Public International Law Key Insights: Climate & Sustainability

December 7, 2023

The Council of the European Union adopted its position (or "general approach") on the draft proposal regulation for the Net-Zero Industry Act. The main goal of this proposal is to speed up the use of essential technologies for achieving climate neutrality, leveraging the single market to reinforce Europe's economic stability and competitiveness.

The Net-Zero Industry Act is one of three major components of the Green Deal Industrial Plan, along with the Critical Raw Material Act and electricity market design reform. The Net-Zero Industry Act aims to create a predictable and simplified regulatory environment to boost investments in key products, essential for achieving the European Union's ("EU") climate neutrality objectives. The Net-Zero Industry Act outlines measures, such as easing permit-granting procedures and prioritizing strategic projects, aiming to facilitate market access for strategic technology products and bolster the skills of the European workforce.

The Council of the EU's general approach of the Net-Zero Industry Act includes enhancements, such as expanding the scope of application and clarifying rules for permit-granting. It also promotes research and innovation, adjusting the list of strategic net-zero technologies to include nuclear and sustainable alternative fuels, thus emphasizing member states' autonomy in determining their energy mix. The Council of the EU's position also advocates for streamlined permitting procedures for strategic net-zero technologies and supports the concept of net-zero acceleration areas to identify synergies during the permitting process.

In light of the Council of the EU's general approach, it is now set to negotiate with the European Parliament, which adopted its stance on November 21, 2023. These discussions aim to swiftly finalize the Net-Zero Industry Act, reinforcing Europe's commitment to a sustainable and competitive future, in line with the Green Deal Industrial Plan. This legislative initiative is crucial as Europe transitions to climate neutrality, underscoring the importance of innovation and strategic investment in green technologies.

November 30 - December 12, 2023

The 28^th United Nations Climate Change Conference ("COP 28"), held in Dubai from November 30, 2023 to December 12, 2023, was a significant event for global climate action, attracting over 85,000 attendees including more than 150 Heads of State. COP 28 focused on accelerating the transition towards a sustainable future, emphasizing the urgent need for transparent and ambitious national climate plans that align with the goal of limiting global temperature rise to 1.5 degrees Celsius.

COP 28 was particularly notable for concluding the first global stocktake under the Paris Agreement, assessing international efforts in combating climate change and providing a foundation for countries to strengthen their climate plans by February 2025. The stocktake revealed a concerning slow pace in all areas of climate action, from emission reductions to securing financial and technological support for vulnerable nations. In response, the stocktake called for significant increases in renewable energy capacity – aiming to triple it by 2030 – and for doubling improvements in energy efficiency.

Additionally, it emphasizes the need to rapidly reduce coal power that is not captured and stored, eliminate inefficient fossil fuel subsidies, and facilitate a fair and orderly transition from fossil fuels, with developed countries taking the lead.

A groundbreaking development at COP 28 was the formal recognition of the need to phase out fossil fuels – a first in COP history. This declaration establishes a definitive course for future energy policies and highlights the urgency of addressing the climate crisis. Moreover, on its first day, the conference established a new funding mechanism to address loss and damage from climate impacts, securing pledges totaling over USD 600 million. The conference also established targets for the Global Goal on Adaptation and underscored the link between climate action and biodiversity conservation.

The outcomes of COP 28 lay the groundwork for future climate conferences, ensuring continued progress towards global climate goals.

February 5, 2024

On February 5, 2024, the Council and Parliament of the European Union ("EU") announced a provisional agreement on a new regulation for Environmental, Social, and Governance ("ESG") rating activities. The new regulation of the ESG rating activities aims to boost investor confidence in sustainable products by enhancing the reliability and transparency of ESG ratings.

ESG ratings assess the sustainability impact of companies and financial instruments, evaluating their environmental risks and societal contributions. ESG ratings are becoming increasingly influential in guiding investment decisions and capital market operations.

Under the EU Council and Parliament agreed regulations, ESG rating providers must obtain authorization from the European Securities and Markets Authority ("ESMA") and adhere to stringent transparency standards regarding their rating methodologies and sources of information. ESG rating providers outside the EU, seeking to operate within the EU, must secure an endorsement based on quantitative criteria, or inclusion in an EU registry through an equivalence decision, in addition to ESMA authorization. The new regulations aim to improve the reliability and comparability of ESG ratings by increasing transparency and integrity among providers and minimizing conflicts of interest.

The provisional agreement specifies which ESG ratings fall under the new regulations, outlining exclusions and defining the operational scope within the EU. Furthermore, the provisional agreement allows for either separate or combined ESG ratings with clearly defined weightings for environmental, social, and governance factors.

Pending final approval from the EU Council and Parliament, the new regulations are set to be implemented eighteen months after their formal adoption. This regulatory step is crucial for aligning European markets with global sustainability goals and creating a transparent, reliable environment for sustainable investments.