[co-authors: Clare Johnston, Millie Wilkinson, Nathan Handoll, Westley Trimble]
Welcome to the latest edition of our monthly ESG Insights providing you with a summary of the key developments from around the world.
Global: Public consultation on climate risk supervisory guidance
On March 19, the International Association of Insurance Supervisors launched the third of four consultations on climate risk. The consultation includes proposed changes in selected insurance core principles guidance and supporting material to reflect climate risk.
The consultation is now open until June 19, 2024.
Global: NZBA member banks vote in favor of adopting updated guidelines
On March 13, members of the UN-convened Net-Zero Banking Alliance voted to adopt a new version of the Guidelines for Climate Target Setting for Banks.
The scope of targets will extend to include banks’ capital market activities. New guidelines will also update and clarify technical language to reflect the development of practices, methodologies, and data availability in the last three years. This includes policy engagement and transition planning.
Hong Kong: CASG revamps website for sustainable finance
On February 21, the Green and Sustainable Finance Cross-Agency Steering Group revamped its official website.
An enhanced database and tools were added to offer a “one-stop” green and sustainable finance information hub for financial institutions, corporates, and the general public. Key improvements aim to facilitate reporting and support broader consent-based data sharing between corporates and financial institutions. Tools have also been added to enable small and medium-sized enterprises to calculate their greenhouse gas emissions.
EU: Green Transition Directive enters into force
On March 26, the Green Transition Directive (GTD) came into force. Member States now have 24 months to implement new rules into their national law. GTD aims to limit the use of misleading green claims, while empowering consumers with better information on companies’ sustainable practices. To achieve this, environmental claims that cannot be supported with evidence will be banned.
For further information, please view our Flash Update.
EU: Agreement reached on Environmental Crime Directive
On March 26, the European Council formally adopted the Environmental Crime Directive (ECD). ECD aims to improve the investigation and prosecution of environmental crime offenses. The number of environmental criminal offenses will increase from 9 to 20, including timber trafficking, the illegal recycling of polluting components of ships, and serious breaches of legislation on chemicals.
Intentional offenses causing death can now lead to a minimum of 10 years in prison. Lesser offenses can result in 3 to 8 years. Companies may also face fines of 5% of global turnover or €40 million for serious offenses, and 3% of turnover or €24 million for other offenses.
EU: Shipments of Waste Regulation
On March 25, the European Council adopted the revision of the Regulation on Shipments of Waste (RSW). The revisions outline measures to ban the shipments of all waste destined for disposal within the EU. The ban on Member States exporting waste for disposal to third countries will also be maintained. RSW will now be published in the EU’s Official Journal and enter into force on the 20th day following publication.
EU: Agreement reached on Platform Workers Directive
On March 19, the European Parliament reached a provisional agreement on the Platform Workers Directive (PWD). PWD aims to ensure platforms workers' employment status are classified correctly. The new rules mandate human oversight on key decisions affecting platform workers and require platforms to handle data more robustly. The text will now be formally endorsed by the European Parliament during the April 22-25 plenary session.
EU: Corporate Sustainability Due Diligence Directive
On March 15, the European Council approved the Corporate Sustainability Due Diligence Directive (CSDDD). Following internal negotiations between Member States, the CSDDD has now been approved with more lenient provisions than first proposed. Most importantly, the scope of companies affected will now include those with 1,000 employees and a turnover of €450 million, rather than those with 500 employees and €150 million. The European Parliament is set to vote on the CSDDD on April 24, 2024, and it is expected that in its current form, the CSDDD will be approved.
For further information, please view our Flash Update.
EU: European Parliament adopts Waste Framework Directive
On March 13, the European Parliament adopted its proposals on the Waste Framework Directive (WFD), which aims to better prevent and reduce waste from food and textiles across the EU. Under WFD, the Extended Producer Responsibility schemes will be expanded. More products, including clothing, blankets, bed linen, curtains, hats, footwear, mattresses and carpets will now be covered, requiring producers to cover the costs of collecting, sorting and recycling products.
More stringent waste-reduction targets are also introduced. By 2030, in food processing and manufacturing, a 20% target is set. For restaurants, food services and households, a 40% target is set. The European Commission will also evaluate if a 2035 target is required. WFD will now be followed up by the new Parliament after the 6-9 June European elections.
