Analyses & Studies

Brexit and UK Environmental Law

In a joint session of the Climate Change & Sustainability and Brexit Forums, members heard about environmental frameworks once the UK leaves the EU

The Climate Change and Sustainability Forum organised a joint session with the Brexit Forum, welcoming Professor Charlotte Burns, Professorial Fellow in Sustainable Growth at the University of Sheffield and Martina Macpherson, Partner, SI Partners - President, Network for Sustainable Financial Markets and Visiting Fellow, Henley Business School.

The session was co-chaired by Richard Brown CBE, Chairman of the Franchise Advisory Panel for the Department for Transport and former CEO and Chairman of Eurostar, and Jean-Philippe Verdier, Founding Partner, Verdier & Co. Corporate Advisory; and Brexit co-chairs Angela Hepworth, Corporate Policy and Regulation Director, EDF Energy, and Neil Sherlock CBE, Partner, Corporate Affairs, PwC.

Disclosure: challenges and opportunities

Martina Macpherson, Partner, at SI Partners - Sustineri, reported that there is an increasing attention on the way companies, policy makers and investors, identify, evaluate and integrate environmental, social and governance factors (ESG) into decision-making. ESG issues have moved from the niche to the core and generally speaking, there is a move from voluntary ESG disclosure and reporting towards Governance / Stewardship Codes and mandatory disclosure of extra-financial information around ESG factors and taxonomies.

Sustainability is also becoming integrated into business and investment strategies: more than 90 percent of the world’s largest companies report through the Global Reporting Initiative (GRI). A total of almost 1,7k financial services firms have signed the Principles for Responsible investing, and more than 9k companies have signed the UN’s Global Compact (UNGC), a normative ESG framework for corporate compliance with environmental protection, human and labour rights and anti-bribery and corruption policies and practices. Meanwhile, AUMs in sustainable investment strategies have grown to $23tr according to the Global Sustainable Investment Alliance (2016).

Historically, the UK has been at the forefront of developing and implementing a series of mandatory company governance and reporting (transparency) laws, most notably the UK Companies Act (2006) which mandates companies listed on the stock exchange in the UK to disclose ESG considerations; the UK Bribery Act (2010), and the Modern Slavery Act (2015).

France has tightened its disclosure rules and implemented Article 173 French Energy Transition Law (2016) which mandates climate-change related reporting for companies and investors. Meanwhile, policy makers and regulators in and across the EU are stepping up. For example, EU Directive 2014/95 will regulate disclosure of non-financial corporate information and diversity in EU member states. By next year, this reporting framework gives companies to the means to disclose relevant information in the way they consider most useful and companies may use international, European or national guidelines such as UNGC, the OECD guidelines, or ISO standards to produce their statements.

Environmental impacts of Brexit

Professor Charlotte Burns of the University of Sheffield reported that as the environment is a devolved issue, it therefore raises questions about relations between the devolved nations. Scotland has said it will not consent to the EUWB, which points to an imminent constitutional crisis over the relationship between the devolved nations and the UK government.  

There is also on-going concern that government will water down standards despite Michael Gove’s commitment to a green Brexit. Key issue here will be the nature of the trade deal struck with EU and other states. There is also concern about the governance gap: what will replace the role of monitoring and enforcement currently performed by the Commission and the CJEU.

Defra is the second most affected government department by Brexit, but it has also seen its number shrink in recent years. There are moves to recruit more staff but expertise and resources will be an on-going problem.