Sustainability Blog #10

This June was packed with interesting developments in ESG legislation and regulation in the EU. It all started on the first day of the month, when the European Parliament adopted its stance on the CSDDD ahead of the trilogue, while later in the month, the European Commission published the revised draft of the ESRS, containing some significant changes. The highlight of the month was definitely the Commission’s new sustainable finance package, which includes new TSC for four further economic activities in the EU Taxonomy and new regulations for ESG rating providers.

Legislation and regulation

On 1 June, the European Parliament adopted its position on the Corporate Sustainability Due Diligence Directive (CSDDD). Despite some bumps along the way, the EP managed to find a common stance, and the CSDDD got the green light from the MEPs. The final vote was 366 votes for, 225 against and 38 abstentions. This was a major step forward, as the EP took a fairly ambitious stance that incorporated almost all of the Committee on Legal Affairs’ proposals ahead of the trilogue discussions between the Parliament, the European Commission and the European Council. The trilogue started on 8 June.

On 13 June, the European Commission put forward a new package of measures to build on and strengthen the foundations of the EU sustainable finance framework. This sustainable finance package aims to ensure that the EU sustainable finance framework continues to support companies and the financial sector, while encouraging private funding of transition projects and technologies. Specifically, the European Commission has expanded the scope of the EU Taxonomy by incorporating additional activities. This means that in principle, the Commission has approved a new set of technical screening criteria (TSC) for four further economic activities in the Taxonomy (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems). Complementarily, the Commission has adopted specific amendments to the EU Taxonomy Climate Delegated Act, expanding on economic activities contributing to climate change mitigation and adaptation that were not included so far, in particular in the manufacturing and transport sectors. More information, including the new delegated acts, can be found here.

Additionally, the Commission is introducing new regulations for ESG rating providers. Their aim is to enhance transparency in the market for sustainable investments by providing investors with clearer information and guidelines. The introduction of these new regulations will empower investors with improved information for making informed choices on sustainable investments. Furthermore, the proposal includes a requirement for ESG rating providers offering their services to investors and companies in the EU to be subject to authorization and supervision by the European Securities and Markets Authority (ESMA). This crucial step aims to guarantee the quality and reliability of their services, protecting investors and upholding market integrity.

The Commission was also very busy with the European Sustainability Reporting Standards (ESRS). It has published 12 updated draft ESRS, which are now available for public feedback. Although the general structure of the standards remains the same, the EC made a number of changes in order to reduce reporting obligations and simplify first-time application of the ESRS. One of the most important changes is that all standards (except the ESRS 2) are subject to a double materiality assessment. Undertakings must determine which standards should be considered material on the basis of their materiality assessment. Previously, the drafts by the European Financial Reporting Advisory Group (EFRAG) provided for mandatory disclosures, independently of any materiality assessment. Moreover, the EC has introduced phase-in provisions in addition to those proposed by EFRAG, which will make initial adaptation to the new standards a bit easier. Also, some disclosures are now voluntary (for example, the transition plan for biodiversity and ecosystems in ESRS E4, and information on non-employee workers in ESRS S1).

The public feedback period will officially end on 7 July.

News and publications

On 7 June, Principles for Responsible Investment (PRI) issued a new technical guide called Human Rights Due Diligence for Private Markets Investors. The guide is intended to provide tools and resources to help private markets investors adopt consistent human rights practices and make more informed investment decisions. You can find the guide here.

The Sustainable Development Report 2023 (SDR 2023) was published on 21 June. The SDR reviews progress made each year on the Sustainable Development Goals (SDG) since their adoption by the 193 UN Member States in 2015. At the halfway point to 2030, the SDR 2023 takes stock of progress made and discusses priorities to restore and accelerate SDG progress. The best ranked country is Finland, followed by Sweden and Denmark. Croatia is ranked 12th (same as in 2022), Slovenia is 13th and Slovakia is 23rd. You can find the full report here.

Finally, we are happy to announce that CMS has decided to merge all of our Sustainability Blogs published so far into a brochure called “Through the ESG Lens – A Six-Month Review”. We have created this publication as a lookup resource for legal professionals and anyone interested in staying up to date on the latest legal developments in the ESG arena. We hope you find it informative and useful, and welcome your feedback and comments. You can find the brochure here.