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spring 2023 archive

Week 14: Class on April 20
The final class session will be a review session.

Here is a Sample Exam.

I plan to discuss this exam in class. And we can also discuss any questions you may have about the material.

You will be able to select any 8 hour period during the entire exam period in which to answer the exam. It is an exam rather than a research paper. Please answer the questions using the course materials.

I will answer questions on the course materials by email or zoom any time until 9pm on April 27th.

In drafting the sample exam I avoided the questions I had given you as examples previously (the 2 questions on pension fund investment are slightly different – 1 focused on environmental factors and the other on ESG or sustainability). I leave both questions here to show that the same sort of issue could be presented in a question in slightly different ways.

I said I would give you some ideas about what the final exam is likely to look like. It’s a 2 credit class so I will probably ask you to write 2 essays, and it would make sense to write on 2 different topics. I will give you a choice of questions.

So here are some examples of the sorts of questions I might ask based on the material we have studied so far (this list is a work in progress):
1. Write a critical assessment of 2 of the readings you have studied in this class.
2. Do you think that pension fund fiduciaries should be able to take environmental factors into account in making investment decisions? Explain your reasoning.
3. Is it reasonable to expect banks and insurance companies to work to ensure that financial services remain affordable in the context of climate change?
4. Assess the advantages and disadvantages of the SEC’s Proposed Climate Disclosure Rules [and/or perhaps in due course the final rules].
5. Do you think that pension fund fiduciaries should be able to take ESG factors or sustainability more specifically into account in making investment decisions? Give reasons for your answer.
6. How would you define greenwashing?
7. In what ways can finance and financial institutions respond effectively to the challenges of climate change?
8. What are the arguments for green bond standards and other standards relating to climate finance being mandatory rather than voluntary?

Assignment for week 13 (class on April 13): Climate Litigation
Isabella Kaminski, An ocean of opportunities? Climate litigation is doing so well it’s now being eyed by investors (Feb. 1, 2023)
Standard & Poors, Climate Change Litigation: The Case For Better Disclosure And Targets (Oct. 6, 2021)
Javier Solana, Climate litigation in financial markets: a typology, 9(1) Transnational Environmental Law 103-135 (2020)
Joana Setzer, Harj Narulla, Catherine Higham & Emily Bradeen, Climate change law in Europe: what do new EU climate laws mean for the courts? (Mar. 2023)

Additional material:
Joana Setzer, Harj Narulla, Catherine Higham & Emily Bradeen, Climate Litigation in Europe (Dec. 2022)

Assignment for Week 12 (Class on April 6)
Sustainability, Accountability, Audit: ESG Ratings and Data Providers
Natwest, ESG ratings and benchmarks (Natwest identifies how it performs under a number of different ESG ratings systems)
Heather Lovell & Donald Mackenzie, Accounting for Carbon: The Role of Accounting Professional Organisations in Governing Climate Change, 43:3 Antipode 704 (2011) (you can access this article through the UM library e-resources)
IOSCO, Report on International Work to Develop a Global Assurance Framework for Sustainability-related Corporate Reporting (March 2023)
HM Treasury (UK), Future regulatory regime for Environmental, Social, and Governance (ESG) ratings providers (Mar. 30, 2023)
ESMA, Call For Evidence on market characteristics for ESG Rating Providers in the EU (Feb. 2022)

Additional Reading (not required)
IOSCO, Environmental, Social and Governance (ESG) Ratings and Data Products Providers (Nov 2021)
OECD, ESG ratings and climate transition (Jun. 2022)
ESG Data and Ratings Working Group (DRWG) (an industry working group mandated by the FCA to develop a voluntary Code of Conduct for ESG data and rating providers)
Financial Services Agency (Japan), The Code of Conduct for ESG Evaluation and Data Providers (Dec. 2022)

Week 11 Assignment (class on March 30)
Green/Sustainable financing
Proposal for a Regulation on European Green Bonds, COM (2021) 391 final (Jul. 6, 2021) (document 1)
The World Bank Green Bond Process Implementation Guidelines
International Bank for Reconstruction and Development Global Debt Issuance Facility for issues of Notes with maturities of one day or longer, Prospectus (2021) (pages 1-17)
ICMA, The Green Bond Principles (GBP) 2021 (with June 2022 Appendix 1)
Asian Development Bank, Detailed Guidance for Issuing Green Bonds in Developing Countries (Dec. 2021)
The Chancery Lane Project (Start using climate aligned clauses in your contracts: “a collaborative initiative of international legal and industry professionals whose vision is a world where every contract enables solutions to climate change”). Please look at the Natwest case study, and the Green or Sustainability-Linked Lending Requirement.

