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Major developments in disclosure of risks relating to sustainability have been announced in the past week.

In particular, the United Kingdom will require most large firms and financial institutions to disclosure how they will be impacted by the risks and opportunities arising from climate change. And the IFRS Foundation announced the creation of a special body to crack down on “greenwashing” and to promote consistent, high-quality disclosures relating to sustainability.

Key takeaways

These developments accelerate a trend towards mandatory and comparable disclosures relating to climate risk and other sustainability issues.

These are occurring in a context where we are seeing increasingly successful litigation that seeks to force corporations and governments to disclose how they will be impacted by climate change.

In more detail

The third day of this year’s international climate negotiations — COP26 — focused on finance. Parties and other attendees made many announcements relating to finance, including the expansion of groups committed to ending financing for new unabated coal projects, and a very large group of investors with a collective USD 130 trillion committed to financing the transition to net zero by aligning their investment portfolios with that goal.

From a legal perspective, two recent developments are especially worthwhile:

  • The continued trend to mandatory (as distinct from voluntary) disclosure of climate-related financial risks

The continued crackdown on low-quality or incomparable sustainability claims and greenwashing.

Climate risk disclosures

The United Kingdom has recently announced that from 6 April 2022, more that 1,300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis. These disclosures will be in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), which has become the gold standard for disclosing climate risks.

The measure will apply to many of the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and GBP 500 million in turnover.

This announcement brings the UK in line with a small but growing group of jurisdictions that require such disclosures from various entities. These include New Zealand and France (via legislation), along with numerous other jurisdictions where regulators have made clear their view that climate risks should be manage as financial risks within existing management and disclosure frameworks.

Disclosure in accordance with TCFD is an iterative process, with entities expected to grow more sophisticated in their approach to identifying and assessing climate risks with each reporting season. The method strongly encourages the use of scenario analysis to assist in identifying risks and opportunities arising from climate change in all areas of an entity’s operations.

Baker McKenzie views the shift from voluntary to mandatory reporting of such risks as a key trend to monitor in many jurisdictions over the short and medium term.

Standards for sustainability disclosures

The IFRS Foundation announced the creation of a new entity to create a new set of “standards”, or norms, that companies must follow as they make climate-related disclosures. The new body — the International Sustainability Standards Board (ISSB) — is part of a response from global securities regulators to the concern that it is difficult for investors and the public to understand and usefully compare the disclosures as they are currently made. This is because of the existence of various standards and methods, which can produce confusing information that is hard to use. The new body was established with support from the International Organization of Securities Commissions (IOSCO).

The new standards will seek to regularize disclosures globally. This should be seen in the context of existing efforts to synchronize standards for disclosing a wide range of sustainability disclosures, most notably in the European Union, with efforts underway by China to harmonize its disclosures with the EU measures.

Another significant goal of the ISSB is to reduce “greenwashing”, where entities make claims about their climate or sustainability credentials that are either misleading or even false.

Regulators are increasingly focused on the problem of greenwashing because it can undermine efforts on climate mitigation, particularly where investors and consumers are misled as to the true climate impacts of a particular product or service.

These new standards come as we are seeing an increase in litigation relating to greenwashing. These suits can arise under consumer protection laws as well as laws prohibiting misleading and deceptive conduct.

While the measures are currently intended to be voluntary (that is, it will be up to each country to decide whether to implement the ISSB standards), there is also the possibility that IOSCO could formally endorse the new standards, meaning its members, who account for 95% of the world’s securities markets, would then be obliged to implement and enforce them.

This alert was prepared with the assistance of Sharona Coutts.

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Ilona Millar is a partner in the Environmental Markets team at Baker McKenzie's Sydney office. Ilona is an environmental and projects lawyer with a diverse range of experience in domestic and international climate change, carbon markets, environmental law and policy, and a strong background in all aspects of water management, planning and projects. She joined the Firm in 2008 from the Foundation for International Environmental Law and Development, and International Institute for Environment and Development, in London. Ilona regularly writes, teaches and presents on environmental topics — she has lectured on environmental law, environmental markets and international climate change law at UNSW, Sydney University and University College London and for the past six years has co-coordinated the international climate change law course at ANU where she is a visiting fellow at the College of Law. Ilona's extensive pro bono work includes advising a number of developing country governments and non-government organizations on international climate change negotiations, and advising the Wentworth Group of Concerned Scientists on water and natural resource management law. She is listed among the best lawyers for Climate Change by Best Lawyers Australia 2016.


David Hackett advises senior management, legal departments and boards of major corporations and nonprofits on compliance, risk, environmental and sustainability matters. He has exceptional experience managing US and international compliance and environmental projects, including the evaluation and development of effective compliance and sustainability programs. He also has extensive experience litigating major civil and criminal environmental matters. David sits on multiple nonprofit boards and additionally advises many civic and nonprofit organizations across the globe. Following his tenure with the Environmental Enforcement Division of the US Department of Justice, David joined the Firm where he has played a formative role in the establishment of the Firm's compliance, environmental, climate and sustainability practices. At Baker McKenzie, David has served as the managing partner of North America, a member of the Global Executive Committee, and Chicago office managing partner. He has also been the North America Chair of both the Compliance Practice Group and the Banking, Finance and Major Projects Practice Group.

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