A company’s ability and commitment to include environmental, social, and governance (ESG) factors in its strategy becomes more and more important to investors, consumers, policy makers, civil society organizations and other stakeholders. There is a fundamental societal shift towards sustainability and responsibility. Managers are held accountable for ESG compliance. While environmental and governance aspects have
On 6 December 2021, the Netherlands became the latest European government to announce plans to introduce mandatory human rights and environmental due diligence (HREDD) legislation at a national level, adding to a growing movement and proliferation of national HREDD laws. This puts the Netherlands in the company of the likes of France, Germany and Norway (which have enacted or adopted such laws) and Austria, Belgium and Switzerland, among others (which are progressing their own national HREDD laws).
This development comes despite further delay on the publication of HREDD legislation at an EU level (see our previous Blog Post). On 6 December 2021, the Dutch Foreign Trade and Development minister said that he was “very disappointed” at the European Commission’s further delay to introduce EU mandatory HREDD legislation and announced the Dutch Government’s plans to develop and introduce a national HREDD law instead.
The European Commission has indefinitely postponed its much-anticipated directive on human rights and environmental due diligence (HREDD) – more than 150 days after it was first expected to be published. While the reason for the delay is unclear, 47 civil society organisations have penned an open letter seeking “full transparency on the reasons for the delay and on the decision-making process going forwards.”
Despite this setback, national HREDD legislation continues afoot: laws have been adopted or are in force in France, Germany and Norway, while proposed national legislation is being progressed in a number of other European countries. Most recently, in December 2021, the Netherlands announced its intent to introduce its own national HREDD law in view of the further delay of the proposed EU law.
Legislative developments aside, investors, civil society and other stakeholders are scrutinising how companies identify and mitigate human rights impacts in their operations and supply chains more closely than ever.
And so the message is clear: companies still need to take steps to develop and reinforce their human rights due diligence programmes, both in anticipation of further mandatory HREDD laws and to respond to stakeholder expectations and demands.
Many UK companies will soon be mandated to make TCFD-aligned disclosures. This follows the Financial Conduct Authority’s (FCA) introduction of the Listing Rules (Disclosure of Climate-Related Financial Information) Instrument in December 2020, which requires companies with a UK premium listing to disclose on a comply-or-explain basis against the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in their annual reports. The FCA and UK Government have held consultations on extending this requirement to standard-listed and large private companies.
To help companies comply with these disclosure requirements, the Financial Reporting Council’s Financial Reporting Lab (the ‘Lab‘) has recently published a ‘TCFD: ahead of mandatory reporting’ report (the ‘Report‘), which provides examples of good disclosure practices by companies that have already voluntarily adopted the TCFD framework. The Report refers to research recently conducted by the Alliance Manchester Business School on the approaches companies have taken to conducting climate-related scenario analysis (the ‘Research‘), which is required in order to comply with the TCFD recommendations. Together, the Report and the Research provide holistic practical advice for companies on making TCFD-aligned disclosures, which is also relevant for non UK based companies who are considering how best to address the TCFD recommendations.
On 22 October 2021, the three European Supervisory Authorities (EBA, EIOPA and ESMA – the “ESAs“) delivered to the European Commission the expected Final Report with draft Regulatory Technical Standards (RTS) with respect to additional pre-contractual and periodic disclosure relating to financial products that make sustainable investments contributing to environmental objectives (“Draft SFDR Amendment RTS” – JC 2021 50). By virtue of such new draft rules, the EU will regulate the market by establishing standardized disclosures.
Under a formalistic approach, such new Draft SFDR Amendment RTS as level 2 measures under the EU Sustainable Finance Disclosure Regulation (“SFDR“, Regulation (EU) 2019/2088) aim to
- provide disclosures to end investors regarding the investments of financial products in environmentally sustainable economic activities;
- provide end investors with comparable information to make informed investment choices; and
- establish a single rulebook for sustainability disclosures under the SFDR and the Taxonomy Regulation (Regulation (EU) 2020/852).
In a significant development in the UK government’s drive towards “greening” the financial system, as part of the transition to a net zero carbon economy, HM Treasury published, on 18 October 2021, a policy paper entitled “Greening Finance: A Roadmap to Sustainable Investing” (the “Roadmap“). The Government’s Green Finance Strategy envisages three phases:
- Informing investors and consumers: Ensuring that decision-useful information on sustainability is available to financial decision-makers;
- Acting on the information: Mainstreaming sustainability considerations into business and financial decisions; and
- Shifting financial flows: Shifting capital to align with a net zero and nature positive economy.
The Roadmap focusses on delivering the first phase through the introduction of economy-wide Sustainable Disclosure Requirements (SDRs). The SDRs aim to bring together existing and new sustainability disclosure requirements under one integrated framework for corporates, asset managers and asset owners, and creators of investment products.
But what obligations will these organisations be subject to under the new SDRs, and how can they best prepare themselves to comply with such obligations?
As interest in, and demand for, sustainable goods and services continue to increase rapidly, so too has the volume of statements, assertions and claims, often in the context of advertising, regarding the sustainability credentials of those goods and services.
In a further sign of the continued trend towards stricter regulation, and enforcement, in the context of so-called “greenwashing”, the UK’s Competition and Markets Authority (CMA) recently published its “Green Claims Code” (the “Code“), a guidance note for businesses on making environmental claims when advertising goods and services in the UK.
“… we renew our call on all governments to develop, implement, and enforce mandatory human rights and environmental due diligence requirements for businesses headquartered or operating within their own jurisdictions or, where appropriate, to further strengthen these regulatory regimes where they already exist.” – a statement from 94 investors representing over $6.3 trillion in AUM
On 7 October 2021, 94 investors representing over $6.3 trillion in assets under management and advisement, sent a statement to European Commissioners and the European Parliament, voicing their support for mandated human rights and environmental due diligence (mHREDD) (the “Statement“). The Statement was sent in light of the upcoming European Commission legislative proposal on Sustainable Corporate Governance. The proposal would require companies to consider their human rights and environmental impacts, allowing them to better manage sustainability related matters in their value chains and overall operations.
The European Union’s recent passage of its Sustainability Financial Disclosure Regulation marks yet another milestone in the progression of ESG matters. In a new article in The Secured Lender, we review this regulation and related ESG disclosure requirements, together with other notable ESG developments out of Japan and the United States, and discuss their…
This article follows-up on our previous Blog Post exploring the “jargon” of the EU Commission’s Chemicals Strategy for Sustainability (CSS), an ambitious political action plan for chemicals regulation in the EU that was released in October 2020.
Today, we are digging into another key concept of the CSS: the concept of “one substance, one assessment” (hereafter referred to as “OSOA“), which is essential for the Commission, and more generally for the European Union, to simplify and consolidate the chemicals legal framework.