International Court of Justice (ICJ) climate ruling triggers potential legal perils for EU's all-encompassing legislative proposals

In the ongoing battle against climate change, various nations and financial institutions are taking significant strides to reduce emissions and promote green finance. Here's a roundup of recent developments:

The University Superannuation Scheme (USS) has released a climate disclosure report showing a 51% decline in portfolio emissions between 2019 and 2024. However, USS officials caution that a decarbonised investment portfolio driven by asset reallocation may not necessarily lead to real reductions in underlying businesses.

Across the Pacific, Japan is grappling with the question of who will take the lead in developing a national taxonomy. While a United Nations report recommends the Financial Services Agency to step up, the identity of the governing body remains unclear.

In Europe, industry players are cautiously optimistic about the future of green finance but emphasize the need for internationally certified emissions data regimes to pass compliance checks. This comes as the International Court of Justice's advisory opinion reinforces the likelihood that the EU's omnibus proposals will face legal challenges.

Meanwhile, the European Central Bank (ECB) has found that firms targeted by climate-related lawsuits pay significantly higher interest rates on bank loans, with larger penalties for firms with frequent ESG controversies. This new research indicates that climate litigation risk is already being priced into corporate lending.

The ECB is also set to issue its first-ever fines for climate risk management failures, with Credit Agricole being among the institutions facing potential penalties.

In Germany, the Federal Ministry of Finance is likely to be responsible for developing a national taxonomy, following a similar approach taken by the European Union.

On the other side of the world, a green financing platform has been launched in Egypt to prepare for the European Union's carbon border adjustment mechanism (CBAM) in 2026. The platform aims to offer funding for decarbonisation, energy efficiency, and clean production technologies, while maintaining export competitiveness in EU markets.

However, Egypt's key exports from carbon-intensive sectors like fertilisers, steel, aluminium, chemicals, and glass are expected to be heavily impacted by CBAM. A report from Menafem and Greenpeace warns against exclusively export-focused green development in Egypt, arguing that green finance initiatives must address domestic energy insecurity and environmental damage alongside export growth.

As the world moves towards a greener future, the absence of clear government-backed definitions of what counts as "green" or "sustainable" remains a significant gap in Japan's green finance development race. Japan lacks a sustainable taxonomy, making it the weakest point in Japan's sustainable bond and loan market.

In response, Simon Pilcher, CEO of the USS Investment Management, has announced that the pension fund is "turning the dial up" on climate lobbying, pushing for firmer climate action from governments, regulators, and standard setters.

These developments underscore the complex and evolving landscape of climate action and green finance across the globe, as nations and institutions strive to balance economic growth with environmental sustainability.

International Court of Justice (ICJ) climate ruling triggers potential legal perils for EU's all-encompassing legislative proposals