EXPERT INSIGHT 60 WWW.LAWYER-MONTHLY.COM | JUL 2022 About Nathan Blatz Nathan Blatz is an attorney registered at the Paris Bar (France) and at the New York State Bar (US) and practices in the fields of corporate law, mergers & acquisitions and private equity. He fully integrates the business challenges encountered by companies into the legal advice he offers to executives, investors and legal counsel to provide more relevant legal solutions. Nathan Blatz Founder, Blatz Avocat 4 Rue du Faubourg Saint-Honoré, 75008 Paris, France | 43 West 43rd Street, New York, NY 10036, US Tel: +33 (0)1 40 06 02 86 +1 212-859-3539 E: nblatz@blatzavocat.com www.blatzavocat.com by the EU could target any companies considered as supporting the war effort in Ukraine, even indirectly, and because of the current high legal uncertainty for foreign companies in the country. More generally, investors and asset managers should be aware that the current higher scrutiny on bad governance and human rights abuses may have negative impact on investments-related supply chains in countries with bad records, such as Russia or China. This is due to the greater difficulty that companies face in tracking and monitoring their subsidiaries’ behaviour in these countries, and therefore in complying with their ESG duties. Is there any notable litigation already existing in these areas? The duty of vigilance, which is applicable to environmental, social and governance issues, is already a subject of litigation in France. A first judgement was rendered in December 2021 in the Total Ouganda case, brought before courts by NGOs, which seems to show that the duty of vigilance is not merely a matter of internal corporate governance but a matter of broader liability for companies. Environmental issues are still the major source of ESG litigation, but with new regulations in the EU focused on social and governance concerns, especially in relation with supply chains, litigation could increase significantly as soon as in 2023. These risks of litigation should already be taken in account in 2022 by asset managers and investors. What impact is the rollout of the EU’s sustainable financial disclosure Regulation likely to have on private equity in 2022 and beyond? The sustainable financial disclosure regulation (SFDR), which entered into force on 10 March 2021, aims to help investors to have access to better ESG information regarding financial products. The SFDR aims to create two categories of financial products with specific disclosure requirements: the products promoting environmental or social characteristics and the sustainable investments. But the regulation also requires all asset managers and financial advisers who are based in the EU or sell products to clients in the EU to provide information on Principal Adverse Impacts (PAIs) of their investments. The PAIs are the negative effects, even potential, on sustainability resulting from the investments, such as CO2 emissions and carbon footprint. The disclosure requirements will be reinforced in 2023 and 2024. In your view, what should fund managers be mindful of when it comes to regulatory pitfalls in 2022, whether ESGrelated or otherwise? The EU Taxonomy applicable from 1 January 2022 requires companies offering financial products within the EU to disclose how sustainability is included in their activities, with three indicators: compliant share of turnover with the EU Taxonomy, compliant capital expenditure and compliant operating expenses. A delegated regulation to detail the factors taken in account is expected to enter into force on 1 January 2023, but because EU lawmakers have not yet enacted the regulation, this additional regulation could be postponed. In addition to this, the International Sustainability Standards Board (ISSB) was established on 3 November 2021 by the IFRS Foundation to provide standards for sustainability-related disclosure. The guidelines provided should be of great importance for fund managers in the coming years. Finally, it must be pointed that the regulatory environment for 2022 is still favourable to private equity, and this should be a record year for investments. It must be pointed that the regulatory environment for 2022 is still favourable to private equity, and this should be a record year for investments.
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