Assignment for Week 10 (counting Spring Break as week 9): class on March 23
In thinking about asset management, in particular issues of disclosure to investors about whether managed funds meet criteria for sustainability, we began to think a bit about greenwashing (a phenomenon regulators say they are keen to prevent). The idea of a taxonomy to define what is sustainable is a component of the fight against greenwashing (subject to issues of definition in the taxonomy, such as natural has, nuclear energy and biofuels). I think it would be a good idea to try to get a more detailed idea of what it makes sense to think of as greenwashing. So here are some materials to help us think through some of the issues:

ESAs Call for evidence on better understanding greenwashing (Nov. 2022)
ASIC launches first Court proceedings alleging greenwashing (Feb. 28, 2023)
ASIC Information Sheet 271 (INFO 271), How to avoid greenwashing when offering or promoting sustainability-related products (Jun. 2022)
Carbon Market Watch, Corporate Climate Responsibility Monitor 2023 (Feb. 2023) (pp 1-68)
ClientEarth, UK financial regulator faces legal challenge over fossil fuel company’s climate risk disclosures (Feb. 16, 2023)
Proposal for a Regulation on European Green Bonds, COM (2021) 391 final (Jul. 6, 2021)

I also may discuss Financial Conduct Authority, Finance for Positive Sustainable Change, DP 2023/1 (Feb. 2023) (addressing how governance can be organized to promote sustainability- an issue which is relevant to the greenwashing problem to the extent that statements/representations about sustainability are not backed up by effective action to achieve sustainability).

Assignment for Week 8 (Class on March 9th)
Asset Management
Here are the readings for next week. To make the reading more manageable I have suggested specific pages to focus on in a couple of the documents. These readings will allow us to spend some time looking at the more international and EU aspects of regulation of climate finance. Firms have expressed unhappiness about the SFDR, in particular after the ESMA proposal in this list.
United Nations Principles for Responsible Investment, An Introduction to Responsible Investment for Asset Owners
Eurosif Responsible Investment Strategies
Lewis Davison, Fiona McNally and Charlotte North, ESG: EU Regulatory Change and Its Implications (Feb. 18, 2023)
EU Regulation on sustainability‐related disclosures in the financial services sector (SFDR) OJ L 317/1 (Dec. 9, 2019)
European Securities Markets Authority (ESMA) Consultation Paper on Guidelines on funds’ names using ESG or sustainability-related terms (Nov. 2022) (focus on pages 4-12)
IOSCO, Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management Final Report (Nov. 2021) (this is a long document: you may want to focus on the executive summary and Chapter 6 which contains recommendations)
Joseph Baines & Sandy Hager, From passive owners to planet savers? Asset managers, carbon majors and the limits of sustainable finance, Competition & Change (2022)

Assignment for Week 7 (Class on March 2):
Climate change and financial regulation: insurance
Insurance is more directly affected by climate change than other financial businesses because insurance companies underwrite risks (including risks relating to liability). But insurance companies are also affected by climate change as investors (noted when we discussed pension fiduciaries). At the same time, insurance raises some issues that are similar to those involved with banking: insurance products should not become unaffordable or unavailable (bluelining) because of climate risks. Insurance is regulated at the state level in the US, but, as with banking, there is some international harmonization of insurance regulation. And, as with banks, insurance companies vary in size from very large businesses to relatively small insurance companies.
Renee Cho, With Climate Impacts Growing, Insurance Companies Face Big Challenges (Nov. 3, 2022)
Alex Fredman, Regulators Should Identify and Mitigate Climate Risks in the Insurance Industry (Jun. 13, 2022)
NYDFS, Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change (Nov. 15, 2021)
Department of the Treasury, Federal Insurance Office Climate-Related Financial Risk Data Collection, 87 Fed. Reg. 64134 (Oct. 21, 2022)
California Department of Insurance Climate Change Working Group, Protecting Communities, Preserving Nature,and Building Resiliency (Jul. 2021)
UN Environment Program Finance Initiative, Principles for Sustainable Insurance