EU: Toy Safety Regulation adopted
On March 13, the European Parliament approved its position on the Toy Safety Regulation (TSR), aiming to decrease the number of unsafe toys sold in the EU market.
TSR strengthens requirements and bans on certain chemical substances in toys. Existing prohibitions on harmful substances will be extended to endocrine disruptors. Toys also cannot contain any per- and polyfluorinated alkyl substances. Additionally, toys will be required to have a digital product passport. The passport will ensure consumers have easy access to safety information. Toys will also be more easily traceable.
EU: Artificial Intelligence Act formally adopted
On March 13, the European Parliament formally approved the Artificial Intelligence Act (AIA), aiming to protect fundamental rights, democracy and environmental sustainability from high-risk AI. AIA will ban AI applications that endanger citizens’ rights. These include biometric categorization systems, unfocused facial image scraping, emotion recognition, social scoring, predictive policing and AI that manipulates human behavior.
In addition, a tiered approach to General-purpose AI (GPAI) systems is set out. While all GPAI systems are subject to transparency requirements, systems with high-impact capabilities are subject to further design and governance requirements.
For more information on the AI Act, please view our Flash Update and Briefing.
EU: European Parliament adopts Green Claims Directive
On March 12 the European Parliament adopted the Green Claims Directive (GCD). Once entered into force, GCD will require businesses to provide evidence to support their environmental claims and impose obligations to make this information available. The evidence to support such claims must be verified with comprehensive assessments.
For further information, please view our Flash Update.
EU: Energy Performance of Buildings Directive adopted
On March 12, the European Parliament adopted the Energy Performance of Buildings Directive (EPBD). The EPBD will require all new buildings to be zero-emission by 2030 and 2029 for new buildings owned by public authorities.
Member States will be required to ensure residential buildings achieve a reduction in the average primary energy use of at least 16% by 2030 and at least 20% by 2035. For non-residential buildings, the worst-performing 16% must be renovated by 2030, and the worst-performing 26% by 2033. Finally, fossil fuels in heating and cooling systems should be phased out by 2040.
EU: Cyber Resilience Act formally adopted
On March 12, the European Parliament formally adopted the Cyber Resilience Act (CRA), aiming to ensure products with digital features are secure to use and provide enough information about their security properties. Under this legislation, critical products will be classified based on their cybersecurity risk level. These categorized products will undergo thorough scrutiny by a notified body or through a conformity assessment managed by manufacturers. The CRA now awaits formal adoption by the European Council.
EU: European Parliament adopts rules to reduce harmful emissions
On March 12, the European Parliament adopted new rules to reduce emissions from industrial installations and large pig and poultry farms, through the Industrial Emission Directive, and the Regulation on the Industrial Emissions Portal. The new rules will require companies to set sustainable targets for water consumption, waste, resource efficiency, energy efficiency and raw material use. These measures will be extended to pig farms with more than 350 livestock units. The European Council must now formally adopt the rules, before being published in the EU Official Journal and entering into force 20 days later.
EU: Agreement reached on the Packaging and Packaging Waste Regulation
On March 4, the European Council, Parliament, and Commission reached a provisional agreement on the Packaging and Packaging Waste Regulation (PPWR).Under the PPWR, packaging used for food can no longer include per- and polyfluorinated alkyl substances. Plastic packaging will also need to contain minimum percentages of recycled content, depending on the type of packaging used by operators. A deposit return system must also be introduced by member states by 2029.
Abu Dhabi: ADGM launches consultation on Whistleblowing framework
On March 7, the Abu Dhabi Global Market (ADGM) launched a consultation on a proposed whistleblowing framework.
The framework requires companies in ADGM to implement appropriate systems that reflect the size and complexity of their business to enable employees to report any unethical behavior effectively. Additional requirements apply to companies over a certain size or that carry additional financial crime risks.
The proposals include:
- a dedicated regulatory framework that recognizes reporting of ‘protected disclosures’
- explicit availability of internal and external channels for reporting reasonably held suspicion of breaches of ADGM legislation or financial crime
- good governance requirements to support whistleblowing
- non-retaliation protections integrated into existing employment regulations to guard employees against retaliation for speaking up
Feedback on the Consultation Paper closes on April 30, 2024.
