ESG Knowledge Update | June 2024
Published on 5th Jun 2024
Welcome to our Osborne Clarke ESG Knowledge Update, which offers a round-up of legal, regulatory and market news
Legal and regulatory news
European Union
The EU's Corporate Sustainability Due Diligence Directive (CSDDD), has passed the final stage having been formally adopted by the Council of the EU on 24 May. The legislation will now be published in the Official Journal of the European Union and enter into force 20 days after its publication. Member States then have two years to implement the CSDDD into national law. The new rules will be implemented in a phased approach from 2027 to 2029.
The Environmental Crime Directive was published in the Official Journal of the EU on 30 April 2024 and entered into force on 20 May 2024. Member States are required to implement this by 21 May 2026 and publish a national strategy on combating environmental criminal offences by 21 May 2027.
The European Parliament has adopted its position on the regulation to prohibit products made with forced labour going on the EU market. Under the regulation, if a product is deemed to have been manufactured using forced labour, it will be prohibited from being sold on the EU market (including online) and products will be seized at EU borders. The text now needs to be adopted by the Council and EU countries will have to start implementing the rules within three years of its entry into force.
The Council of the EU has formally adopted its position on both the right to repair directive and the Ecodesign for Sustainable Products regulation, which aim to improve the circularity and sustainability of products. Both pieces of legislation now need to be signed by the President of the European Parliament and the President of the Council before they are published in the Official Journal of the European Union and will enter into force on the twentieth day following publication.
The European Parliament has formally adopted its position on the Packaging and Packaging Waste Regulation. The new regulation will, among other things, ban certain single-use plastic packaging (including those for fresh produce, foods and beverages in eateries, individual portions, toiletry miniatures, and very lightweight carrier bags) alongside a ban on PFAS chemicals in food contact packaging and a requirement for all packaging, except specified materials, to meet recyclability criteria. The Council now needs to formally approve the law before it can come into force.
The legislative work of the European Parliament is currently paused in advance of the elections taking place between 6 and 9 June 2024. The newly elected Parliament will return on 16 July.
The European Supervisory Authorities (ESA) have published their final reports on greenwashing in the financial services sector. Each final report outlines the current supervisory response to greenwashing risks under the respective ESA's remit. As well as looking at supervision, the reports consider potential improvements to the regulatory framework around greenwashing.
United Kingdom
The UK general election has been called for 4 July and Parliament has been dissolved. Any legislation that was not passed during the recent wash-up period will now fall away and the newly elected government will introduce its own legislative programme when Parliament returns on 17 July 2024. (See our Insight for more on this wash-up period).
Secondary legislation which will need to be progressed by the new government includes:
- The Forest Risk Commodities Scheme, which is to be introduced under provisions in Schedule 17 of the Environment Act 2021. The current government had said that the secondary legislation would be introduced "when parliamentary time allows".
- Regulations to eradicate modern slavery in NHS supply chains required under the Health and Care Act 2022. While there were reports that these had been drafted, they had not yet been introduced into Parliament.
- The draft Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations 2024 which were recently updated following a consultation last year and stakeholder engagement. These will introduce the extended producer responsibility regime (EPR) for packaging in the UK which is currently due to come into force in October 2025.
The High Court has found that the UK government's Carbon Budget Delivery Plan (aka its Net Zero Strategy) does not comply with the requirements of the Climate Change Act 2008. The new government will need to prepare a revised plan and submit it to Parliament within 12 months. This is the second time that the government's plans have been held to be incompatible with its obligations under the Climate Change Act 2008.
The Department for Business and Trade has published a framework and terms of reference for the development of UK Sustainability Reporting Standards (SRS) that will be based on the IFRS Sustainability Disclosure Standards. The UK's development of the SRS involves endorsing the IFRS Sustainability Disclosure Standards and enacting them into UK law and Financial Conduct Authority regulations for listed firms. The government intends to decide on the endorsement of IFRS S1 and S2 (which relate to disclosure requirements) by early 2025.
The UK Advertising Standards Authority (ASA) has published findings from its consumer research, conducted over the last year, which looked at the types of environmental claims currently being made in food advertising and how consumers understand them. In response, the ASA has said that in 2024 it will continue monitoring for potentially misleading "green" imagery issues and potentially enforce investigations into misleading green claims and imagery in advertising.
HMRC has published a policy paper Revenue and Customs Brief — VAT treatment of voluntary carbon credits which explains the VAT treatment of voluntary carbon credits from 1 September 2024 and the voluntary carbon credits that will be in the scope of the Terminal Markets Order.
International
The US Commodity Futures Trading Commission (CFTC) is cracking down on greenwashing in the voluntary carbon markets.
The International Sustainability Standards Board (ISSB) has published the IFRS Sustainability Disclosure Taxonomy. Use of the ISSB Taxonomy by companies will enable investors to search, extract and compare sustainability-related financial disclosures as ISSB establishes its global baseline of standards. The ISSB has published a podcast explaining the role of the taxonomy.
Market news
A Deloitte survey finds over 70% of companies have abandoned acquisitions due to ESG concerns… The IFRS announces that over 20 jurisdictions have already, or are taking steps to, use the ISSB's Standards… Technology provider IFS and professional services firm PwC are to launch a global Sustainability Management Solution… Transparency International UK publishes a report on preparing for the Corporate Sustainability Reporting Directive… Diligent Institute and Spencer Stuart's annual Sustainability in the Spotlight Report 2024 survey of more than 800 global board members has found that 96% of them expect a continued or stronger focus on ESG in the next five years.
