February 2024 Newsletter

Hello, and please see our latest selection of ESG stories for February.

EU fails to agree EU Corporate Sustainability Due Diligence Law

The European Union's Corporate Sustainability Due Diligence Directive (CSDDD), aiming to establish a sustainability due diligence standard for businesses operating in the EU, has incurred a setback. The directive, focusing on environmental, climate change, and human rights issues, encountered opposition, resulting in a failed vote on 28th February at the European Council. The vote seemed likely to gain approval until Germany announced an intention to abstain and support started to wane. Opposing states were not swayed by the lack of support, meanwhile France’s eleventh-hour move to dilute the CSDDD, reducing its impact on businesses, was criticised by proponents of the directive. With a deadline for European Parliament approval on 15th March and EU elections in June, the fate of the CSDDD is uncertain, fuelling concerns about the future of sustainability directives.

FRC to review UK Stewardship Code

The Financial Reporting Council (FRC) has announced a review of the UK Stewardship Code 2020 to assess its impact on stewardship outcomes across asset classes. The focus includes evaluating the Code's support for long-term value creation, its reporting burden on issuers and signatories, and potential unintended consequences like short-termism. The review, prompted by feedback from the 2023 Corporate Governance Code consultation, will involve a targeted stakeholder outreach and a public consultation after the 2024 AGM voting season. The FRC aims to ensure the Code enhances stewardship practices without imposing onerous reporting obligations. The revised Code is expected to be published in early 2025. LINK

New EU law empowers consumers against corporate greenwashing

The European Parliament has approved the Directive on Empowering Consumers for the Green Transition, aiming to combat greenwashing. The directive bans misleading climate-neutral claims and requires products labelled as "eco" or "green" to be certified. The directive also prohibits claims about neutral environmental impact via carbon offsetting, and mandates clear, verifiable commitments for future environmental performance claims. Stricter oversight will be applied to sustainability labels, mandating third-party verification for credibility. While the European Environmental Bureau welcomes these measures, there were complaints that no bans were placed on early obsolescence and repair barriers. The law requires information on repairability and durability at the point of sale but falls short of compelling products to be longer-lasting. The directive will become national legislation across the EU over the next two years.

SFDR Level 1 and Level 2 reviews

The European Commission has responded to concerns about aligning level 1 and level 2 reviews of the Sustainable Finance Disclosure Regulation (SFDR), stating it is not inclined to delay the adoption of the Regulatory Technical Standards (RTS). The Commission views proposed RTS changes as separate from a potential level 1 review and a review should not delay the adoption of the RTS, which is expected after mid-March, coinciding with the European Parliament recess. A follow-up letter from the Alternative Investment Management Association (AIMA) suggests a 2025 start for revised disclosures related to Principal Adverse Impacts, with mandatory pre-contractual and website disclosures from January 2025. Reporting would be mandatory from the beginning of 2025. If RTS adoption extends beyond mid-2024, the suggested timelines may be revised again.

The FCA Proposes a New Approach to Publicise Investigations

The Financial Conduct Authority (FCA) has revealed an initiative to enhance transparency and deter bad behaviour by publicising ongoing enforcement investigations, including the identity of the subjects. The proposal aims to reduce the time between misconduct and enforcement by leveraging cyber forensics, analytic tools, and expanded trading data coverage, which covers over one billion trades daily. Nonetheless, the FCA recognises the limitations of whistleblower intelligence arriving too late, and encourages firms to use their data, employee knowledge, and operational setup for robust compliance. The proposal is open for consultation until 16th April 2024.

Do get in touch if you have any questions or would like to discuss any ESG issue.