The Sillion Briefing 01.11.2024
In this Briefing...
Reeves' Budget – CSRD focus areas
TNFD adoption surge – Transition finance review
Nature targets approved – Drinks companies alliance
COP16 cash shortage
Government
Green not Reeves’ budget focus – but CBAM on cards for 2027
Climate and sustainability weren’t front and centre of UK Chancellor Rachel Reeves’ budget, with health and education receiving the bulk of attention – funded by significant tax rises. Indeed, Reeves promise to become Britain’s ‘first green chancellor’ was challenged as early as February this year as an initial financial commitment had to be rolled back.
Of note in the budget documents is a confirmation that the UK’s Carbon Border Adjustment Mechanism (CBAM) is still on course to come into effect from 1st January 2027. This is a carbon levy which applies a tax on carbon intensive goods imported from countries without an equivalent carbon price – the goal being to prevent entities from outsourcing production of high carbon goods to regions with less stringent climate policies (known as carbon leakage). This follows the steps of the EU’s pioneering CBAM, creating legislative parity – although the EU’s will come in a year earlier, from 2026. The UK’s will initially address aluminium, cement, fertiliser, hydrogen and iron and steel, with glass and ceramics unaffected for now.
In transport, alongside the attention-grabbing private jet tax, Reeves extension of the 14-year freeze in fuel duty received some criticism for the policy’s contribution to UK emissions. The Warm Homes Plan has received an additional £3.4bn in funding, which will be split between fuel poverty and energy efficiency support, and the boiler upgrade scheme, which supports the rollout of heat pumps.
Additionally, the Chancellor made commitments to support EV rollout, in line with the existing target of ending the sale of petrol and diesel cars by 2030. Reeves has extended EV incentives for company car fleets in the long term, maintained other tax incentives, and pledged £200m for EV charging infrastructure.
On energy the budget provides for:
£2bn for 11 hydrogen projects across the UK
£14.1bn for the Department for Energy Security and Net Zero (DESNZ) in 2025-6, a 22% increase
£2.7bn to continue the development of Sizewell C nuclear power station, with the long process of reaching a Final Investment Decision (FID) still ongoing.
Disclosure
ESMA to get tough on materiality assessments and Taxonomy
The European Securities and Markets Authority (ESMA) – the EU’s market watchdog – has published its annual enforcement priorities. These are primarily in reference to the EU’s Corporate Sustainability Reporting Directive (CSRD) framework, with which many corporates are currently grappling. The regulator has publicly specified three areas where corporations may expect extra scrutiny:
Materiality assessments,
‘Scope and structure’ of reports – meaning a consistent scope of reporting across both financial and sustainability reporting, and sufficient attention towards value chain impacts
And EU Taxonomy alignment, which companies are expected to be stringent in reporting against
On materiality assessments, one of the areas where companies most stand to gain strategic insights on their own business, ESMA is emphasising that companies should stick closely to the European Financial Reporting Advisory Group’s (EFRAG) guidance on assessments, and make detailed disclosures on the process they have undertaken.
Overall, these areas of focus underline what we already know – that the EU is keen to see companies tie their sustainability reporting to financial reporting more closely, that compliance with the CSRD will be subject to strict scrutiny despite the Directive’s depth, and that materiality assessments are viewed as the cornerstone of reporting (and, in Sillion’s view, of a strong sustainability strategy).
If you’re feeling overwhelmed by CSRD, would like to hear about our best-in-class materiality process, or are already working on it but would like to discuss a particular aspect of it – you aren’t alone, and we’re here to help. Reply to this email or contact hello@sillion.co.uk and we can have a no-commitments conversation or answer your questions.
TNFD sees 57% surge since January
While progress on nature at COP16 has been sluggish (see our report), there’s some promising news from the Taskforce on Nature-related Financial Disclosures (TNFD) – which has emerged as one of the bright stars of reporting this year. 502 companies have now committed to making TNFD disclosures, a 57% increase since January of this year. While disclosures don’t automatically translate into action on nature, this is a strong sign that companies are increasingly focusing on the area. If you’d like to talk about TNFD, unpick the framework, or become an adopter yourself, be in touch with Sillion and we can discuss your next steps.
Transition finance review backs Transition Plans
The somewhat clumsily named ‘Transition Finance Market Review’, a government review launched at the start of this year and run by ex-Linklaters lawyer Vanessa Harvard-Williams, has now published results. The review noted that credible transition plans, ideally based on the Transition Plan Taskforce’s framework, are a pre-condition for the development of a credible market for transition finance. Transition plans will shortly be made mandatory for UK companies, with the outcomes of the Review pointing towards the importance these plans will likely have for attracting sustainability-focused investment.
We’re saying it a lot this Briefing – but again, be in touch if you’d like to talk transition plans! We were members of the TPT sandbox around the launch of the framework, so we know a thing or two (we hope you’ll agree).
One Number: €4.8bn
Amount pledged by the EU to fund 85 net zero projects across 18 countries. Funds were raised, in broad, through the Emissions Trading Scheme (ETS), the EU’s current carbon pricing mechanism. This funding round includes projects of different scales, from large projects right down to pilots, addressing cleantech, manufacturing, heating and more.
