Sustainability Blog #17

Legislation & Regulation

On 17 January, the European Parliament (EP) adopted the Directive on empowering consumers for the green transition (popularly known as the Greenwashing Directive) with 593 votes in favour, 21 against, and 14 abstentions. The directive’s main objective is to protect consumers from misleading marketing practices (also known as greenwashing) and help them make better purchasing choices.

As one of its most important aspects, the directive will prohibit the use of general environmental claims such as “environmentally friendly”, “natural”, “biodegradable”, “climate neutral” or “eco” without substantiating evidence. Moreover, only sustainability labels based on official certification schemes or established by public authorities will be allowed. Also, the directive aims to ban claims asserting that a product has a neutral, reduced or positive impact on the environment due to emissions offsetting schemes.

The Greenwashing Directive is meant to work in tandem with the Green Claims Directive, currently being discussed at committee stage in the EP.

The Greenwashing Directive now needs to be formally approved by the Council as well before it can be published in the Official Journal of the EU. Member States will then have 24 months to transpose it into national law. You can find the directive here.

On 18 January, the European Banking Authority (EBA) released draft Guidelines for banks to identify, measure, monitor, and manage environmental, social, and governance (ESG) risks. The EBA also simultaneously launched a public consultation on draft Guidelines on the management of ESG risks, which will last until 18 April 2024. You can find the consultation paper here.

On 22 January, the European Financial Reporting Advisory Group (EFRAG) published an exposure draft for a European Sustainability Reporting Standard (ESRS) for listed small- and medium-sized entities (LSME ED) and an exposure draft for a voluntary reporting standard for non-listed SMEs (VSME ED). The purpose of the LSME ED is to set reporting requirements that are proportionate and relevant to the scale and complexity of the activities of LSMEs and to their capacities and characteristics. This is expected to support LSMEs in getting better access to finance and to prevent discrimination against them on the part of financial market participants, as it will enable availability of standardised sustainability information. The LSME ED is one standard composed of three general sections – 1 General Requirements, 2 General Disclosures, and 3 Policies, Actions and Targets – and three sections dedicated to metrics: 4 Environment, 5 Social, and 6 Business Conduct. The consultation will be open until 21 May 2024. You can find the exposure draft here.

On 24 January, the Legal Affairs Committee (JURI) of the European Parliament approved a proposal to delay certain elements of the Corporate Sustainability Reporting Directive (CSRD) by two years. This also applies to adopting standards for sector-specific sustainability disclosures and reporting by non-EU companies. The move will give companies more time to implement the first set of ESRS and to reduce reporting requirements. Meanwhile, EFRAG will have more time to develop sector-specific standards.

January was closed in style with the publication of the final text of the Corporate Sustainability Due Diligence Directive (CSDDD/CS3D). The text will be voted on in the Council on 9 February and in the JURI committee on 13 February. A final vote in the European Parliament will follow, most likely in April 2024. You can find the final text here.

News & Publications

Although it came out in December 2023, it wasn’t included in our blog last month, so we’re bringing it to your attention this month: MSCI has published an insightful report, An Investor’s Guide to Nature and Biodiversity Risks and Impacts. The report highlights that although the biodiversity crisis shares drivers and impacts with the climate crisis, many investors have only recently become aware of its severity and its connection to business and finance. You can find the report here.

Also, on 10 January, the World Economic Forum (WEF) published the Global Risks Report 2024. The report recognizes various key current risks such as extreme weather events linked to climate change, misinformation through artificial intelligence, social and political polarization, rising living costs, and cyberattacks.

You can find the report here.