Unpacking the New EU Due Diligence Directive

Author

Tim Mohin
22 Mar

Europe continued its leadership in sustainability policy with the approval of the Corporate Sustainability Due Diligence Directive (CS3D) late last week. The new policy requires companies to identify and mitigate adverse environmental and social impacts in their supply chains. 

While this directive was expected to be finalized back in January, support faded as the backlash against over-regulation in Europe grew. After 45 days of intense negotiations, a majority of EU member states approved a substantially modified version of the policy. An 11th-hour switch from Italy was enough to get the ‘qualified majority’ of over 15 member states, representing more than 65% of the EU population. 

Here are the key aspects:

Phased in applicability: 

  • 2027:

    EU companies with > 5,000 employees and global revenue > €1.5 billion;

    Non-EU companies with a net EU revenue > €1.5 billion.

  • 2028:

    EU companies with > 3,000 employees and global revenue > €900 million;

    Non-EU companies with a net EU revenue of > €900 million.

  • 2029:

    EU companies with > 1,000 employees and global revenue > €450 million;

    Non-EU companies with a net EU revenue of > €450 million.

Due diligence obligations:

  • A due diligence policy will have to be established in consultation with employees

  • Identify, assess, and prioritize adverse impacts 

  • Address and remediate adverse impacts 

  • Engage with stakeholders for the identification and mitigation of adverse impacts

  • Establish a grievance mechanism 

  • Ongoing monitoring of the effectiveness at least every 12 months and after significant changes or new risks emerge.

  • Publish an annual statement on due diligence on matters unless they are covered by reporting under the Corporate Sustainability Reporting Directive

  • Retain documentation for at least five years

  • Fines of up to 5% of companies' global revenue can be levied for noncompliance

The bill passed its next hurdle on Tuesday with a lot less duress, clearing The European Parliament’s Legal Affairs Committee by a 20-4 vote. It will now go onto a full plenary vote in Parliament in April, where it is expected to easily pass.

Halted SEC’s Climate Rule to be Decided by Conservative Court

PHOTO: ANDREW KELLY/REUTERS

As predicted, legal challenges to the SEC’s new climate rule have delayed its implementation.  The stay was ordered by the 5th Circuit court, indicating that the judges saw merit in the petitions filed by fossil fuel companies Liberty Energy and Nomad Services.

With at least nine lawsuits across six of the twelve US federal courts, all the cases were combined, and a “lottery” was held to decide which of the six courts would hear them. This lottery system is used to prevent cases from being filed in courts known to be sympathetic to the petitioner's case.  The conservative-leaning Eighth Circuit Court was selected, adding doubt to the prognosis for the SEC’s Climate Rule.

Canada Proposes ISSB-aligned Sustainability Standards

Image by Jason Hafso on Unsplash

The Canadian Sustainability Standards Board (CSSB) was established by CPA Canada in 2022 to develop sustainability reporting standards for Canadian companies. The two proposed standards, Canadian Sustainability Disclosure Standards (CSDS) 1, general sustainability-related financial disclosures, and CSDS 2, climate-related disclosure, are largely in line with the ISSB’s standards. The only “Canadian-specific modifications” are a longer phase-in period, allowances to focus solely on climate, and a longer period before companies must report scope 3 value chain emissions. 

Although these reporting standards will initially be voluntary, Canada’s securities regulator (CSA) could decide to make them mandatory in the years to come. The exposure drafts are currently available for comment until June 10, 2024, before they are finalized by the end of 2024. 

US Ambitious EV Rule 

Pete Kiehart for The New York Times

On Wednesday, the Biden administration released one of the US's most significant climate regulations. The new Environmental Protection Agency (EPA) rules will ensure that by 2032, the majority of new small trucks and cars sold in the US will be all-electric or hybrids.

The new tailpipe emissions limits will gradually become stricter until 2032, when more than 50% of new cars sold in the US will have to be zero-emissions. This new rule is not a ban on fossil cars. Instead, it requires manufacturers to meet average tailpipe emissions limits across their whole vehicle range, meaning they can still produce some gas-powered cars. 

Transportation is the largest single source of emissions in the US. The EPA estimates this new rule will prevent 7 billion tons of CO2 from being emitted over the next 30 years. President Biden said, “Three years ago, I set an ambitious target: that half of all new cars and trucks sold in 2030 would be zero-emission… And we’ll meet my goal for 2030 and race forward in the years ahead.”

However, EVs will be a hotly contested issue during the upcoming election, with Republican hopeful Trump using increasingly aggressive language to discredit the EV industry. 

Texas Anti-ESG Stance Costs $100’s of Millions

This week, a Texas school fund stopped a contract with BlackRock to manage $8.5 billion, accusing the asset manager of boycotting fossil fuel companies, which represent a large part of the state's economy. BlackRock denied it is engaged in any boycott, saying the money pulled is a tiny sliver of the $10 trillion in assets that it manages.

The move from the Texas Permanent School Fund is in accordance with a 2021 Texas law that requires state funds to divest from funds linked to ESG. However, a new study revealed that the state's anti-ESG stance has cost them more than $700 million and around 3,000 jobs. 

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

Other Notable News:

Notable Podcasts: 

Reply

or to participate.