An overwhelming amount of national elections were or still are scheduled for this year, with over 60 countries casting votes, promising a critical juncture for sustainability policies. But while the changes look to be on the horizon, the reality is that many companies are bound by imminent regulatory obligations that have significant investment impacts in the coming months.
EU Elections and the Future of the Green Deal
The results of the June 2024 European parliamentary elections indicate a shift to the right and victory for the European People’s Party (EPP), leaving the center-right with enough power to form a governing coalition.
With competitiveness, industrial policy and security dominating the agenda, it’s doubtful whether any substantial legislative proposals focusing on sustainability will be put forward. More likely, the focus will be on implementing and enforcing the legislation passed in the previous term, pushing for an ambitious reduction of bureaucratic and regulatory burden for European companies.
Olympic Efforts Needed on Due Diligence
Clear plans, dedicated teams, and collaboration between companies and their subsidiaries and supply chain partners will be essential for implementing robust due diligence measures required by the new European due diligence directive.
Despite being a scaled-down version of its original proposal and impacting fewer companies than initially intended, the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) is the most ambitious attempt to date to manage adverse human rights and environmental impacts of corporate value chains across all supplier tiers.
If there is going to be a gear change in how involved companies are in mitigating and remediating impacts across their supply chains, it is yet to happen. According to a survey by DWF, only 36% of companies have sought to identify fair wages across their value chains, while 14% have sought to identify modern slavery. Considerable screening, among other things, will need to be implemented in most companies to prepare for CSDDD compliance.
CSRD Progress and Impact
The Corporate Sustainability Directive (CSRD), even if it has taken a bit of a back seat with a political discussion about the CSDDD, is already having a wide-ranging impact — both on companies required to report in short to medium term, as well as on those within the indirect scope of the directive.
The CSRD requires companies to comply with European Sustainability Reporting Standards (ESRS) with staggered release dates. Planned sector-specific standards are postponed by two years, with adoption now scheduled for June 2026. Until then, companies will use the first set of sector-agnostic standards.
Businesses required to file their reports in 2025 and 2026 have made some progress in CSRD preparation and implementation and are confident in meeting the reporting deadlines. At the same time, however, they face multiple obstacles to CSRD compliance, the biggest being data availability or quality and the complexity of their value chains.
These findings from a PwC survey should not discourage voluntary supporters of the new reporting regime who plan to align their disclosures with the EU legislation. When asked, 8 out of 10 companies in North America and the UK intend to fulfill some CSRD requirements, seeing multiple benefits following the implementation, including improved business decision-making and a positive impact on long-term value creation.
Deforestation Regulation – Why it Matters
Starting at the end of 2024, the EU Deforestation Regulation should be in full effect. It would require companies selling products in the bloc to ensure their goods do not contribute to deforestation. But as the scheduled effective date draws nearer, concerns over the readiness of both companies and regulators grow louder and now it's likely the implementation of the regulation will be postponed to 2027 to reduce the bureaucratic burden.
The Deforestation Regulation is a first-of-its-kind, seeking to push companies globally toward improved supply chain transparency and ambitious due diligence policies to eliminate practices and products contributing to deforestation and forest degradation. Companies must track specified commodities usually linked to deforestation back to their origins and ensure they comply with local and international laws regarding land use, environmental protection, human rights and rights of indigenous people.
SEC's Climate Rule in Peril
Elsewhere, earlier this year, the US Securities and Exchange Commission (SEC) adopted the anticipated federal obligations for public companies to disclose information on their climate-related risks to meld environmental accountability with corporate transparency.
The adoption immediately met with legal contention from states and business groups despite the final requirements being significantly weaker than those proposed by the commission in March 2022 and those implemented in the EU and California. The US climate rule is set to go into effect in 2026, but now its future looks uncertain.
Petitioners argue that the new obligations do not go far enough on disclosing a company's climate impact, criticizing the SEC's decision to abandon the requirement to report Scope 3 emissions. They also argue the SEC overstepped its authority in adopting the rule, sparking a debate over the commission's jurisdiction.
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