FEATURE
FUTURE TRENDS:A SPOTLIGHT ON GLOBAL ESG LAWS
Over the last decade, global sustainability legislation has surged by 155%. Alex Minett, Head of Global New Markets at CHAS, outlines some key worldwide legislative developments and discusses how businesses can respond.
Research from the sustainability and technology company ESG Book, which analysed the World Business Council for Sustainable Development’s Reporting Exchange Platform, shows that global ESG regulations have increased by 155% in the last ten years. While ESG regulations help make businesses accountable for their environmental and social impact and governance practices, it can be difficult to keep up with the proliferation of new rules. Below is a snapshot of some of the latest developments around the world.
The European Union The European Union (EU) is in the process of implementing two significant legislative measures, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD/CS3D Directive, collectively referred to as the Directives). These Directives impose a responsibility on corporations to exercise due diligence to mitigate adverse effects on human rights and the environment, both within their own operations and throughout their value chains. The onus is on individual member states to implement them in their regions.
The Corporate Sustainability Reporting Directive (CSRD) is an update to the Non-Financial Reporting Directive (NFRD), which required large companies in the EU to disclose non-financial information, including information on their ESG policies and performance. The CSRD introduces more detailed sustainability reporting requirements for companies, including mandatory reporting on a broader range of ESG indicators.
For large companies already subject to NFRD, the CSRD regulation will apply from 1st January 2024, while larger companies not already subject to the NFRD will see the regulation apply from 1st January 2025. Smaller organisations should expect to have to comply from 2026.
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Meanwhile, the draft proposal for the Corporate Sustainability Due Diligence Directive (CSDDD) was approved in June 2023. Under the CSDDD, companies must engage in a reasonable due diligence process within their operations and across their entire supply chains to prevent or reduce human rights issues and specific environmental risks. Additionally, they are expected to take decisive action to rectify human rights violations or environmental offences if they occur. Depending on the progress of negotiations with the member states, due diligence obligations may apply as soon as 2025.
The EU Taxonomy Regulation is a framework to establish minimum standard reporting requirements and uphold transparency over which investments or activities can be considered sustainable. Activities are classified as taxonomy-eligible in relation to six environmental objectives, including climate change mitigation, pollution prevention and transition to a circular economy. Taxonomy alignment can be achieved by committing to minimum social safeguards around worker and human rights, for example.
The EU Taxonomy regulation is being phased in by sector, starting with finance back in 2020 and followed by industries such as construction, manufacturing and transport over recent years. It is expected to incorporate new sectors as well as SMEs from 2024.
Germany Pre-empting the supply chain due diligence legislation currently in draft for the EU, the German Supply Chain Due Diligence Act (GSCA) came into force on 1st January 2023. It obligates companies to assess and conduct due diligence on human rights and environmental risks across their supply chain. The GCSA applies to any company employing over 3000 staff (dropping to 1000 from 2024) with a registered branch office in Germany. The Act applies to all suppliers,
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