ESG Knowledge Update: December 2024

Legal and regulatory news 

European Union 

The European Parliament and Council of the EU have now both formally adopted the proposal to delay the implementation of the EU Deforestation Regulation by one year. This follows their provisional agreement on the proposal earlier this month. The regulation will take effect on 30 December 2025 (and 30 June 2026 for micro- and small enterprises). The Parliament's amendment to introduce a new category of "no risk" countries did not go through. The proposal will next be published in the Official Journal of the EU, so that it can enter into force before the application date of the current regulation (30 December 2024).

On 19 November, the Council of the EU adopted the regulation prohibiting products in the Union market that are made using forced labour. Under the new 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. If evidence can be provided to authorities that forced labour has been eliminated, then the product may be able to return to the EU market. The regulation was published in the Official Journal of the EU on 12 December and entered into force on 13 December. It will become applicable on 14 December 2027. 

The European Commission president, Ursula von der Leyen, has recently reported that, in order to try and reduce bureaucratic burden, the EU will introduce an omnibus regulation to bring together the Corporate Sustainability Reporting Directive, EU Taxonomy Regulation and Corporate Sustainability Due Diligence Directive. This follows on from the report of the 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. 

The European Chemicals Agency (ECHA) has published an update on the restriction proposal for per- and polyfluoroalkyl substances (PFAS), which includes options for a full ban or a ban with time-limited derogations. Following the 2023 consultation, the authorities and ECHA’s scientific committees for risk assessment and for socio-economic analysis are considering the 5,600 comments received, which highlighted additional uses of PFAS. Work will progress during 2025, leading to an opinion from the risk assessment committee and a draft opinion from the socio-economic analysis committee , followed by a consultation. Businesses should use this time to prepare for new legislation by having internal discussions about PFAS, assessing supply chain changes, and mapping out areas of risk. 

A draft notice on the interpretation and implementation of certain legal provisions of the EU Taxonomy Environmental Delegated Act, the EU Taxonomy Climate Delegated Act and the EU Taxonomy Disclosures Delegated Act has been published. This includes technical questions on the criteria and activities included in the Taxonomy Environmental Delegated Act and questions received relating to activities included in the Taxonomy Climate Delegated Act. 

The questions aim to support stakeholders with the implementation of the EU taxonomy, the Commission said. 

United Kingdom 

On 20 November, the UK government launched a consultation on proposals to prevent goods that are linked with modern slavery from being sourced in the NHS. New regulations will be introduced to legally require public bodies procuring goods and services for the NHS to identify and mitigate the risk of modern slavery in supply chains. Suppliers of goods and services provided to the NHS will be required to supply relevant information about their supply chains and may face barriers to future contracts if they cannot provide information that demonstrates alignment with the new regulations. The consultation closes on 13 February 2025. 

On 18 November, the Welsh government issued a statement announcing its decision to withdraw from the UK-wide deposit return scheme (DRS), which is due to be rolled out in October 2027. The UK government published a statement in response reiterating its commitment to implementing a DRS across England, Northern Ireland and Scotland in October 2027 and shortly after the draft Deposit Scheme for Drinks Containers (England and Northern Ireland) Regulations 2024 were laid in Parliament. The DRS will commence on 1 October 2027 and will apply to drinks containers – meaning bottles or cans – that are primarily made from in-scope material – aluminium, polyethylene terephthalate plastic or steel – have a liquid capacity between 150 millilitres and three litres, and are intended for single or short-term use before being discarded. 

New guidance has been published outlining changes to recycling in England, requiring businesses and relevant non-domestic premises to arrange for the collection of core recyclable waste streams (glass, metal, plastic, paper and card, and food waste) by 31 March 2025. The policy update specifies that paper and card should be collected separately from other dry materials to maintain their recyclability, while plastic, metal, and glass may be co-collected due to lower contamination risks. Businesses will need to ensure that from 31 March 2025 they are complying with these changes. 

