation projects in federal buildings, as part of its broader climate plan.
The World Bank committed $82 million to support climate-resilient and inclusive livelihoods in Congo.
Japan’s Cosmo Energy Holdings announced plans to invest $3.2 billion in green energy projects over the next three years.
The Principles for Responsible Investment (PRI) released a new report that calls for greater coherence and alignment among global stewardship codes and regulations.
These developments show that ESG policy is gaining momentum and relevance across different regions and sectors, as stakeholders recognize the need and potential of green solutions. ESG policy can play a vital role in facilitating the transition to a low-carbon and sustainable economy, as well as creating value for investors, businesses, and society at large.
EU Proposes New Rules to Combat Greenwashing and Protect Consumers
The European Commission has introduced the “Directive on Green Claims” – a set of new regulations requiring companies to provide evidence and substantiation of their environmental claims and labels. The new rules aim to safeguard consumers from greenwashing and ensure that claims made by companies are reliable and verifiable.
The directive targets areas such as explicit claims made by businesses, covering all voluntary statements about environmental impacts, aspects, or performance of products, services, or the business itself. The directive sets out minimum requirements for companies to substantiate, verify, and communicate their green claims. Companies must ensure that their voluntary environmental claims are independently verified and proven with scientific evidence.
Additionally, the new rules address the proliferation of private environmental labels, as new schemes must be approved by the EU and demonstrate greater environmental ambition than existing ones. The Commission found that over half of the green claims made by EU companies were misleading or vague, and 40% were entirely unsubstantiated.
Frans Timmermans, Executive Vice-President for the European Green Deal, said:
“Green claims are everywhere: ocean-friendly t-shirts, carbon-neutral bananas, bee-friendly juices, 100% CO2-compensated deliveries and so on. Unfortunately, way too often these claims are made with no evidence and justification whatsoever. This opens the door to greenwashing and puts companies making genuinely sustainable products at a disadvantage.”
The directive aims to combat these issues and ensure that companies making genuinely sustainable products are not disadvantaged. The proposed rules do not apply to businesses with fewer than 10 employees and less than €2 million in revenue.
In conclusion, the new proposed rules by the EU are a step towards greater consumer protection from greenwashing practices. The directive ensures that businesses provide reliable and verifiable environmental claims, providing consumers with more clarity and quality information to choose environmentally friendly products and services. By addressing the proliferation of private environmental labels, the directive aims to prevent consumer confusion and distrust. Companies making genuine efforts to reduce their impacts on nature, resource use, climate emissions, or pollution will be rewarded. The proposed rules are a positive step towards creating a more transparent and sustainable marketplace for both businesses and consumers.
Biden's Climate Plan Takes Shape: $250 Million Funding Allocated for Energy Conservation in Federal Buildings
The Biden administration has announced a $250 million funding allocation to the Assisting Federal Facilities with Energy Conservation Technologies (AFFECT) program. The move is designed to help federal agencies to meet net zero building projects as part of the President's aim to reduce US carbon emissions by 2050. The announcement follows an executive order signed in December 2021 by the President, which set targets for federal government agencies to achieve a net zero building portfolio by 2045. Buildings account for a significant proportion of global greenhouse gas emissions, and federal buildings are a significant part of that.
The AFFECT program will provide funding for federal agencies for projects including energy and water efficiency upgrades to both new and existing federal buildings. Funding will also be provided for other initiatives such as efficiency and conservation improvements, electrification, on-site clean energy generation, and sustainable design. The funding for the program will be allocated from the Biden administration’s Bipartisan Infrastructure Law.
U.S. Secretary of Energy Jennifer M. Granholm said that the U.S. Government agencies are the largest energy consumers in the country, and by leveraging the significant investments in President Biden’s Investing in America agenda, the Federal Government will lead by example. The program will show that everyone from homeowners to huge factories can conserve energy, switch to cleaner sources, and save taxpayers money.
White House Council on Environmental Quality Chair Brenda Mallory added that this investment will help the Federal Government to achieve its ambitious sustainability goals, create good-paying jobs, lower energy costs, and build healthier communities
The move to reduce carbon emissions in federal buildings has been welcomed by many as a positive step towards meeting the US's environmental targets, whilst also setting an example for homeowners and businesses to follow.
