There are so many legal and regulatory developments happening in this space that we have changed the title in this part of our commentary section for the Summer Horizon Tracker to give ESG its full name, reminding ourselves and clients, that in addition to regulatory and legislative frameworks addressing environmental matters, the S in ESG stands for "social".

As policy supporting environmental regulation has changed in direction and emphasis to outputs addressing climate change more broadly, so will the focus of ESG turn increasingly to social aspects.

Funds and Finance

Whilst this additional emphasis will develop over the coming years, what is currently obvious is that all across our practice areas ESG is a dominant motif. Recently at a co-sponsored Matheson event in our Cork offices, the importance of ESG to the Irish Funds Industry and Ireland as a location for investment funds, was eloquently described by Tara Doyle, Head of our Asset Management and Investment Funds Department. From funds, through finance, to commercial real estate and on to corporate sustainability reporting, the momentum of change has picked up considerably. In this section we pick up on a few of our recent events and Insight pieces where you will see this general topic appearing across the board and right through the Horizon Tracker.

At our Knowledge Insights (Debt Finance Restructuring Event) on 4 May 2023, Alan Keating from our New York office observed that in the real estate sector the impact of macro and market-led developments on secondary and non-ESG compliant office and physical retail spaces over the coming 24 months will result in pressure on bank regulatory capital positions and market capital instruments. US valuations are likely to suffer first. The same pressures are evident in Europe also. Of significance is the heavy growth rate in European non-performing loan ratios with pressure on traditional lending sources resulting in the rise of non-bank lending. Commentary from our Commercial Real Estate practice is of particular relevance.

Alternative Clean Energy

In the alternative clean energy space, investment is very active. Meanwhile developments are taking place to address relevant planning frameworks. We focussed on these developments in the Spring Horizon Tracker. Of particular interest are developments in relation to offshore wind and in Ireland, a focus on developing a hydrogen strategy.

Hydrogen energy is one of the cleanest energy sources. It is created by electrolysis which involves the passing of an electrical current through water powered by a renewable energy source. The potential exists for green hydrogen to act as a clean source of fuel for back-up electricity generation and to provide substantial volumes of a cost effective zero carbon fuel. Ireland has significant potential to produce green hydrogen from renewable electricity sources given our offshore and onshore wind energy potential. The Government's agreement on Sectoral Emissions Ceilings, implemented by the Climate Action Plan 2023, provides for an additional 2GW offshore wind to be allocated for the production of green hydrogen. Furthermore, Ireland’s gas network is one of the most modern in Europe with a network comprised of polyethylene pipes. Early studies indicate that the distribution system is already capable of transporting hydrogen or hydrogen/natural gas blends.

The Department of the Environment, Climate and Communications ("DECC") opened a consultation on developing a hydrogen strategy for Ireland in July 2022 to gather views on the potential role of hydrogen in Ireland's energy system. The publication of the Consultation Paper followed the publication of the National Energy Security Framework, which prioritised the development of a green hydrogen strategy to reduce Ireland’s dependency on imported fossil fuels. We wrote about the Consultation paper here.

This focus aligns with the REPowerEU plan and wider EU energy policy which recognises that driving hydrogen development and usage needs critical mass in investment on new production infrastructure, on making gas networks fit for hydrogen injection and on stimulating consumer demand. The European Clean Hydrogen Alliance is aimed at building up a robust pipeline of investments to facilitate coordinated investments and policies along the hydrogen value chain. EU policy also recognises the importance of an enabling regulatory framework for hydrogen production and trading, including incentives for both supply and demand in lead markets, such as discounts on network entry tariffs and elimination of cross-border tariffs, taxation, hydrogen certification rules and appropriate state aid rules. Private sector funding support, as well as EU funding support such as through EIB financing, the InvestEU programme and the ETS Innovation Fund, is recognised as necessary to bridge the investment gap.

A critical feature of the REPowerEU plan is the establishment of the EU Energy Platform, which aims to enable the common purchase of liquefied natural gas, gas and hydrogen by pooling demand, optimising infrastructure use and coordinating outreach to suppliers. This platform potentially opens new markets, such as Germany and the Netherlands to Ireland.

In Ireland, we do not as yet have a hydrogen strategy, although following the consultation process described above, one is currently under preparation. A Private Members Bill has been launched by Sinn Féin. The bill, if implemented, will oblige the Minister for the Environment, Climate and Communications to draft and publish a hydrogen strategy within six months of its passing. Scotland published a Hydrogen Action Plan in 2022 and the UK published its Hydrogen Strategy in 2021.

A Call for Expert Evidence in preparation of the Climate Action Plan for 2024 is currently open, as of 23 May 2023 with a date of submissions closure of 14 July 2023.

LEGAL AND REGULATORY DEVELOPMENTS