Assignment for Week 6 (Class on February 23
At the beginning of the next class I will see if you have any questions/comments you want to ask/make about the securities disclosure material. As I mentioned in class I do plan to spend some time later looking at what the EU is doing with respect to disclosure, probably mostly focused on asset management, but which has connections with the issuer disclosure issues. And the ESG Ratings and data products topic I included for later on will involve some of the issues with respect to data assurance we touched on. There are a lot of very technical issues in the climate finance area as we are beginning to learn.
Here is some material on banking to read for next week.
Climate change and financial regulation: banking
Because banks are so central to financial activity they are subject to regulation to ensure their safety and soundness, often described as prudential regulation. In addition to requiring that those who manage banks are fit and proper we subject individual banks to capital adequacy regulation, designed to protect the deposit insurance system (to prevent bank runs we insure retail deposits in banks so bank depositors do not have to worry about bank failure). And we worry about the financial system as a whole: systemic risks in the financial system which might cause financial crises.
Federal Reserve Board, Principles for Climate-Related Financial Risk Management for Large Financial Institutions, 87 Fed. Reg. 75267 (Dec. 8, 2022)
Basel Committee on Banking Supervision, Frequently asked questions on climate-related financial risks (Dec. 8, 2022)
NYDFS, Proposed Guidance for New York State Regulated Banking and Mortgage Institutions Relating to Management of Material Financial Risks from Climate Change (Dec. 2022)
Daniel O. Beltran et al, What are Large Global Banks Doing About Climate Change?, Board of Governors of the Federal Reserve System, International Finance Discussion Papers No. 1368 (Jan. 2023)
Mary Brooke Billings, Stephen G. Ryan & Han Yan, Climate Risk, Population Migration, and Banks’ Lending and Deposit-Taking Activities (October 10, 2022).

Additional Materials:
Basel Committee on Banking Supervision, Principles for the effective management and supervision of climate-related financial risks (Jun. 2022)
Financial Stability Board, Supervisory and Regulatory Approaches to Climate-related Risks: Final report (Oct. 13, 2022)
Federal Reserve, Pilot Climate Scenario Analysis (CSA) Exercise: Participant Instructions (Jan. 2023)
European Banking Authority, The EBA Roadmap on Sustainable Finance EBA/REP/2022/30 (Dec. 2022)

Assignment for Week 5 (class on February 16):
Securities law and climate related financial disclosures in the US
John C Coffee, Jr., The Future of Disclosure: ESG, Common Ownership, and Systematic Risk, Colum. Bus. L. Rev (2021)
Hannah Vizcarra, The Reasonable Investor and Climate-Related Information: Changing Expectations for Financial Disclosures, 50 Environmental Law Reporter 10106 (2020)
Outline of SEC Climate Disclosure Proposal
[SEC Proposed Rule, The Enhancement and Standardization of Climate-Related Disclosures for Investors 87 Fed. Reg. 21334 (Apr. 11, 2022)] [comments] [I am not requiring you to read this very long document]
Statements by Commissioners at the meeting on March 21 illustrate some of the differences of views about the proposal [and these are quite short]:
Gary Gensler, Statement on Proposed Mandatory Climate Risk Disclosures
Hester Pierce, We are Not the Securities and Environment Commission – At Least Not Yet
Alison Herren Lee, Shelter from the Storm: Helping Investors Navigate Climate Change Risk
Caroline A Crenshaw, Statement on the Enhancement and Standardization of Climate-Related Disclosures for Investors

Additional material [not required reading but I may discuss in class]:
EU, Corporate Sustainability Reporting Directive (Directive 2022/2464) OJ No. L 322/15 (Dec. 16, 2022).