Climate-Resilient and Inclusive Livelihoods: World Bank Commits $82 Million to Congo
The World Bank has approved an $82 million project to support the Climate-Resilient and Inclusive Livelihoods Project (ProClimat Congo) in the Republic of Congo. The project will include a $70 million loan from the International Bank for Reconstruction and Development (IBRD) and a $12 million grant from the Global Partnership for Sustainable and Resilient Landscapes.
ProClimat Congo aims to improve livelihoods in targeted communities by empowering them to create and improve resilient livelihoods through sustainable and resilient agricultural production and value chains. The project will strengthen landscape management, foster sustainable use of natural resources, and conserve ecosystems while managing climate risks, particularly flooding and droughts.
The project will reach about 562,000 beneficiaries, including women, ex-combatants, indigenous people, youth, and people with disabilities, in three distinct landscape areas in the North, Center, and South regions. The three landscape areas selected include protected areas at risk of agricultural encroachment and poaching and districts that suffer from high levels of fragility and exclusion.
The project will bring 25,000 hectares under sustainable and resilient agriculture practices and 1.2 million hectares under sustainable landscape management practices. Over 23,000 people are expected to benefit from livelihood activities in agriculture, community forestry, non-timber forest products, and ecotourism.
“Reconciling resilient agriculture with sustainable natural capital management is essential in order to take full advantage of the opportunities that Congo’s rich natural resources can provide to the economy and people,” said Korotoumou Ouattara, Resident Representative of the World Bank in the Republic of Congo
The ProClimat Congo project will not only address climate change but also improve the country's economic resilience by boosting agriculture and promoting sustainable use of natural resources.
Japan's Cosmo Energy Holdings to Invest $3.2 Billion in Green Energy in Next Three Years
Cosmo Energy Holdings Co Ltd, Japan's third-largest oil refiner, will invest $3.2 billion in the next three years, with 30% of the amount to be allocated in green power and energy such as sustainable aviation fuel (SAF). The investment will be part of a new three-year business plan, with 100 billion yen ($ 760 Million) to be spent on a green electricity supply chain, including 83 billion yen on wind power, and 40 billion yen to be used on next-generation energy, including 25 billion yen on SAF.
Cosmo's Senior Executive Officer, Shigeru Yamada, announced that the company expects domestic demand for petroleum products to continue to fall 2-3% per year and the pace of gasoline demand to drop faster from around 2030 due to the rapid penetration of electric vehicles. "So, we are increasing our spending in green power and energy," he said.
The company has set a goal of a cumulative pay-out ratio of at least 60% for the next three years, compared to 22% in the past five years, while setting a minimum dividend payment of 200 yen per share. Cosmo also plans to invest 280 billion yen ($2.14 USD billions) on its mainstay oil business, including oil development and petrochemical.
The investment comes after City Index Eleventh, a Japanese fund backed by veteran activist investor Yoshiaki Murakami, raised its stake in Cosmo to nearly 20% by early January, requesting the company to improve shareholder returns and spin off its renewable energy segment. The company believes the value of its renewable energy unit could be maximized if it remained within its group, which already has sales and power supply adjustment functions.
In conclusion, Cosmo Energy Holdings' investment in green energy and sustainability initiatives is an essential step towards reducing the country's reliance on petroleum products and transitioning towards a sustainable future. The investment not only benefits the environment but also enhances shareholder returns and business operations.
PRI urges policymakers to harmonise stewardship frameworks
The Principles for Responsible Investment (PRI) has released a new report that calls for greater coherence and alignment among global stewardship codes and regulations. The report, titled “Stewardship in a changing world: policy coherence and investor action”, analyses the current state of stewardship practices and policies across 50 markets and identifies key areas for improvement.
The report states that:
Stewardship is a key mechanism for investors to influence corporate behaviour on environmental, social and governance (ESG) issues and contribute to positive outcomes for society and the environment.
However, stewardship policies and practices vary widely across markets, creating confusion, inconsistency and inefficiency for investors and companies.
The PRI proposes a set of principles and recommendations for policymakers to establish coherent and effective stewardship frameworks that are aligned with international standards and best practices.
The PRI also encourages investors to adopt a more proactive and holistic approach to stewardship that goes beyond voting and engagement to include integration, collaboration, escalation, and disclosure.
The report concludes that stewardship is a powerful tool for investors to drive change and create value, but it requires more support and coordination from policymakers and regulators. By harmonising stewardship frameworks and promoting investor action, policymakers can foster a more sustainable and resilient financial system that benefits all stakeholders.