In this blog, we will delve into the plethora of sustainability regulations that businesses must adhere to when implementing sustainability initiatives and striving to achieve their net zero goals. These regulations play a vital role in ensuring that companies prioritise environmental and social responsibility, while also driving the transition towards a more sustainable future. We will cover the below standards:
European Sustainability Reporting Standards (ESRS)
Corporate Sustainability Due Diligence Directive (CSDDD)
Corporate Sustainability Reporting Directive (CSRD)
Prohibiting Products Made with Forced Labor on the Union Market Regulation (PPMFLR)
European Sustainability Reporting Standards (ESRS):
What it is: ESRS aims to establish reporting standards for sustainability matters that companies must disclose. It focuses on the resilience of the company's business model and strategy to sustainability risks and aligning plans with the 1.5-degree Celsius global warming target under the Paris Agreement.
Who it affects: European companies meeting specific conditions, such as net revenue of $43 million, assets of $22 million, or 250 or more employees. It also applies to non-EU companies with substantial activity in the EU (revenue greater than $161 million).
Details: The rule will start applying between 2024 and 2028, depending on company size. European Sustainability Reporting Standards aims for interoperability with other reporting standards to avoid double disclosure efforts.
Status: Sector-specific standards are planned for release starting in 2024.
Corporate Sustainability Due Diligence Directive (CSDDD):
What it is: CSDDD is a framework which requires companies to take responsibility for their environmental and social impacts as well as those of their suppliers.
Who it affects: EU companies with more than 250 employees and about $43 million revenue — or those with parent companies of more than 500 employees or that have global revenue of at least $161 million. Non-EU companies with revenue of $43 million within the EU or with parent companies with at least $161 million revenue and at least $43 million generated in the EU.
Details: Companies must assess and mitigate environmental and human rights risks, develop policies and procedures, and publicly disclose their efforts. Regular evaluations of due diligence procedures are essential, with a minimum frequency of once every 12 months. It also requires the establishment of grievance mechanisms for employees and stakeholders to voice concerns.
Status: Draft approved, to be finalised by end of 2023.
Corporate Sustainability Reporting Directive (CSRD):
What it is: The CSRD requires companies to provide third-party audited reports that detail the impact of sustainability issues on their business and how their business affects people and the environment. It replaces the Non-Financial Reporting Directive, which previously required companies to provide non-financial disclosure documents known as "sustainability reports."
Who it affects: European companies meeting two of the following three conditions: $43 million in net revenue, $22 million in assets or 250 or more employees. It applies to non-EU companies with substantial activity in the EU, including a physical presence: net revenue of $161 million in the EU for the last two consecutive years and a listed EU subsidiary with a net turnover greater than $43 million in the preceding year.
Details: Companies must disclose information on sustainability matters, including the resilience of their business model and strategy to sustainability risks, and plans that align with the 1.5 degree Celsius global warming target under the Paris Agreement.
Status: The rule will start applying between 2024 and 2028, depending on company size, starting with the largest (over 500 employees) on 1st Jan 2024.
Green Claims Code:
What it is: It is a set of guidelines developed by the Competition and Markets Authority (CMA) to ensure that environmental claims made by businesses are genuine and not misleading.
Who it affects: The Green Claims Code applies to businesses that make green claims about their products, services, brands, or activities.
Details: The Green Claims Code consists of four key principles:
- Truthful and accurate claims: Businesses must live up to the claims they make about their products, services, brands, and activities.
- Clear and unambiguous messaging: The meaning that consumers take from a product's messaging should match the environmental credentials of that product.
- Transparency and disclosure: Claims must not omit or hide important information that could prevent consumers from making informed choices.
- Fair and meaningful comparisons: Any product comparisons should be made between products that meet the same needs or are intended for the same purpose.
Status: The Green Claims Code is currently in effect and aims to help businesses protect their reputation with customers and comply with the law regarding green claims.
Green Claims Directive:
What it is: The Green Claims Directive aims to eliminate greenwashing by setting detailed rules for how companies should market their environmental impacts and performance. This was initially introduced in March 2023.
Who it affects: EU companies and non-EU companies making environmental claims targeting EU consumers.
Details: The directive is currently going through the approval process by the European Parliament and the EU Council. It will need to be adopted by member states after approval. However, it is proposed with the following objectives: to make green claims reliable, comparable, and verifiable across the EU, protect consumers against greenwashing, and contribute to the creation of the circular and green EU economy.
Status: Currently in the approval process.
Prohibiting Products Made with Forced Labor on the Union Market Regulation (PPMFLR):
What it is: The EU Commission proposed a regulation to ban products made with forced labour on the EU market, as defined by the International Labour Organisation (ILO). The objective is to prohibit the availability and export of such products within the European Union.
Who it affects: Companies selling products on the EU market.
Details: The proposed regulation was adopted by the EU Commission and now requires approval from the European Parliament and the EU Council. This proposes to promote and consider remediation for victims of forced labour located outside EU territory as well as obstacles to accessibility and effectiveness of remediation.
Status: The timeline for the final adoption is still unclear, but an approximate entry into force could be estimated as 2025.
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