Environmental, social and governance | UK Regulatory Outlook February 2024

Final vote on CSDD delayed

The final vote for the Corporate Sustainability Due Diligence Directive (CSDD) was due to take place on Friday 9 February 2024, but was cancelled last minute following reports that Member States, including Germany and Italy, were planning to abstain from the vote.

At the time of writing, the vote in the Council of the EU has been re-scheduled for 28th February 2024. 

Two-year delay for certain sector specific standards under CSRD

The sector-specific European Sustainability Reporting Standards (ESRS) have been delayed from 30 June 2024 to 30 June 2026 in a bid to ease the regulatory burden on companies. The sectors cover oil and gas, mining, road transport, food, cars, agriculture, energy production and textiles.

The ESRS are mandatory for use by companies that are required by the Accounting Directive, as amended by the Corporate Sustainability Reporting Directive (CSRD), to report certain sustainability information. First reports were to be due in June 2024. The ESRS takes a “double materiality” perspective: it obliges companies to report both on their impacts on people and the environment, and on how social and environmental issues create financial risks and opportunities for the company.

The European Parliament and Council have reached a provisional agreement, which was put forward by the Commission as part of its 2024 work programme, to postpone the deadline for the adoption of the sectoral ESRS. The provisional agreement now needs to be endorsed and formally adopted by both the Parliament and Council. The aim of this delay is to give companies time to focus on implementing the first set of standards under CSRD.

In the meantime, a consultation on the ESRS for both listed and non-listed small and medium sized enterprises has been launched. 

Council adopts position on banning products made with forced labour

See Modern slavery.

Greenwashing in UK financial services

There is a huge market for sustainable investment products, resulting in a growing number of products marketed as such. As this demand grows, so does the risk of "greenwashing", a practice on which European regulators, including the UK's Financial Conduct Authority (FCA), have increasingly focused.

In November 2023, the FCA implemented the Sustainability Disclosure Requirements (SDR) regime. This regime includes a new anti-greenwashing rule, due to take effect from 31 May 2024. Our recent Insight considers what firms can do to ensure they will be compliant with the new requirements, and what indication the FCA has given in its guidance as to its regulatory approach.

Updates to corporate governance codes for AIM and UK-listed companies

The Quoted Companies Alliance (QCA) and Financial Reporting Council (FRC) have both recently published new editions of their corporate governance codes.

The QCA's Corporate Governance Code is the main corporate governance framework used by small and mid-sized publicly traded companies in the UK, including 93% of AIM companies.

The FRC's UK Corporate Governance Code applies to all companies with a premium listing on the London Stock Exchange. This scope is likely to widen under proposed reforms to the UK's listing regime which will create a single listing category for commercial companies.

Both codes are produced independently from each other – and it is understood to be a coincidence that both have been updated at the same time.

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 requirements. By contrast, although the new FRC Code was initially anticipated to involve some major changes with a particular focus on ESG, in the end the FRC stepped back from the bulk of its proposals due to the current "wider debate about business reporting requirements and burdens across the economy". See our recent Insight for more.

EU regulation on ESG rating activities

The EU Council and Parliament 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 ESMA (the EU's financial markets regulator and supervisor); non-EU ESG rating providers will be able to provide ESG ratings in the EU in limited circumstances. ESG ratings providers will be subject to ongoing supervision by ESMA.

Provisional agreement reached on the right to repair

Please see Products. 

Directive to empower consumers for the green transition: EU Parliament and Council formally adopt their positions

Please see Advertising and marketing and Products.