Sunday, June 23, 2024

Infrastructure Insights — March 2024

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W&I Insurance Likely to Play Increasing Role in Energy and Infrastructure

Analysing data from more than 340 European deals signing or closing between July 2021 and June 2023 (inclusive), Latham & Watkins’ 10th edition annual European Private Equity Market Study shows that nearly 48% of all European M&A transactions involved warranty and indemnity insurance (W&I), compared to 35% of energy and infrastructure (E&I) transactions.

Certain recurring characteristics of E&I transactions could explain the dislocation in this trend. For example, the nature of the assets and jurisdictions for these transactions can be challenging. Further, the assets themselves frequently have a fragmented shareholder base, which usually eliminates the need to cover negotiated business warranties.

Along with a recent softening of the W&I market, two developments can help bridge this gap for E&I transactions: stapled W&I policies and synthetic policies. The feasibility of these policies should be assessed case by case, since the devil will be in the details and policy negotiation is key. However, overall we expect these policies to be an increasingly common feature of E&I transactions. E&I is a broad market with transactions ranging from single asset and single shareholder in a single jurisdiction to the polar opposite, so it needs W&I products that cater to all scenarios, structures, and risk appetites.

For more on these market developments, see our blog post.

UK Energy Act Paves Way for Players to Achieve Their Net Zero Targets

On 26 October 2023, the UK Energy Act 2023 (the Act) received Royal Assent. The Act is a landmark piece of energy legislation detailing the UK’s approach to achieving energy independence and its net zero obligations.

The provisions of the Act lay the foundation for potentially £100 billion worth of private investment in clean energy infrastructure. Amongst other things, the Act outlines a framework for scaling carbon capture and storage (CCS) in the UK and provides mechanisms to permit funding for government-backed low-carbon hydrogen projects. Further, the Act launched Great British Nuclear and established the Future System Operator, which will be responsible for developing the UK’s gas and electricity network and seeking to secure a decarbonised energy supply.

To learn about how the Act is likely to impact key industries, see our blog post.

FCA Publishes Final Rules on Sustainability Disclosures and Investment Labelling to Combat Greenwashing

The UK Financial Conduct Authority (FCA) has published its long-awaited Policy Statement (PS23/16) containing final rules on its Sustainability Disclosure Requirements (SDR) and investment labelling regime. The FCA is introducing the following key measures:

  • an anti-greenwashing rule for all UK authorised firms to ensure that sustainability-related claims are fair, clear, and not misleading (will apply from 31 May 2024);
  • an investment labelling regime for UK asset managers, comprising four investment labels that may be used for products that seek to achieve positive sustainability outcomes (labels will be available for use from 31 July 2024); and
  • new naming and marketing rules and guidance for UK asset managers that market investment funds on the basis of their sustainability characteristics, but which do not qualify for a label (will apply from 2 December 2024).

For a detailed breakdown of the published rules, see our Client Alert. Find tips for mitigating greenwashing risk in our blog post. For more ESG insights, visit our ESG Resource Hub.

Electricity Market Design Reform and Net-Zero Industry Act

In December 2023, the European Council and the European Parliament reached a provisional agreement on electricity market design (EMD) reform. More recently, on 6 February 2024, the Council and the Parliament reached a provisional agreement on the Net-Zero Industry Act (NZIA). The EMD reform and the NZIA are two of the key legislative initiatives of the EU’s Green Deal Industrial Plan. These provisional agreements will need to be formally approved by the Council and the Parliament in order to become EU law. We are continuing to monitor these developments to keep you updated on the final approved legislation text.

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