ESG Weekly Update – November 25, 2022

25 November 2022

EU: European Parliament Formally Adopts Corporate Sustainability Reporting Directive

On November 10, 2022, the European Parliament formally adopted the Corporate Sustainability Reporting Directive (“CSRD”), which establishes a new mandatory framework for non-financial disclosures in the EU. The requirements will apply to all large EU companies (meeting certain financial thresholds, as outlined in our November 10, 2022 – ESG Weekly Update), listed or otherwise, as well as non-EU companies with turnover of at least €150 million in the EU. The CSRD amends several existing directives such that nearly 50,000 companies will be subject to the new reporting obligations, compared to approximately 11,700 under the current regime.

The CSRD introduces more stringent rules in order to increase scrutiny on companies’ environmental impact, as well as the impact of their activities on human rights and other non-financial issues. Companies that are within scope of the CSRD must also make disclosures under Article 8 of the EU Taxonomy. Disclosures must be independently audited, and digital access must also be guaranteed.

Reporting requirements under the CSRD will apply on a phased basis, as follows:

  • from January 1, 2024, for large public interest companies with over 500 employees that are already subject to the EU Non-Financial Reporting Directive (“NFRD”);
  • from January 1, 2025, for large companies not currently subject to the NFRD (over 250 employees and/or €40 million in net turnover and/or €20 million on its balance sheet); and
  • from January 1, 2026, for listed small and medium-sized enterprises (“SMEs”). SMEs can opt out until 2028.

The EU Council is expected to adopt the CSRD on November 28, after which it will be published in the EU Official Journal. The CSRD will enter into force 20 days after publication.

For more information on the CSRD, please click here.

European Parliament – Press Release

EU: The European Investment Bank Launches Framework for Environmental Sustainability

On November 14, 2022, the European Investment Bank (“EIB”) launched a framework for environmental sustainability projects aimed at reducing pollution, developing a blue economy, supporting biodiversity, promoting sustainable use of water, and protecting general health and well-being.

The EIB’s Climate Bank Roadmap has two immediate targets: (i) to dedicate at least 50% of EIB financing to supporting climate initiatives by 2025; and (ii) to support the EIB’s EUR 1 trillion sustainable investment commitment by 2030. Currently, the EIB supports the implementation of the European Green Deal, the EU’s set of green policies.

The new framework, which was announced at COP27, will prioritize pilot projects that have a large-scale impact, such as green debt markets and high-integrity nature credit markets, in the hope that these initiatives can be reproduced at an even larger scale. To support these projects, the EIB has developed risk and impact measurement tools designed to account for benefits to biodiversity and the ecosystem when reviewing funding requests. Furthermore, the EIB is exploring ways to identify physical biodiversity risks and, generally, to incorporate environmental risks in a more integrated manner.

EIB – Press Release

U.S.: Major Federal Contractors to Face Increased Disclosure Requirements under New Proposals

On November 14, 2022, the U.S. Department of Defense, General Services Administration, and National Aeronautics and Space Administration agencies proposed to amend the Federal Acquisition Regulation to impose augmented disclosure requirements on “major” and “significant” federal contractors. The proposed amendment is known as the Federal Supplier Climate Risks and Resilience Rule and is part of the broader Federal Sustainability Plan to achieve net-zero emissions procurement by 2050. The proposal, announced by President Biden at COP27, seeks to mitigate climate-related financial risk within federal supply chains.

The proposed rule would impact all “major” and “significant” federal contractors, namely those receiving more than $50 million and more than $7.5 million, respectively, in annual contracts. It does not apply to federal contractors with annual contracts below $7.5 million.

Under the proposed rule, major and significant federal contractors would be required to disclose their emissions in line with the Greenhouse Gas Protocol Corporate Standard’s guidance for Scope 1 and Scope 2 emissions. Major federal contractors would also be obliged to disclose their relevant Scope 3 emissions and climate-related financial risks, and to set science-based targets to reduce emissions.

Interested parties may submit written comments on the proposed rule to the Regulatory Secretariat Division by January 13, 2023.

Proposed Rule – Federal Acquisition Regulation
White House – Press Release

U.S.: Coca-Cola Beats Allegations of ‘Greenwashing’ in D.C. Superior Court

On November 10, 2022, the Superior Court in Washington, D.C., dismissed a lawsuit brought by the Earth Island Institute over claims made by the Coca-Cola Company in its advertisements. The claimants, an environmental advocacy group, argued that the advertisements constituted false and deceptive marketing—in violation of the District of Columbia Consumer Protection Procedures Act—by representing the company as sustainable and environmentally friendly.

The advocacy group specifically criticized Coca-Cola’s ‘World Without Waste’ marketing campaign, in light of a study by the Changing Markets Foundation that found that Coca-Cola produces 2.9 million metric tons of plastic waste per year.

D.C. Superior Court Judge Maurice A. Ross held that Coca-Cola’s sustainability claims were general aspirational statements, not promises to its consumers: “Phrases such as ‘a more sustainable and better-shaped future,’ ‘a focus of ours,’ ‘a more sustainable future for our communities and our planet,’ ‘help develop more effective recycling systems,’ and ‘committed to creating’ are extremely vague, and while they point to a general theme of sustainability and corporate improvement, there is not a measurable standard to apply as to whether or not defendant has met these general goals.”

The judge noted that, although there were some specific goals related to improved sustainability, these were intended to be met “significantly in the future.” As such, there was no violation of the Consumer Protection Procedures Act.

The judge also criticized the plaintiff for choosing statements that were “blatantly cherrypicked” from Twitter, the Coca-Cola website, and Coca-Cola’s annual Business and Strategy Report, and not advertising that appeared on the company’s products.

Order Granting Motion to Dismiss

EU: ESAs Launch Joint Call for Evidence on Greenwashing

On November 15, 2022, the three European Supervisory Authorities (“ESAs”)—the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority—issued a joint Call for Evidence, seeking stakeholder input on real-world and potential examples of greenwashing.

The Call for Evidence supports efforts by the European financial regulators to develop a more in-depth understanding of those areas of the European economy that are prone to greenwashing, in order to guide their policymaking on the issue and improve market supervision. The Call for Evidence asks respondents to provide examples of greenwashing in a broad sense, encompassing the full range of ESG topics. The ESAs specifically note the joint nature of the Call for Evidence, indicating the cross-sectoral nature of the request.

The Call for Evidence invites stakeholders, including financial institutions within the ESA’s remit, retail investors, consumers’ associations, non-governmental organizations, and academia to respond by January 10, 2023.

Stakeholder contributions will inform the ESA’s May 2023 progress reports, with final reports due in May of 2024.

EBA – Press Release
EIOPA – Press Release
ESMA – Press Release