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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | February 2024
The Council of the European Union published the compromise text (6255/24) of the political agreement on the proposed Regulation on the transparency and integrity of environmental, social and governance (ESG) activities on 14th February (dated 9th February).
The question is, do these measures go far enough to drive investment into sustainability products, and have a meaningful impact on the keeping global warming below the 1.5 degree Celsius threshold.
If we are to achieve the UN Sustainability Development Goals set in 2015 (the 2030 Agenda for Sustainable Development)1 then capital flows must be channelled towards sustainable investments. This must be a two-fold approach – not just removing obstacles to investment but also disincentivising investments that adversely impact achievement of these goals.
The “Study on Sustainability Related Ratings, Data and Research” commissioned in 20212 identified conflicts of interest, a lack of transparency and accuracy of ESG rating’s methodologies, and no clarity over the terminology used by ESG ratings providers as key barriers in the market. Yet if these ratings are to be meaningful, ESG ratings need to be:
ESMA will not just be responsible for the initial authorisation of the ESG rating providers but will have power to require disclosure of information and fully investigate potential breaches, including by way of entering premises. The maximum fine, where intent has been shown, is set at 10% of the total annual net turnover.
Are these measures sufficient to drive confidence (and ultimately money) into ESG investment? Time will tell. So much, as ever, is in the detail, and the ways in which the rules can be circumvented. Legislatures often lack the practical experience, and insight, to create meaningful regulations, and market drivers are more complicated.
Looking to the past, in the financial crises and after-math of 2008 capital markets lawyers were certainly one of the villains. Maybe it is time to dust of those capes, spin around and become the super-heroes we all once dreamt of being and start contributing to saving the planet.
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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On February 2, 2024, the Belgian Presidency of the Council of the European Union confirmed that the Committee of Permanent Representatives had signed the Artificial Intelligence (AI) Regulation, referred to as the AI Act. Approval by the EU Parliament followed on 13 March 2024, and the AI Act is likely to appear in the EU’s Official Journal around May 2024. The AI Act aims to establish a stringent legal framework governing the development, marketing, and utilisation of artificial intelligence within the region, thereby marking a significant advancement in the regulation of this burgeoning domain.
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The EU’s Artificial Intelligence Regulation, commonly referred to as the AI Act, is expected to come into force during the summer of 2024 (the AI Act). The AI Act will be the first comprehensive legal framework for the use and development of artificial intelligence (AI), and is intended to ensure that AI systems developed and used in the EU are safe, transparent, traceable, non-discriminatory and environmentally friendly.
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