The Financial Reporting Council (FRC) has published its fifth annual Review of Corporate Governance Reporting, setting out key findings from an analysis of how a sample of FTSE 350 and FTSE Small Cap companies have reported during 2024 under the UK Corporate Governance Code 2018 as companies prepare to implement the revised code. The review highlights examples of good reporting and identifies areas for improvement to help companies navigate the transition to the revised code, which will largely apply to financial years beginning on or after 1 January 2025. 

In her 14 November Mansion House speech, the chancellor announced a series of proposals to "fire up" the financial services sector to drive growth and included plans in relation to ESG and sustainable finance. Subsequently, the government published it consultation response on the future regulatory regime for ESG ratings providers which was accompanied by draft regulations which would implement the regime. Comments can be made on the draft regulations by 14 January. The government will then finalise the legislation next year and the Financial Conduct Authority will then consult on the specific requirements. 

A consultation has also been published on a UK green taxonomy, which forms part of the wider sustainable finance network and aims to facilitate an increase in sustainable investment. The consultation is looking to see whether a UK Taxonomy would complement existing policies and support the government's sustainability objectives. The consultation closes on 6 February 2025.

The government has also launched a set of integrity principles for voluntary carbon and nature markets. A consultation on the implementation of these will be published early in the new year that will further expand on the principles and provide detail on how they may be implemented. The consultation will invite responses on these proposals and the use of voluntary credits towards reporting on "Scope 3" emissions. 

International 

The UN COP29 climate summit implemented Article 6 of the Paris Agreement on carbon markets offering clear standards and guidelines that pave the way for collaboration and investment in emissions reduction. The agreement means that rules governing country-to-country trading under Article 6.2 and new international carbon market under Article 6.4 are almost complete – with the COP29 presidency stating the negotiations had achieved "full operationalisation" of Article 6 and would unlock international carbon markets and enable transnational solutions. 

A new collective quantified goal (NCQG) was also agreed at COP29. The NCQG will triple climate finance to developing countries to $300 billion annually by 2035. The NCQG is expected to reflect the scale of the current climate crisis and ensure that developing countries receive the necessary support to transition to low-carbon economies. It is not just a financial target but is also likely to be seen as a litmus test for global cooperation under the Paris Agreement. 

The International Organisation for Standardisation (ISO) has released the ISO ESG Implementation Principles, which provides a set of guidelines aimed to help organisations to integrate ESG into their culture, as well as supporting with the management of ESG performance and ensure consistent, comparable, and reliable global ESG reporting. 

The International Chamber of Commerce (ICC) in its paper "Using competition law to tackle climate change and unsustainable practices" has pushed for competition laws to support sustainability. It highlights the need for updated guidelines and global engagement. The ICC proposes using competition laws to combat unsustainable practices by dominant firms while ensuring genuine sustainability efforts are not penalised. The Competition and Market's Authority in the UK as well as the Commission and several national competition authorities in the EU and further afield have published guidance on how this can be done. 

The IFRS Foundation has published a guide to help companies identify sustainability-related risks and opportunities and material information to provide. 

Market news 

A KPMG report, "The move to mandatory reporting", outlines that sustainability reporting has become part of business as usual for almost all of the world’s largest 250 companies and found that 41% of these companies consider sustainability in leadership pay…The Texas Attorney General has launched a lawsuit, against Vanguard, BlackRock and State Street claiming they have used their market power to advocate ESG investment in order to manipulate coal markets and subsequently increase energy costs. 

Recent ESG Insights from Osborne Clarke 

A team from Osborne Clarke attended the Economist Impact 21st annual General Counsel Summit event in London on 5 November and hosted a breakfast briefing on sustainable supply chains. Our OC experts identified five strategies for GCs to enhance international operations, build sustainable supply chains, and address business transformation, including managing geopolitical risk and the adoption of AI.

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