An Overview Of Recent Key Regulatory Developments In ESG
Authored by Joanne O’Donnell, Head Of Global Regulatory Compliance Team, Compliance & Risks
Whilst the rain in July may have dampened our spirits here in Ireland, the heat was ramping up not only in mainland Europe but also in the global world of ESG regulation!
July has been an exceptionally busy month with regard to regulatory developments in the area of Environmental, Social and Corporate (ESG) Governance and August has also kicked off with a bang!
This blog will highlight some of these key recent developments.
Following a consultation process from 9 June 2023 to 7 July 2023, the EU Commission finally published the delegated regulation on sustainability reporting standards (ESRS) on 31 July along with a Q&A Document. The ESRS cover the full range of environmental, social, and governance issues and provide information for investors to understand the sustainability impact of the companies in which they invest.
The Commission made a number of modifications to the original draft ESRS submitted by European Financial Reporting Advisory Group (EFRAG) the majority of which relate to the phase-in of certain reporting requirements, materiality and rendering some of the proposed requirements voluntary.
The delegated act adopted by the Commission will be transmitted in the second half of August to the European Parliament and Council for scrutiny for a period of two months. The Parliament or the Council may reject the delegated act, but they may not amend it.
On 2 August, the US Department of Homeland Security updated the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China which was issued pursuant to the Uyghur Forced Labor Prevention Act.
The Strategy, which was originally published on 17 June 2022, informs US Customs and Border Protection’s enforcement of the UFPLA’s rebuttable presumption that any goods, articles, or merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the People’s Republic of China, or produced by an entity on the UFLPA Entity List, are prohibited from entering the United States.
The UFLPA requires that the Forced Labor Enforcement Task Force provide annual updates to the Strategy. The updates published on 2 August include:
- the addition of two new entities to the UFLPA Entity List;
- addition of new products made by entities on that List;
- review of plans for enforcement and for identifying additional entities;
- reaffirmation that while the UFLPA identifies initial high-priority sectors for enforcement (including cotton and polysilicon etc), the FLETF emphasizes the importance of monitoring all sectors as potential risk areas including specifically vinyl products, aluminum, steel, lead-acid and lithium-ion batteries, copper, electronics, tires and other automobile components as well as their downstream products.
- Review of additional resources necessary to ensure no goods made with forced labor enter at US ports
On 2 August, the US Government also published a proposed Sustainable Products and Services procurement rule, the aim of which is to strengthen existing sustainable products requirements by directing Federal buyers to purchase sustainable products and services if possible.
In particular, it directs agencies to:
- follow the EPA’s Recommendations of Specifications, Standards and Ecolabels for Federal Purchasing which include thousands of US-manufactured products that address energy or water efficiency, PFAS reduction or elimination, recycled content, ozone-safe substances, and more; and
- avoid the procurement of products containing perfluoroalkyl or polyfluoroalkyl (PFAS) chemicals.
The EPA also announced its intention to assess labels and standards and potentially expand its Federal Purchasing Recommendations across the following existing and new purchase categories: healthcare, laboratories, professional services, food service ware, and uniforms and clothing.
On 19 July, the UK Financial Reporting Council launched a consultation seeking comments on the IFRS® Sustainability Disclosure Standards (IFRS® S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS® S2 Climate-related Disclosures) published by the International Sustainability Standards Board (ISSB) on 26 June and their prospective use in the UK. The deadline for comments is 11 October 2023.
On 2 August, the UK Department of Business and Trade published an announcement on its website regarding the forthcoming UK Sustainability Disclosure Standards (SDS) which will be based on the aforementioned IFRS® Sustainability Disclosure Standards. The SDS will form the basis of future requirements in the UK for companies to report on risks and opportunities relating to sustainability, including those arising from climate change and will be published by the Department for Business and Trade (DBT) by July 2024.
