On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the “Draft Directive”).  The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (“HREDD”) which, importantly, would apply to any non-EU-based company and its subsidiaries  if those group companies have aggregate annual net turnover in the EU of:

  • more than EUR 150 million (Group 1); or
  • more than EUR 40 million with at least 50% of net worldwide turnover generated in a “high-risk” sector which includes textiles, clothing and footwear, agriculture, forestry, fisheries, food & extractives (Group 2).

Notably, the HREDD applies even if a company and its subsidiaries do not have a physical presence in the EU, if the above net turnover threshold is met.

The Draft Directive requires both Group 1 and Group 2 companies to take appropriate measures to identify, and mitigate, actual and potential adverse human rights and environmental impacts arising from their own operations anywhere in the world (not just in the EU) and, where related to their value chains, from their “established business relationships”.

Colleagues from our offices throughout the world have prepared briefings which are specific to particular locations, giving insights into related matters in those jurisdictions.

Continue Reading Human Rights and the Environment – What non-EU-based companies need to know regarding the EU draft Corporate Sustainability Due Diligence Directive

The recent publication, on 27 February 2022, of the second instalment to the Sixth Assessment Report of the UN’s Intergovernmental Panel on Climate Change (“IPCC“) did not receive the same degree of attention as the first instalment in August 2021.  The findings, and message, of the second instalment, are no less severe, or potentially consequential, however, delivering as it does, the “bleakest warning yet” of the impacts of climate change.

The first instalment, developed by the IPCC’s Working Group I, focused on the physical science basis of climate change.  The second instalment, developed by the IPCC’s Working Group II, assesses the impacts of climate change, looking at ecosystems, biodiversity and human communities at global and regional levels.

The findings of the IPCC are, of course, deeply troubling in many respects, and the implications of those findings are likely to be extensive.  One area in which those implications are likely to be felt is that of climate litigation.  As explored in our previous article, the science based findings of the IPCC have played a role in affirming international legal standards on climate change and establishing the link between emissions and climate change, thereby – in some respects – strengthening the cases of climate litigants who may previously have encountered difficulties in establishing causation.  The ever-increasing urgency of the climate crisis, and the willingness – and ability – of stakeholders to use litigation to compel action to address that crisis, will continue to be features of the landscape as attention focuses on the IPCC’s findings.

Continue Reading Climate Change Litigation: the IPCC’s latest Report links climate change to loss and damage

On 23 February 2022, the European Commission published its much-anticipated draft corporate sustainability and due diligence directive (the Draft Directive), after a number of delays (see our Previous Blog).  The Draft Directive sets out a proposed EU standard for human rights and environmental due diligence (HREDD). This includes an obligation for companies to take appropriate measures to identify actual and potential adverse human rights and environmental impacts arising from their own operations or those of their subsidiaries and, where related to their value chains, from their “established business relationships”.  The Draft Directive also provides a mechanism for sanctions to be imposed for non-compliance with the due diligence obligations and provides for director responsibility and accountability in relation to a company’s HREDD programme.

Whilst the Draft Directive remains subject to further legislative scrutiny and approval, it provides the most detailed insight yet as to the scope and form of the prospective EU HREDD obligations, and it provides a helpful template for corporates to continue developing their due diligence policies and procedures designed to identify, assess and mitigate adverse human rights and environmental impacts – both in their operations and in their supply chains.

Continue Reading Human Rights and the Environment – EU publishes draft Corporate Sustainability Due Diligence Directive

The fashion industry often faces scrutiny from stakeholders to improve due diligence in supply chains.  A landmark proposed bill in New York, drafted last October and presented for the first time to a legislative committee on January 5 2022, is seeking to drive accountability and transparency in the supply chains of fashion companies. The Fashion Sustainability and Social Accountability Act (the “Act“) historic in its scope and nature, would require fashion retail sellers and manufacturers to disclose their environmental and social impacts, and to set out targets to reduce those impacts.

Continue Reading ESG: Fashion in Focus – The Fashion Sustainability and Social Accountability Act

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part III to understand some of the taxonomy-related challenges that asset managers may encounter. You can find Parts I and II here and here.

Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part III

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part II for our analysis of how asset managers are already leveraging taxonomies. You can find Parts I and III here and here.

Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part II

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part I for a better understanding of existing and developing taxonomies around the world. You can find Parts II and III here and here.

Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part I

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.

Continue Reading Business and Human Rights – The Netherlands to Introduce Mandatory Human Rights Due Diligence Legislation

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.

Continue Reading Business and Human Rights – EU’s Proposed Mandatory Human Rights and Environmental Due Diligence Law Faces Further Delay

In September 2021, the Business & Human Rights Resource Centre (BHRRC) published a briefing entitled “Social Audit Liability: Hard law strategies to redress weak social assurances” (the “Briefing”).

The Briefing contends that the existing model of social auditing is inadequate and that social auditing is not a substitute for human rights due diligence (see our previous Blog Post).  Among other things, the Briefing reflects on the failure of social audits to detect human rights abuse in the past and on the potential flaws in certification schemes.  Ultimately, the Briefing argues that companies should not solely rely on social audits and certifications and should instead adopt a “transformative approach” to human rights due diligence which goes beyond social auditing.

Continue Reading Business and Human Rights: The Case to Look Beyond Social Auditing