Environment, social and governance | UK Regulatory Outlook November 2024

Sustainable supply chains drive international success

Geopolitical pressures are on the rise for international businesses and require an increasingly active approach to risk management, building supply chains and horizon scanning – in this environment, general counsels (GCs) need to view sustainability as crucial for a competitive, modern business and ensure a human-machine balance in any uptake of artificial intelligence.

Those were among the headline messages from our Breakfast Briefing at the Economist Impact's 21st annual General Counsel Summit in London. Five broad approaches and crucial steps emerged for GCs to take to benefit their international operations, build sustainable supply chains and strategies, and address business transformation. From this session, we have identified our top five takeaways from the conference – covering the impact of geopolitics on companies and GCs' opportunity to lead on supply chain, sustainability, crisis management and AI adoption. 

UK

Autumn Budget 2024

On 30 October, the UK chancellor, Rachel Reeves, delivered the Autumn Budget which contained a number of announcements relevant to ESG. This included confirmation of the UK carbon adjustment mechanism being introduced on 1 January 2027, commitment to a zero-waste economy, and an investment of £3.4bn to increase the energy efficiency and decarbonisation of household energy. See our latest ESG knowledge update for more.

Updates made to the UK's retail disclosure regime

Significant updates have been made to the UK's retail disclosure regime. The draft version of the Packaged Retail and Insurance-based Investment Products (Retail Disclosure) (Amendment) Regulations 2024 has been published, which excludes UK-listed closed-ended investment companies from the UK packaged retail and insurance-based investment products rules, meaning they no longer need to produce a key investor document.

The FCA has updated its statement on forbearance in relation to investment trust disclosure requirements to provide certainty for firms ahead of the new legislation. Additionally, a draft version of the Consumer Composite Investments (Designated Activities) Regulations 2024 has been published setting out the new UK retail disclosure framework for consumer composite investments, setting the legislative basis for these products and their governance. For more detailed information, read our full Insight.  

FCA provides pre-contractual disclosure examples to meet SDR requirements

On 1 November 2024, the Financial Conduct Authority (FCA), published a document providing pre-contractual disclosure examples that meet the sustainability disclosure requirements (SDR) regime. Under the SDR, firms must meet specific criteria to qualify for a label supported by disclosures. The published document provides examples and approaches for meeting disclosure requirements across various labels.

For instance, examples of good practices are provided for the sustainability focus label and the sustainability improver label. Examples of poor disclosure practices that do not meet SDR requirements are also included.

The SDR and investment labels regime comes into force on 2 December 2024. However, firms have been able to use investment labels since 31 July 2024.

Future regulatory regime for ESG rating providers

The Treasury has published its response to the consultation on the future regulatory regime for ESG ratings providers under the Financial Services and Markets Act 2000 (FSMA) confirming that it will introduce a provision including ESG rating within scope of the FSMA.

This will mean that ratings produced in the UK and ratings produced overseas made available to UK users by way of a business relationship will now fall within the regulatory perimeter. This consultation response is accompanied by a draft statutory instrument on which the government is inviting comments by 14 January 2025.

EU

EU Deforestation Regulation delayed by a year and goes back to trialogue

As reported last month, the European Commission put forward a proposal to delay the implementation of the EU Deforestation Regulation to (EUDR)by 12 months. The Council of the EU, on 16 October, agreed to postponing the date of EUDR application by 12 months and did not put forward any amendments.

However, an amendment was put forward in the European Parliament to introduce a new category of "no risk" countries which was then passed by the European Parliament on 14 November.

This means that the full EUDR proposal now needs to go back to the Commission/Council for further negotiation on that point. However, the Council is expected to reject the Parliament's amendments and is calling for the EUDR to go through as planned, with only the year delay to be allowed. While the extension of a year has now been agreed across the board, there is a risk that if the EU cannot reach an agreement on the official proposal by the end of the year, then as a matter of law the start date remains January 2025.

EUDR Information System open for registration

From 6 November, economic operators have been able to register in the production system of the EUDR Information System. This system will allow operators, traders and their representatives to make electronic Due Diligence Statements, and submit them to the relevant authorities to show that their products are in compliance with the EUDR. Details on the Information System, including training videos and a detailed user guide, which sets out the steps of registration, are available on the dedicated website.

Strategic Framework for International Co-operation Engagement published in relation to EUDR

A European Commission Communication on the Strategic Framework for International Co-operation Engagement (Framework) in relation to the EU's Deforestation Regulation (EUDR) was published in the Official Journal of the European Union on 7 November 2024. The EUDR aims to eliminate deforestation linked to EU production and consumption of specific commodities: beef, soy, palm oil, wood, cocoa, coffee, and some derived products.

Article 30 of the EUDR obliges the Commission to develop a strategic framework, ensuring compliance with regulatory duties. The framework focuses on partnering with relevant stakeholders to implement EUDR and global commitments to halt deforestation, aiming for a just and inclusive transition to deforestation-free agricultural supply chains by 2030. The success of the framework will depend on the partnership's commitment to delivering global targets that contribute to stopping deforestation.

FAQS published on sustainability reporting requirements under CSRD

The European Commission has published FAQs on the interpretation of certain provisions on the new sustainability reporting requirements introduced by the Corporate Sustainability Reporting Directive (CSRD). These FAQs include, among other things, an overview of the sustainability information to be reported under provisions of the Accounting Directive, a flowchart on the process to determine whether an entity is subject to sustainability reporting requirements and from which financial year, and FAQs on topics such as scope and application, exemptions and value chains.

European Commission publishes consultation on a draft regulation to establish the EU CBAM registry

The European Commission published a consultation on the EU Carbon Border Adjustment Mechanism (CBAM) registry. CBAM aims to prevent carbon leakage of certain goods.

The consultation establishes the registry as the electronic database for filing and managing the CBAM declarations, involving checks, indicative assessments, communication and review procedures. The CBAM registry should include data on authorised CBAM declarants, applicants seeking authorisation, and operators and installations in third countries.

The consultation on the registry closes on 28 November 2024. It will be effective from January 2025 for authorising CBAM declarants and from January 2026 for CBAM reporting obligations.

EU to introduce ESG reporting 'omnibus' regulation

European Commission president, Ursula von der Leyen, has recently reported that in order to try and reduced bureaucratic burden, the EU will introduce an omnibus regulation which will bring together the Corporate Sustainability Reporting Directive, EU Taxonomy Regulation and Corporate Sustainability Due Diligence Directive. This follows on from the report of former president of the European Central Bank, Mario Draghi, which highlighted the need to reduce administrative burdens with ESG reporting. The new omnibus regulation is expected to be published in 2025.

EU Regulation prohibiting products in the Union market made using forced labour receives final approval

Please see Modern slavery.

Please also see our latest international ESG Knowledge Update, for a round-up of legal, regulatory and market news.