International Court of Justice's Climate Opinion poses potential legal dangers to European Union's Omnibus Proposals
In the realm of sustainable finance, various nations are taking strides to address climate change and promote green development. Here are some key developments from around the world.
Japan
The United Nations Environment Programme (UNEP) is spearheading the development of Japan's governance patterns for sustainable products and services. This initiative aims to fill the gap created by the lack of sustainable governance patterns in the country. However, it remains uncertain which government body will take the lead in creating a national taxonomy. The United Nations has recommended the Japanese Financial Services Agency to play a pivotal role in this endeavour.
Egypt
Egypt is launching a new platform for green financing to prepare for the European Union's carbon border adjustment mechanism (CBAM), which will be fully implemented in 2026. Industry players in Egypt are cautiously optimistic about the new platform but emphasize the need for developing internationally certified emissions data regimes to pass European compliance checks. A report from Menafem and Greenpeace has warned against an exclusively export-focused green development strategy in Egypt. The report argues that green finance initiatives must address domestic energy insecurity and environmental damage alongside export growth.
International Developments
The International Court of Justice's advisory opinion on climate change has increased the likelihood of legal challenges to the EU's omnibus proposals. The ICJ opinion confirmed that countries have a legal obligation to enforce emissions cuts, including in the private sector. The European Central Bank (ECB) is poised to issue its first-ever fines for climate risk management failures, with Credit Agricole among the institutions facing potential penalties. The ECB hopes to demonstrate that climate supervision has teeth, and financial institutions that do not take their obligations seriously may face regulatory consequences.
Meanwhile, several neighbours including China, Indonesia, and the Philippines all have clear government-backed definitions of what counts as "green" or "sustainable". A new study in the Journal of Corporate Finance finds that Chinese firms' first-time green bond issuance lowers their average cost of bank loans by 66 bps, compared to just 55 bps for first-time issuance of non-green bonds. Furthermore, new research from the European Central Bank shows that climate litigation risk is being priced into corporate lending, with firms involved in climate lawsuits facing higher interest rates.
United Kingdom
The Universities Superannuation Scheme (USS) is focusing on creating a policy environment where low-carbon action becomes financially rational for businesses. Simon Pilcher, CEO of the USS Investment Management, stated that the pension fund is increasing climate lobbying efforts. The USS's latest climate disclosure report shows a 51% decline in portfolio emissions between 2019 and 2024.
In the context of Japan, the lack of a sustainable taxonomy makes it the "weakest point" in Japan's sustainable bond and loan market. The approach to transition finance in Japan has been fragmented across different government departments. The USS is advocating for a more cohesive and comprehensive approach to sustainable finance.
In conclusion, sustainable finance is gaining momentum worldwide, with various nations taking different approaches to address climate change and promote green development. The challenges and opportunities are diverse, and it is essential to continue the dialogue and collaboration to drive meaningful change.
