ESG Knowledge Update | May 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's Corporate Sustainability Due Diligence Directive (CSDDD), which applies to EU companies and non-EU companies operating in the EU, has been watered down. The Council of the EU's vote on the original proposals unexpectedly did not pass in February following reports that Member States, including Germany, Italy and France, had pulled their support. Consensus was finally reached in March after the scope of the original scheme was narrowed, the turnover threshold was increased from €150m to €450m and the minimum number of employees was doubled from 500 to 1000. The consensus position was approved by the European Parliament at the end of April. It will now return to the Council for formal adoption and be published in the Official Journal. The new rules will be implemented in a phased approach from 2027 to 2029.

In an echo of what happened with the CSDDD, in March, the final Council vote to formally adopt a new regulation on nature restoration was pulled at the last minute after Member States, including Hungary and Italy, said they would not give it their support. It is not clear what will happen to the proposal now; it is possible that it could pass a future vote with a qualified majority or it may have to be renegotiated in the same way as the CSDDD.

The Council has formally adopted the revised directive on the energy performance of buildings. The revised directive, which aims for zero-emissions buildings by 2050, will require all new buildings from 2030 to be zero-emissions and introduces minimum energy performance standards. In addition, Member States will need to outline national building renovation plans and a roadmap to phase out fossil fuel boilers by 2040. The directive will now be signed and published in the Official Journal. Member States will have two years to incorporate the provisions into their national legislation.

The EU has formally adopted a directive which has the effect of postponing the adoption of sector-specific European Sustainability Reporting Standards (ESRS) from 30 June 2024 to 20 June 2026. The ESRS are mandatory standards to be used for reporting sustainability information under the Corporate Sustainability Reporting Directive. The delay is intended to allow companies to focus on implementation of the first set of ESRS and limit reporting requirements to a necessary minimum.

The Council has formally adopted a revised directive on environmental crime that substantially broadens the scope of offences covered by environmental criminal law and increases the penalties for those who commit them. From now on, polluting company executives may be held liable, as may the company itself. The penalties for environmental crimes include prison sentences that vary according to the seriousness of the damage caused. The directive will now be published in the Official Journal and Member States will have two years to transpose the legislation into national law.

The European Parliament has formally adopted its position on a regulation to introduce a voluntary certification framework for carbon removals, which aims to boost the bloc's ability to monitor and verify such activities to counter greenwashing. The regulation now has to be adopted by the Council, which it is expected to adopt it at first reading. After this it will be published in the EU Official Journal and enter into force 20 days later.

The legislative work of the European Parliament is now paused in advance of the elections taking place between 6 and 9 June 2024. The newly elected Parliament will return on 16 July and there is no guarantee that outstanding legislation will continue as planned. The 119 draft proposals left on the table include rules on green claims, European Works Councils, artificial intelligence liability and forest monitoring.

United Kingdom

The UK Financial Conduct Authority (FCA) general anti-greenwashing rule for all FCA-authorised firms will come into force on 31 May 2024. The FCA published its final guidance on the rule at the end of April 2024. Firms should review all communications that refer to the sustainability characteristics of products and services in light of the guidance and ensure that they have the appropriate controls in place. The anti-greenwashing rule is being introduced in advance of the FCA's flagship sustainability disclosure requirements (SDR) and investment labelling regime.

The UK Transition Pathway Taskforce (TPT) has published its final set of sector-specific guidance to assist companies in preparing climate transition plans. There is specific guidance for asset owners, asset managers, banks, electric utilities and power generators, food and beverage, metals and mining, and oil and gas. The TPT has also published a sector summary which gives practical guidance for 30 financial and real economy sectors. This new guidance will assist companies in preparing their climate transition plans.

The UK Competition and Markets Authority (CMA) has published its second informal guidance under its "open door" policy in relation to green collaboration agreements. The guidance relates to a collective agreement between leading UK supermarkets to reduce greenhouse gas emissions in grocery supply chains. The CMA's willingness to provide such guidance provides businesses with an opportunity to obtain clarity and assurance for their own agreements with competitors on sustainability collaborations.

A group of leading King's Counsels have published an opinion that directors of UK companies should consider their company's nature-related risks as part of their duties to promote the success of the company and act with reasonable care, skill and diligence. The opinion was commissioned by the Commonwealth Climate and Law Initiative and specialist climate change investment and advisory firm Pollination and clarifies the legal basis for the financial relevance of nature in decision-making by boards subject to the law of England and Wales.

International

Last time we told you that the US Securities and Exchange Commission (SEC) was close to adopting new rules to require US-listed companies to make climate-related disclosures. Those rules were adopted by the SEC at the beginning of March and as reported, they were scaled back from the original proposals by, for example, removing the requirement for companies to report on Scope 3 emissions. However implementation of the new rules has been paused by the SEC pending litigation from critics of the new rules.

Market news

The UK CMA has obtained signed undertakings from ASOS, Boohoo and Asda setting out how they will craft, evidence and monitor the environmental claims they use going forwards. The undertakings conclude the CMA's groundbreaking and first sector investigation into greenwashing, focused on the fashion retail sector, on which an Osborne Clarke team (led by Partners Katie Vickery and Anna Williams) advised and supported ASOS in this matter….Unilever has published research suggesting that industry associations need to step up on their climate efforts….New impact venture Syre funded by H&M and Northvolt has launched with a mission to decarbonise the textile industry….End times for the UK's final coal-fired power station.

Upcoming events

Hemp not Highs – Webinar | 7 May | 09:00-09:30 BST

Biodiversity Net Gain – pitfalls and disputes - Webinar | 9 May | 09:15-10:00 BST

Sustainable batteries – Webinar | 9 May | 09:00-09:30 BST

Recent ESG insights from Osborne Clarke

• What is natural capital and what does it mean for investors and lenders in the UK and Europe?
• UK competition regulator issues fresh guidance on green collaborations for sustainability
• The Energy Transition | Ofgem's vision for a clean, affordable and secure energy system
• UK competition regulator issues fresh guidance on green collaborations for sustainability
• Should asset managers be concerned about ethical supply chains?
• Environmental, social and governance | UK Regulatory Outlook April 2024