Assignment for Week 4 (Class on February 9): Against ESG
As I mentioned in class, I decided to add a new segment to the class to focus specifically on some of the arguments against ESG. ESG is broader than environmental issues, including social and governance issues as well, although many of the arguments work as well if we focus on climate change alone as a factor in investment and lending decisions. We’re going to focus on issues relating to pensions and also on the idea of economic boycotts (fossil fuel divestment as a problematic economic boycott).

Here are the assigned readings for the class:
Zoe Stern, Retirement Plan Fiduciaries Can Now Consider ESG Factors, The Regulatory Review (Jan. 26, 2023)
Department of Labor, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, 87 Fed. Reg. 73822 (Dec. 1, 2022) [you can focus on pp 73822-73828]
Complaint in Utah v Department of Labor
The Heritage Foundation, Eliminate Economic Boycotts Act

Week 3: Class on February 2
Reading Assignment for Measuring Carbon and Net Zero:
See generally, United Nations Net-zero Coalition information
SBTi Net-Zero Standard (Oct. 2021)
Thomas Hale, Stephen M. Smith, Richard Black, Kate Cullen, Byron Fay, John Lang & Saba Mahmood (2022) Assessing the Rapidly-Emerging Landscape of Net Zero Targets, 22:1 Climate Policy 18-29 (2022). DOI: 10.1080/14693062.2021.2013155
IOSCO, Voluntary Carbon Markets Discussion Paper CR/06/22 (Nov. 2022).

Assignment for Week 2: Divestment (class on January 26)
Julie Ayling & Neil Gunningham, Non-state Governance and Climate Policy: the Fossil Fuel Divestment Movement, Climate Policy (2015)
Kate J. Neville, Shadows of Divestment: The Complications of Diverting Fossil Fuel Finance 20 Global Environmental Politics 3 (2020)
Mikko Rajavuori, Divestment of Fossil Fuel Assets (January 3, 2020) in Harro van Asselt & Michael Mehling (eds.), Research Handbook on Climate Finance and Investment Law (Edward Elgar 2021) Available at SSRN: https://ssrn.com/abstract=3724464
Auke Plantinga & Bert Scholtens The financial impact of fossil fuel divestment, 21 Climate Policy 107-119 (2021).
Global Fossil Fuel Divestment Commitments Database

– Campaigns may induce legislators/regulators to change the rules
– Changing public opinion about an area might affect how judges think about particular legal issues
– The importance of governance that isn’t about legal rules but about norms of behavior: beyond any potential impact on legal rules divestment is about changing how investors and financial firms behave
– Levels of harm: coal, oil, liquid natural gas

January 19. I moved material that was previously on this page to the archive page. That includes the outline semester plan (but you can also see that on the course materials page).

First class Assignment (for class on Thursday January 19).
Zoom class sessions will be scheduled through Blackboard. Course materials will be provided via this blog. Each week after class I will post the reading assignment for the following week on this page. I move the prior assignment to the archive page at that time. Readings will be available on the course materials page.

Framing the class:
In the first class session I would like to get a sense of your interest (how you are interested) in the topic. When I have taught this class before we have had a mix of students with interests in environmental law and in business law. My own background is in business law, and in particular I am interested in financial regulation and international harmonization of financial regulation, which is how I became interested in climate finance.

Please read the following materials for the first class:
Caroline Bradley, Why Climate Finance
Neil Gunningham, A Quiet Revolution, Central Banks, Financial Regulators and Climate Finance, Sustainability (2020) (this article does a very good job of framing issues in the area of climate finance (especially focusing on regulation))
Added January 11:
Jerome H. Powell, Presentation at Panel on “Central Bank Independence and the Mandate—Evolving Views”, at the Symposium on Central Bank Independence, Sveriges Riksbank, Stockholm, Sweden (Jan. 10, 2023).

Here are the Class Policies

Here is the semester plan.

1. Framing the class
2. Fossil fuels and divestment
3. Measuring carbon and net zero
4. Securities law and climate related financial disclosures
5. Climate change and financial regulation: banking
6. Climate change and financial regulation: insurance
7. Climate change and financial regulation: asset management
8. Climate change and financial regulation: financial market infrastructures and financial stability
9. Foreign investment law and fossil fuels
10. Green/Sustainable financing
11. ESG Ratings and Data Products
12. Climate change litigation
13. Climate Change and Inequality