UK: Assurance of Sustainability Reporting Market Study
On March 21, the Financial Reporting Council opened a consultation on their Assurance of Sustainability Reporting Market Study. The study will assess the effectiveness of the UK sustainability assurance market, its ability to deliver high-quality assurance, and potential future developments.
The consultation period will close by June 13, 2024.
UK: Consultation on the carbon border adjustment mechanism
On March 21, the Government launched a consultation seeking views on the design and administration of the UK carbon border adjustment mechanism (CBAM). CBAM is set to launch on January 1, 2027, and will apply a carbon price on imports of certain carbon intensive imported goods from the following sectors: aluminium; cement; ceramics; fertilisers; glass; hydrogen; and iron and steel.This consultation will close by June 13, 2024.
UK: Amending regulations for EPR data reporting in England
On April 1, new rules to amend the Packaging Waste (Data Reporting) Regulations 2023 came into force.
Producers of packaging will be required to report data on the packaging that they place on the market. The data is needed to calculate fees that producers will have to pay to cover the cost of managing packaging. This is part of the extended producer responsibility regime for packaging from October 2025.
The amendments in the new rules include:
- clarifying that sellers must report packaging supplied to businesses
- clarifying the division of responsibilities between different entities
- requiring the Environment Agency to publish a list of large producers to assist producers in determining whether they are required to report certain packagin
UK: Future regulatory regime for ESG ratings providers
On March 6, HM Treasury announced it will regulate ESG ratings where ESG factors are used for investment decisions and capital allocation. The objective is to improve clarity and trust in ESG ratings. A full consultation response and legislative steps will follow later this year.
US: SEC issues voluntary stay of Climate Disclosure Rules pending judicial review
On April 4, less then one month after the US Securities and Exchange Commission (SEC) released its newclimate disclosure rules (the “Final Rules”), the SEC voluntarily stayed the rules pending judicial review. In issuing the stay, the SEC stated that it “is not departing from its view that the Final Rules are consistent with applicable law and within the Commission’s long-standing authority to require the disclosure of information important to investors in making investment and voting decisions.” However, the SEC further stated that “given the procedural complexities accompanying the consolidation and litigation of the large number of petitions for review of the Final Rules, a Commission stay will facilitate the orderly judicial resolution of those challenges and allow the court of appeals to focus on deciding the merits.”
For more information on the SECs climate disclosure rules, please view our Briefing as well as this Article in which we comment on how corporate counsel can prepare for the SEC’s climate disclosure rules.
US: EPA announces final emissions standards for cars and heavy-duty vehicles
The U.S. Environmental Protection Agency (EPA) announced a final rule on March 20, 2024 titled "Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles.” This rule establishes more protective standards to further reduce air pollutant emissions from light-duty and medium-duty vehicles starting with model year 2027. The final rule builds upon EPA’s final standards for federal greenhouse gas emissions standards for passenger cars and light trucks for model years 2023 through 2026. It leverages advances in clean car technology to unlock benefits ranging from improving public health through reducing smog- and soot-forming pollution from vehicles, to reducing climate pollution, to saving drivers money through reduced fuel and maintenance costs. These standards will phase in over model years 2027 through 2032.
Additionally, on March 29, 2024 the EPA announced a final rule, "Greenhouse Gas Emissions Standards for Heavy-Duty Vehicles – Phase 3.” This rule sets stronger standards to reduce greenhouse gas emissions from heavy-duty (HD) vehicles starting from model year 2027. The new standards will apply to HD vocational vehicles (delivery trucks, public utility trucks, transit, shuttle, school buses, etc.) and tractors (day cabs and sleeper cabs on tractor-trailer trucks). The “Phase 3” standards build on EPA’s Heavy-Duty Phase 2 program from 2016 and maintain the program’s structure, which is designed to reflect the diverse nature of the heavy-duty vehicle industry.
Written by the Clare Johnston, Millie Wilkinson and Nathan Handoll (Regulatory Insights), supported by Westley Trimble (Research) in Knowledge.
