ESG Weekly Update – June 8, 2023

8 June 2023

EU: European Parliament Approves Draft Corporate Sustainability Due Diligence Directive

On June 1, 2023, the European Parliament approved the draft Corporate Sustainability Due Diligence Directive (“CSDDD”). The CSDDD introduces obligations for EU companies, and non-EU companies operating within the EU, regarding human rights and environmental adverse impacts in their value chain.

The approved draft largely follows the position adopted by Parliament’s Committee on Legal Affairs in April (which we reported here). A group of members of the European Parliament staged a last-minute pushback in an attempt to water down climate due diligence obligations and remove provisions setting out directors’ duties. Most of the proposed amendments, however, were rejected. One exception is the exclusion of a directors’ duty to set up and oversee the company’s due diligence actions and policy. At the same time, the draft retains the provision tying a portion of directors’ variable remuneration to achieving the company’s climate transition objectives.

Following the approval, the European Parliament, Commission and Member States will begin negotiations on the final text.

Press Release
CSDDD Amendments
CSDDD Draft Text
Debevoise Update (May 2023)

U.S.: Delta Air Lines Faced with Class Action Lawsuit

On May 30, 2023, a class action lawsuit was filed against Delta Air lines (“Delta”) in the U.S. District Court for the Central District of California. The plaintiffs, led by Mayanna Berrin, a Delta customer, allege that Delta “grossly misrepresented” their environmental impact by claiming to be the “world’s first carbon neutral airline.”

The claim is based on California’s Consumers Legal Remedies Act and False Advertising, Business and Professions Code. In particular, the complaint takes issue with Delta’s use of carbon offsets to achieve a carbon neutral status, which the plaintiffs allege is “predicated on misleading and unverifiable accounting.” Among other issues, the plaintiffs argue that Delta charges a premium for green services which allegedly do not deliver the stated goal of carbon neutral flights.

Delta opposed the lawsuit as “without legal merit”. In a statement to the press, Delta explained that it “committed to carbon neutrality in March 2020, and since March 31, 2022, has fully transitioned its focus away from carbon offsets toward decarbonization of our operations, focusing our efforts on investing in sustainable aviation fuel, renewing our fleet for more fuel-efficient aircraft and implementing operational efficiencies.”

Press article

Germany: Bangladeshi Workers File Supply Chain Due Diligence Act Complaint

On April 24, 2023, the Bangladeshi National Garments Workers Federation (“NGWF”), together with two German NGOs, FEMNET and ECCHR, filed the first complaint under Germany’s Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz or the “Act”) before the German Federal Office of Economic Affairs and Export Control. The complaint regards working conditions at Amazon and IKEA factories in Bangladesh (the “companies”).

After an investigation conducted in March 2023, NGWF identified deficiencies in the companies’ factories, including safety failures and a number of labor rights violations. Together with the other two NGOs, NGWF filed a complaint against the companies to compel them to take measures. The complaint was filed precisely 10 years after the Rana Plaza textile factory collapsed in Bangladesh, killing more than 1,100 people.

As a response to the tragedy, the Bangladesh Accord (later replaced by the International Accord) was set up to improve workplace safety. The Accord is a binding agreement between companies and trade unions that incorporates a number of safeguards and mechanisms to improve health and safety for workers in the garment industry in Bangladesh. Nevertheless, a number of multinationals have failed to sign the Accord, including Amazon and IKEA, both falling under the purview of the Act.

The Act entered into force in January 2023 requiring companies in scope to conduct due diligence on human rights- and environment-related risks within their supply chain (more on this here and here).

Press Release
ECCHR Press Release

Hong Kong: Monetary Authority Consults on Draft Green Taxonomy

On May 30, 2023, the Hong Kong Monetary Authority (“HKMA”) published a discussion paper on a Prototype of a Green Classification Framework for Hong Kong. The initiative was prompted by an increase in climate-induced severe weather events, such as typhoons and heavy rainfalls, which disrupt transportation and communication networks in Hong Kong. In addition, global warming has led to a mean sea level rise at Hong Kong’s Victoria Harbour at a rate of 32 mm per decade during 1954-2022.

The paper proposes that the taxonomy will be aligned with the Paris Agreement, using science-based criteria for the transition to net-zero emissions by 2050. HKMA envisages that the Hong Kong taxonomy will be interoperable with its peers, particularly with the Mainland China, EU and ASEAN taxonomies, allowing metrics and data to be easily transferred between systems. Although the focus of the proposed taxonomy is climate change mitigation, it will also outline “Do No Significant Harm” and “Social Safeguards”, based on the link between mitigation, prevention and wider sustainability goals.

The taxonomy is designed in three “layers”:

  • Layer 1: mapping activities to standardized industrial classification codes, which are then classed as either “automatically eligible” (for industries universally considered green) or “potentially green” (depending on whether certain technical screening criteria are met);
  • Layer 2: identifying key metrics depending on the activity, local context and usability by Hong Kong financial institutions; and
  • Layer 3: developing technical screening criteria, based on existing models but with the adaptations needed for the local context.

In developing the taxonomy, the HKMA used 12 activities as prototypes, split across four industries: (i) electricity, gas, steam and air conditioning supply; (ii) transportation and storage; (iii) water supply; sewerage, waste management and remediation activities; and (iv) construction. HKMA developed, for each prototype activity, sectoral activity cards containing detailed descriptions of the metrics, criteria and thresholds. These cards are essential for understanding the similarities and interconnectivity between activities, forming the basis for developing the wider taxonomy.

Feedback on the discussion paper is expected by June 30, 2023.

Discussion Paper

EU: Council and Parliament Announce European Single Access Point

On May 23, 2023, the European Council and Parliament announced a provisional agreement to set up the European Single Access Point (“ESAP”). ESAP is a platform allowing centralised access to financial and sustainability information published by EU companies and regarding investment products. ESAP’s goal is to simplify access to information and does not create new disclosure obligations.

The ESAP will be available starting from the summer of 2027 and gradually expanded:

  • Phase 1 will include information disclosed under the Short Selling Regulation (EU) No 236/2012, the Prospectus Regulation (EU) 2017/1129 and the Transparency Directive 2004/109/EC;
  • Phase 2, to be published six months later, will include information disclosed under the Sustainability-Related Disclosures in the Financial Services Sector Regulation (“SFDR”), the Credit Rating Agencies Regulation (“CRA”) and the Benchmark Regulation, among others; and, lastly,
  • Phase 3 will include information disclosed under a number of legislations, including the Capital Requirements Regulation, the Markets in Financial Instruments Regulation (“MiFIR”) and the EU Green Bonds Regulation.

The provisional agreement must be confirmed by both the EU Council and Parliament before it can be formally adopted.

Press Release

EU: European Supervisory Authorities Publish Progress Reports on Greenwashing in the Financial Sector

On June 1, 2023, the European Supervisory Authorities (the “ESAs”) – comprising the EU’s banking, securities and insurance regulators – published reports asserting a “clear increase” in the level of greenwashing within the EU financial system.

Acknowledging the risk of greenwashing to investors and consumers, the ESAs found that all core aspects of the sustainability profile of a product or entity are susceptible to such misleading claims. The European Securities and Markets Authority (“ESMA”), one of the ESAs, noted that “cherry-picking, omission, ambiguity, empty claims (including exaggeration) and misleading use of ESG terminology […] are seen as most widespread misleading qualities.”

The ESAs will publish the final reports in May 2024 containing final recommendations, including on what supervisory powers, regulatory changes, resources and actions are needed to properly address greenwashing.

ESMA Press Release