Corporate
Science-based Targets for Nature (SBTN) – Kering, GSK and Holcim adopt
The three companies have become the first businesses to set verified science-based targets for nature, following years of work and multiple pilots. As nature receives increasing focus from corporates, we may eventually see the SBTN fill a similar role to the SBTi, but for nature rather than emissions. The targets involve ambitious commitments, with Kering (parent to Gucci and Balenciaga) pledging to reduce land footprint by 3% by 2030, adopt regenerative agriculture on 695,000 hectares, and stop sourcing from suppliers which convert ecosystems to different uses.
Ten of the world’s biggest drinks makers launch supply chain alliance
Ten drinks companies, namely – deep breath – Bacardi, Carlsberg, Diageo, Heineken, Molson Coors, Pernod Ricard, Coca-Cola and Whyte & Mackay, have launched the Refresh Alliance, which has the goal of uniting firms from across the industry to reduce barriers to renewable energy adoption. The aim is to have companies speak with smaller suppliers within their large global supply chains, with the aim of helping them procure clean energy. This will have the knock-on effect of reducing the larger companies scope 3 emissions – a nice win-win. It’s great to see this kind of industry-wide collaboration.
Events
COP16 – countries raise millions not billions
COP16, the annual summit on biodiversity which this year was held in Cali, Colombia, ends today (November 1st). So far, progress towards the financial targets of the summit to fund conservation and other efforts has been slow, with countries unlikely to reach a major new funding agreement. At last year’s summit countries agreed to create the Global Biodiversity Framework Fund, but this has only raised around $400 million this year, well short of the $20bn pledged for developing nations by 2025 from wealthy countries. Nature appears to be deprioritized for many nations, with 158 countries yet to submit formal plans on how they are set to meet targets.
Calendar
2024
COP: COP16 Biodiversity Conference in Cali, Colombia – 21st October-1st November 2024
COP: COP29 in Baku, Azerbaijan – 11th-22nd November 2024
SBTi: Draft Corporate Net-Zero Standard (CNZS) V2.0 public consultation – Q4 2024
ESMA: ESMA Guidelines on fund names using ESG or sustainability-related terms to apply to funds – 21st November 2024
2025
CSRD: Undertakings previously subject to the EU's NFRD must report ESRS in their Annual Report this year (i.e. FY24 reporting) – 1st January 2025
UK SRS: UK Sustainability Reporting Standards (SRS) published – Q1 2025
UK SDR: UK Sustainability Disclosure Requirements (SDR) rules on labelling of sustainability-focused funds to come into force – April 2025
ESMA: ESMA Guidelines on fund names using ESG or sustainability-related terms to apply to funds which existed before the rule change – 21st May 2024
London Climate Action Week 2025 – 21st-29th June 2025
COP: COP30, Belém, Brazil – November 2025
SBTi: Corporate Net-Zero Standard (CNZS) V2.0 to come into force – by end of 2025
2026
CSRD: All large undertakings must report ESRS in their Annual Report this year (i.e. FY25 reporting). In CSRD parlance, a 'large undertaking' is a company exceeding two of the three following thresholds: Balance sheet total €25 million, net turnover €50 million, 250 employees – 1st January 2026
UK SRS: UK listed companies need to begin work on their IFRS Sustainability Standards (ISSB Standards) and transition plan reporting, in order to be ready for next year
2027
UK SRS: UK Sustainability Reporting Standards (SRS) to become mandatory for FY26 reporting, making the IFRS Sustainability Standards S1 and S2 (the ISSB Standards) and transition plan reporting mandatory – FY26 reporting
CSRD: Listed SMEs must report ESRS in their Annual Report this year (i.e. FY26 reporting). In CSRD parlance, an SME is a company which exceeds only one (or none) of the following thresholds: Balance sheet total €25 million, net turnover €50 million, 250 employees – 1st January 2027
CSDDD: The EU Corporate Sustainability Due Diligence Directive (CSDDD) will start applying to very large companies (over 5,000 employees and over €1.5 billion turnover) – 26th July 2027
2028
CSDDD: The EU Corporate Sustainability Due Diligence Directive (CSDDD) will start applying to large companies (over 3,000 employees and over €900 million turnover) – 26th July 2028
2029
CSRD: Non-EU undertakings with EU branches / subsidiaries must report ESRS for the previous business year. This applies if the non-EU undertaking has a net turnover generated within the EU above €150 million, and if it has either subsidiaries that are large undertakings or SMEs (CSRD definitions of these are given in the calendar above) with securities traded on an EU market; or if it has branches with net turnover generated in the EU above €40 million – 1st Jan 2029
CSDDD: The EU Corporate Sustainability Due Diligence Directive (CSDDD) will start applying to all remaining companies within its scope (over 1,000 employees and over €450 million turnover) – 26th July 2029
Questions on the above? Contact alexander.bridge@sillion.co.uk with any queries, comments or feedback.