On 14 July 2023, Vietnam issued its National Action Plan 2023 – 2027 on the promotion of responsible business practices which aims to facilitate the implementation of laws and practices that reduce the negative social and environmental impact of business, focusing on investment, labor rights, vulnerable groups and environmental protection. The plan’s main goal is to raise awareness for these topics among state agencies and corporations, thereby contributing to the implementation of the sustainable development goals. The Decision entered into force on 14 July 2023.
On 28 July, New Zealand announced that it is working on introducing new legislation, requiring transparency from organisations regarding their operations and supply chains. The legislation will require organisations with over $20 million in revenue to report and outline the measures taken to address exploitation risks in their own operations as well as their supply chains. A new public register will also be introduced. The new legislation is expected to be drafted in approximately 6 months and would be similar to the modern slavery legislation adopted in Australia, Canada and the UK.
In July, the Chilean Minister of Justice announced that he is proposing to present a bill on mandatory due diligence obligations for companies next year. To date, the Chilean Government has published two national action plans (NAPs) on business and human rights on 21 August 2017 and 4 March 2022 respectively. It is understood that the government is also currently updating the second NAP.
The United Nations
The latest draft of the proposed UN Treaty Regulating in International Human Rights Law the Activities of Transnational Corporations and Other Business Enterprises was published on 31 July.
The draft requires state parties to adopt legislative, regulatory, and other measures to:
- prevent the involvement of businesses in human rights abuse;
- ensure respect by businesses for internationally recognized human rights;
- ensure the practice of human rights due diligence by businesses and
- promote the participation of individuals and groups e.g. trade unions, NGOs, indigenous peoples, in the development and implementation of laws and policies to prevent the involvement of businesses in human rights abuse.
The draft provides that human rights due diligence measures undertaken by business enterprises shall include:
- Regular publication of human rights assessments;
- Incorporating a gender and age perspective in all stages of human rights due diligence processes;
- Taking into account the needs of vulnerable and margainalised members of society;
- Undertaking meaningful consultations with potentially affected groups;
- Protecting the safety of human rights defenders, journalists, workers, members of indigenous peoples and those who may be subject to or at risk of retaliation
- Ensuring that engagement with indigenous peoples is undertaken such process in accordance with the standards of free, prior, and informed consent.
This latest draft will form the basis of discussions during the 9th session of the UN open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights (IGWG) which will take place in Geneva, Switzerland in October.
The International Sustainability Standards Board (ISSB)
On 26 June 2023, the International Sustainability Standards Board (ISSB) issued its first two IFRS® Sustainability Disclosure Standards, IFRS® S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS® S2 Climate-related Disclosures. This information is intended to help investors make informed decisions about providing financial resources to private and public entities.
On 27 July, the ISSB also published the Proposed IFRS® Sustainability Disclosure Taxonomy for public comment reflecting the disclosure requirements in IFRS® S1 and IFRS® S2. The ISSB is seeking feedback on the proposals over a 60-day consultation period closing on 26 September 2023. The ISSB will review feedback on the proposals in the second half of 2023 and aims to issue the final digital taxonomy early in 2024, subject to the feedback received.
Stay Ahead Of ESG Regulatory Developments
Regulatory activity in the ESG sphere continues to increase with no signs of a slow down any time soon. It is therefore crucial that companies ensure that they proactively stay ahead of current and proposed regulatory developments in this area.
Compliance & Risks’ ESG Solution helps you seamlessly implement a company-wide ESG strategy by providing an overview of mandatory reporting obligations and mapping these to your ESG goals.
Along with that, you can research, collaborate and align with stakeholders, track progress towards their ESG goals and targets, and demonstrate compliance to evolving regulatory requirements.
See our list of ESG resources.
Our ESG Solution enables you to manage your ESG program by:
- Staying on top of evolving ESG Regulations.
- Setting and managing your ESG goals and targets.
- Demonstrating ESG compliance with evolving regulatory & external stakeholder requirements.
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