ESG Knowledge Update | February 2024

Osborne Clarke's ESG Briefing

Osborne Clarke's ESG Briefing on Green Claims and Greenwashing provides a breakdown of the legal and regulatory framework around green claims and how businesses can effectively manage risk and regulator concerns. The briefing also takes a specific look at what's happening in the UK and Europe in certain sectors including financial services; technology, media and communications; the built environment; and retail and consumer.

This is the first in a series of ESG Briefings that will shine a light on key ESG-related obligations and considerations that are impacting businesses across the globe.

Legal and regulatory news

European Union

The EU Parliament has adopted the "Directive empowering consumers for the green transition" which introduces new rules about product labelling to combat greenwashing and social washing, as well as rules to improve the durability of goods. It is expected that the Council of the EU will formally adopt the directive at one of its next meetings after which it can be published in the EU's Official Journal and enter into force. Member states will have 24 months to transpose the directive into national law.

The EU's proposed Corporate Sustainability Due Diligence Directive (CSDDD) has stalled. A vote was due to take place on 9 February 2024 but was cancelled at the last minute following reports that member states, including Germany and Italy, were planning to abstain from the vote. The vote was rescheduled for 28 February but still did not pass. At the time of writing, it is not clear whether the CSDDD will make it through the legislative process by April, when legislative work in the EU is due to stop ahead of the European Parliament elections in June.

A consultation on the European Sustainability Reporting Standards (ESRS) for both listed and non-listed small and medium-sized enterprises has been launched. The ESRS are mandatory standards to be used for reporting sustainability information under the Corporate Sustainability Reporting Directive. The EU intends to published sector-specific standards too but adoption of these has been delayed from 30 June 2024 to 30 June 2026.

The EU Parliament and Council have reached a provisional political agreement on the text of a new proposed regulation that will govern ESG ratings providers. Under the regulation, EU ESG ratings providers will have to apply for authorisation from the EU's financial market's regulator and supervisor, the European Securities and Markets Authority, and be subject to its ongoing supervision; non-EU ESG ratings providers will be able to provide ESG ratings in the EU in only limited circumstances. Next, the agreement will need to be approved by both institutions and go through the formal adoption procedure. The regulation will start applying 18 months after it enters into force.

The Council has adopted its negotiating mandate on the European Commission's proposed regulation prohibiting products made with forced labour on the EU market. The Council and European Parliament can now begin negotiations to agree the final version of the text.

United Kingdom

The Financial Conduct Authority (FCA) general anti-green-washing rule for all FCA-authorised firms will come into force on 31 May 2024. The FCA is currently consulting on guidance about how this rule will operate. Firms need to be taking steps now to prepare for implementation.

In the last update, we told you that the Financial Reporting Council (FRC) had announced that it would not be taking forward a number of ESG-related amendments to the UK Corporate Governance Code, which applies to companies listed on the Main Market of the London Stock Exchange. The new version of the Code, with minimal amendments, has now been published and will apply to will apply to financial years beginning on or after 1 January 2025.

In parallel to the FRC's work, the Quoted Companies Alliance (QCA) has published an update to the QCA Corporate Governance Code. This is the main corporate governance framework used by small and mid-sized publicly traded companies in the UK, including over 90% of AIM companies. ESG considerations have been threaded through the new QCA code with the QCA stressing that they are crucial for small caps as they look to keep pace with investor expectations and reporting. The QCA code should be applied for accounting periods beginning on or after 1 April 2024.

International

The US Securities and Exchange Commission (SEC) is reported to have removed Scope 3 reporting from its proposed rules to require US-listed companies to disclose their greenhouse gas emissions. The SEC's original proposal, published in March 2022, would have required Scope 3 reporting where those emissions were material or if the company has set a greenhouse gas emissions target or goal that included Scope 3 emissions. The timing of the SEC's vote on the proposals remains unclear.

Market news

Companies are using AI tools to help keep track of sustainability targets… Morningstar finds confusing implementation of the EU's Sustainable Finance Disclosure Regulation has affected investor demand for Article 8 and Article 9 funds… SEC Newgate's Global ESG Monitor finds that "in 2023 community expectations for organisations' action on ESG around the world appear to have reached a tipping point".

Upcoming events

Anna Williams, a Partner in Osborne Clarke's UK Commercial Team, co-leads our practice on Greenwashing and Green Claims. Anna will be moderating a panel session at the upcoming Lexology Live ESG Summit on 14 March 2024. The panel will discuss how to how to back up green claims, how to educate marketing teams on what amounts to a green claim, practical tips to substantiate green claims, and how the EU Green Claims Directive will shake up green claims, with a specific look at the UK and US approaches.

As part of Osborne Clarke's Disputes Week 2024, we'll be hosting a webinar on Activism in the current climate: should directors and their advisors worry about ESG?. Do join us.

Recent ESG Insights from Osborne Clarke

• The UK's SDR: how fund managers must provide sustainability information
• New corporate governance codes usher in change for AIM and UK-listed companies
• Greenwashing in UK financial services | Practical guidance for regulated firms on compliance with new anti-greenwashing rule
• EU Parliament adopts stricter requirements for environmental and sustainability-related advertising
• New UK advertising guidance as ASA proposes to actively investigate green disposal claims in 2024
• How to avoid greenwashing risk in the European real estate sector
• Green aviation claims fail to land with UK regulator
• New European green bond regulation adopted by the Council to promote sustainable finance