Of Note in December: China’s Green Bond Market, New EU Reporting Directive and Shareholder Democracy

At King & Spalding, we are advising our clients on ESG issues every day. We are tackling our clients’ most pressing ESG matters and doing so while collaborating across industries and practice areas. Our attorneys in Corporate, Finance and Investments, Government Matters and Trial and Global Disputes are actively involved and ready to help our clients in this fast-moving area. Below are a few of the ESG issues, topics and developments that we have been tracking so far this month.

1. Digital technologies and the green economy: Despite overarching objectives to reduce greenhouse gas emissions, there are contrasting narratives on the net effect of digital technologies on energy consumption. A report by EIT Digital found that the lack of an agreed framework for measuring and modelling, combined with the wide variation in energy use for digital technology across economic sectors, has resulted in opposing views. The report concludes that although a reduction in energy consumption should be pursued, digital technologies account for less than 10% of total energy consumption.
2. KPMG (UK) allegedly missed red flags: In recent court filings, Carillion’s liquidators have claimed that KPMG LLP (UK) failed to act as a reasonably competent auditor. It is alleged that KPMG did not identify misstatements that would have led Carillion’s management to forgo certain actions, such as paying out dividends worth approximately £210 million over three years and incurring nearly £1.1 billion in losses as the company continued to trade whilst it should have been deemed insolvent. KPMG has said that relevant audit information was concealed which prevented the firm from identifying red flags. A KPMG spokesman said that “responsibility for the failure of Carillion lies solely with the company’s board and management.”
3. China’s $300 billion green bond market: China has created one of the largest green bond markets in the world, comprised of 1,029 bonds issued by 470 entities, with a total value of $300 billion. Given China’s goal of reaching net-zero by 2060, questions have arisen around gaps in disclosure and transparency regarding these investments and whether they are having the desired impact. Although around 46% of the bonds state that at least some of the funds are raised for renewable energy projects, a third of the bonds cite multiple purposes and 27% don’t identify any project category. This lack in clarity of purpose can deter investors, so the Chinese government has begun taking steps to align its standards with the rest of the world.
4. BlackRock backs more “shareholder democracy”: In a recent letter to clients, Larry Fink, the CEO of BlackRock, wrote that investors in its funds will choose how they vote in corporate elections. Fink explained that the “next generation of investors will increasingly demand to be heard” as they continue to push for a say in how companies approach social and environmental goals. This step addresses concerns that large money managers hold too much sway over publicly traded companies, but increased shareholder power may also force politics-style campaigns to be run within companies.
5. EU adopts new reporting rules for multinationals: The European Union’s parliament has adopted the Corporate Sustainability Reporting Directive (CSRD) which requires businesses to make regular public disclosures on their societal and environmental impact. Under the CSRD, companies must submit detailed information which will be subject to independent auditing and certification. The new rules will apply to all large companies, including non-EU companies with a turnover of over €150 million euro in the EU. The CSRD is expected to start applying between 2024 and 2028.