Environmental, social and governance | UK Regulatory Outlook July 2024

First reporting obligations under the Corporate Sustainability Reporting Directive

As reported in our January issue, the Corporate Sustainability Reporting Directive (CSRD) entered into force on 3 January 2023. It extends existing requirements under the Non-Financial Reporting Directive (NFRD) and requires firms to report on the impact of their activities on the environment and society. The CSRD extends the reporting obligations under the NFRD to all large companies and imposes an obligation to report accurate and verified information on environmental factors. For more on which companies are in scope and the information that must be reported, see our Insight.

Member States had to bring into force the laws, regulations and the administrative provisions necessary to implement CSRD by 6 July 2024. An estimated 50,000 companies will be caught by the newly extended NFRD as opposed to the 11,000 currently obligated to report.

EU public interest entities already subject to the existing reporting requirements need to begin reporting from 2025 for financial years starting on or after 1 January 2024.

EU large companies need to begin reporting from 2026 for financial years starting on or after 1 January 2025.

EU small or medium-sized companies need to begin reporting from 2027 for financial years starting on or after 1 January 2026.

Non-EU companies need to begin reporting from 2029 for financial years starting on or after 1 January 2028.

With the first reports due in 2025, companies due to report should be collecting and preparing the relevant information ready to meet this first deadline.

Corporate Sustainability Due Diligence Directive published in Official Journal

The Corporate Sustainability Due Diligence Directive (CSDDD) was published in the Official Journal of the EU on 5 July 2024. It will enter into force on 26 July 2024, after which Member States will have until 26 July 2026 to transpose the directive into national law.

The new rules will be implemented in a phased approach from 2027 for the largest companies to 2029 for smaller companies. If you missed our recent Eating Compliance Webinar on the CSDDD, see the recording and slides.

EU Deforestation Regulation – preparing for December 2024

As part of the EU's effort to reduce global deforestation, the Regulation on Deforestation-free products (EUDR) is coming into force later this year and requires companies to carry out extensive supply chain due diligence before a product is placed on the market in the EU, or exported from the EU.

The regulation covers seven commodities: cattle, cocoa, coffee, oil palm, rubber, soya and wood. Many products deriving from these materials (such as leather and chocolate) are included in the annex of the regulation. However, there have been recent discussions that other commodities, such as tea, could be bought within scope and so businesses should be alive to a potentially broader scope.

With the regulation coming into effect on 30 December 2024, businesses within scope should be preparing for the upcoming requirements. If you missed our recent Eating Compliance Webinar on preparing for the December 2024 compliance date, see the recording and slides.

FCA provides updates on the sustainability disclosure and labelling regime

The Financial Conduct Authority (FCA) has provided updates on the sustainability disclosure and labelling regime to reflect that the anti-greenwashing rule and guidance has now come into force.

A new "criteria" section has been added to the website that provides more information on the regulator's view of aspects of the regime.

• Sustainability objective. To qualify for a label, a fund must have a sustainability objective that is clear, specific and measurable, and part of the fund's investment objectives. Referring to broad statements is unlikely to be specific.
• Sustainability fund types. Information is provided relating to each of the three types of sustainable fund types: sustainability focus, improvers and impact funds.
• Key performance indicators (KPIs). Pre-contractual disclosures must include details of the KPIs that will be used to measure progress towards meeting the sustainability objective. This is in addition to other metrics that a client may reasonably find useful in understanding the investment policy and strategy for the fund.
• Stewardship. It is recognised that stewardship can take place in different forms. The FCA explains that disclosures should clearly provide clarity on how the stewardship strategy supports delivery of the particular sustainability objective for the fund.
• Asset classes. The regulator confirms that it is not prescriptive around how certain assets should be treated.

Further assistance on the SDR can be found in "Guidance v1.0" recently published by the Investment Association.

This includes questions and answers on the anti-greenwashing rule; the labelling regime and naming and marketing rules for fund managers; fund authorisations and FCA notification; requirements for overseas funds marketed in the UK; sustainability disclosures for fund managers; and stewardship requirements.

Notifying FCA when using investment labels under Sustainability Disclosure Requirements regime

On 1 July 2024, the FCA confirmed that firms must notify the FCA when using an investment label under the Sustainability Disclosure Requirements (SDR). The steps for notifying the FCA will vary depending on the position of the firm. The FCA reiterates that it will not approve labels, but firms are required to notify it when they use, revise or stop using a label.

The information is relevant to those funds using or wanting to apply a label under the regime. Labels can be displayed from 31 July 2024, provided that the fund meets the requirements.

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Scotland passes Circular Economy Bill

The Scottish Parliament has passed the Circular Economy (Scotland) Bill, which will give ministers the powers to set local recycling targets, as well as statutory targets for delivery of a circular economy to measure progress in transforming the economy, restrict the disposal of unsold consumer goods, place charges on single-use items like disposable cups and give local authorities additional enforcement powers.

Businesses should be aware that this new legislation could lead to further regulatory obligations in Scotland and are advised to stay informed about any developments.

Right to Repair Directive published in the Official Journal

Please see Products.

Court of Appeal decision expands potential supply chain risk for businesses

Please see Modern slavery.