The Sillion Briefing 31.05.2024
Need-to-know corporate sustainability and ESG news, delivered fortnightly
In this edition...
CSDDD passes
ISSB and GRI collab
UK investment warning
Mineral prices fluctuate
Business flights down
Policy & Regulation
CSDDD finally passed – non-EU companies in scope
Following formal adoption by the European Council, the Corporate Sustainability Due Diligence Directive – CSDDD, or perhaps the catchier CS3D – is now over the last hurdle in the EU’s process, and will come into force.
What does the CSDDD cover?
Intended as the EU’s flagship due diligence law, the CSDDD is a significant and complex ruling. It will introduce requirements for certain companies – starting with the largest – to undertake and/or expand their due diligence on human rights and environmental concerns across nearly their entire value chain. As one of the latest and most advanced such laws in the world, it’s expected to serve as a benchmark for other jurisdictions looking to instate similar rulings.
In-scope companies will have to undertake risk-based human rights and environmental due diligence to identify their potential impacts, and then take action to mitigate and remedy those impacts. Alongside assessing their own activities, due diligence will have to consider their entire ‘chain of activities’. In CSDDD parlance this covers upstream business partners including those related to the extraction, sourcing and transport of products and services, and downstream business partners, including distribution and logistics, but excluding disposal.
Additionally, companies are expected to publicly communicate their due diligence practices, and publish an annual statement on matters covered by the CSDDD.
And one more thing – the Directive also requires companies to adopt, implement, and annually update a climate transition plan for ensuring that the business model and strategy are compatible with Paris targets. This is not out of line for recent regulation, with the ISSB’s standards, the CSRD and the UK’s incoming SRS (Sustainability Reporting Standards) all requesting or mandating transition planning. But it is interesting to see planning included firmly within a company’s due diligence responsibilities too – a clear message from the EU on the importance of businesses demonstrating the validity of their model in a sustainable future.
Who is in scope?
CSDDD will apply to both companies incorporated in the EU and non-EU companies, as envisaged in earlier drafts. However, thresholds have been raised.
For EU incorporated companies: Those with more than 1,000 employees and an annual net worldwide turnover in excess of €450 million; or those with EU franchising or licensing agreements exceeding €22.5 million and a worldwide turnover in excess of €80 million.
For non-EU incorporated companies: Those with an annual net turnover of €450 million generated in the EU; or with EU franchising or licensing agreements exceeding €22.5 million and a worldwide turnover in excess of €80 million within the EU.
The largest companies will have to phase in from 2027, and make disclosures from FY28. A good breakdown of the phased implementation is given here.
Any company falling within these requirements should consider how prepared it is, starting now. In fact, the Directive is cause for all companies to consider their value chain and strengthen oversight, as the strictness of assessment will continue to increase.
If you’d like to speak with us on what the CSDDD, other EU legislation like CSRD, or what transition planning might mean for you, be in touch with us.
Disclosure
ISSB and GRI announce expanded collaboration – with not too much new
At the time of the ISSB’s formation, you may remember that the GRI was the largest standards body not to be incorporated into the new organisation. Ultimately, the two bodies decided that their reporting approaches were sufficiently different for a unification to be unnecessary. While the ISSB standards focus on financial impacts from risks and opportunities brought about by the transition and climate change, with the goal of furnishing investors with decision-useful information, GRI standards are focused on robust disclosures on impacts at topic-level, with a goal of being useful for a wide range of stakeholders. In areas where there is sufficient overlap, however, the two organisations have been explicitly focused on interoperability in order to reduce reporting burden – although progress has been fairly slow. Last week’s announcement on an expanded collaboration doesn’t add too much at this stage on top of the original Memorandum of Understanding signed in 2022, other than promising a “seamless, global and comprehensive sustainability reporting system” – however that might output. The first steps will be a “methodology pilot” using the overlap between the GRI and ISSB’s biodiversity standards as a starting point. It seems likely that at least one of the outputs from this collaboration will be a document indicating overlaps in reporting requirements for each standard set.
GRI remains one of the most widely used reporting standards, and ISSB is seeing uptake in jurisdictions worldwide, making the ‘optimisation’ referred to in this latest announcement an important part of the near-to-mid term reporting landscape.
Finance
UK sustainability policy slowness puts investment at risk, says UKSIF
A survey of 100 financial services firms by the UK Sustainable Investment and Finance Association (UKSIF) saw over two thirds of firms stating that they had moved or plan to move investments out of the UK to jurisdictions which are more supportive of sustainability goals. Slow progress in implementing the UK Green Taxonomy – the UK’s equivalent to the EU Taxonomy, a classification system for defining sustainable activities – and slowness in implementing ISSB standards, which are now expected to come into force from FY26 through UK SRS (Sustainability Reporting Standards), were cited as reasons. Since regulations are slow to develop and companies need time to prepare their responses, the survey shows the finance that might be at risk if the UK delays for too long – and makes the case for companies acting ahead of regulation to attract sustainably-minded investment.
Technology
IEA: minerals for clean energy tech prices dropped, but more still needed
In order to deliver transition technologies like batteries, EVs, renewable energy assets and more, the world needs major supplies of minerals including lithium, copper, nickel and rare earth elements. The IEA’s annual report on these critical minerals has shows that prices are turbulent, with supply increasing significantly last year. However, as demand grows in the coming decade in all of the IEA’s scenarios, companies whose activities or climate scenario analyses are connected to these minerals – or to the clean tech energies they are required for – should pay close attention to this complex market. You can read an executive summary of the IEA’s 2024 Global Critical Minerals Outlook here.
Corporate
Crash-landing for business flights
A study from the New Economics Foundation found that the number of flights taken for business purposes in 2023 was 29% lower than in 2019. The decrease could be explained, at least in part , by environmental concerns, with a reduction in business travel being one of the first areas companies focus on when addressing their scope 3 emissions.
Calendar
June 2024 | SFDR requires financial institutions to report on new ESG disclosure requirements
Q4 2024 | SBTi: Draft Corporate Net-Zero Standard V2 Public Consultation
December 2024 | EU Deforestation Law due diligence obligations imposed
Q1 2025 | UK Sustainability Reporting Standards (SRS) published
FY24 reporting | CSRD: EU firms already subject to NFRD (and large non-EU subsidiaries) to report ESRS
FY25 reporting | CSRD: Large private companies to report ESRS
FY25 reporting | CSRD: Non-EU companies (incl. UK) to report ESRS for large subsidiaries
FY26 reporting | ISSB S1 and S2 standards become effective in the UK
FY26 reporting | Transition planning, likely through TPT framework, to potentially become mandatory through UK SRS
Any questions, comments, or feedback?