GREEN BOND REGULATION
ESMA's consultation on its first batch of technical standards under the EU Green Bond Standard (GBS) Regulation closes for feedback on 14 June 2024. The consultation covers mandates relating to the registration and supervision of external reviewers including:
- Criteria to be assessed at the time of registration relating to senior management, board members and analytical resources.
- Criteria to assess sound and prudent management and management of conflicts of interest.
- Criteria for assessing knowledge and experience of analysts.
- Criteria applicable to outsourcing of assessment activities.
- The standard forms, templates and procedures for the provision of registration information.
ESMA plans to submit the final draft technical standards arising out of this consultation to the European Commission by 21 December 2024.
The remainder of ESMA's mandates under the EU GBS Regulation will be addressed in a second consultation package to be published in Q1 2025.
For more information on the EU GBS Regulation, read our recent updates here:
EU Green Bond Regulation published in Official Journal: key points for issuers
EU Green Bond Standard: Final approval
GREENWASHING REPORTS
Final reports from ESMA, the EBA and EIOPA on greenwashing were due in May 2024 but have not yet been published. These reports will follow the publication of interim progress reports in June 2023 (interim EBA Report, interim ESMA Report, interim EIOPA Report). The requirement to publish the reports arises from the European Commission's May 2022 request to the ESAs, asking for:
- input on the occurrence of greenwashing,
- feedback on the potential for greenwashing risks, and
- an overview and assessment of supervisory practices, experience, convergence and capacities relating to the prevention of greenwashing,
and subsequent calls for evidence issued by each of the ESAs (read our insights here: ESG Update: ESAs call for evidence on greenwashing).
The June 2023 interim reports included the ESAs common high-level understanding of greenwashing applicable to market participants across their respective remits – financial markets, banking, and insurance and pensions: “a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants”. For more information on the interim reports, read our insights here: Greenwashing in the financial sector: ESAs publish progress reports.
The final reports are keenly awaited, in particular whether a more granular approach is taken to defining greenwashing, or whether the ‘high-level understanding' approach is retained, particularly in light of market concerns (for example, concerns raised by the ICMA in its report on Market Integrity and Greenwashing Risks in Sustainable Finance that exhaustive definitions of greenwashing could trigger “market paralysis or regression because of excessive reputational or litigation fears.”)
CORPORATE SUSTAINABILITY DUE DILIGENCE DIRECTIVE
The Corporate Sustainability Due Diligence Directive (CSDDD) has completed all stages of the EU legislative process – the next step is publication in the Official Journal (expected in June 2024). Member States must transpose the CSDDD into national law within 2 years.
The CSDDD will impose due diligence obligations on large companies regarding actual and potential adverse impacts on human rights and the environment with respect to their own operations, those of their subsidiaries and those carried out by their business partners. It will also require large companies to adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, compatibility of the business model and strategy of the company with the transition to a sustainable economy and with the limiting of global warming to 1.5°C (Climate Transition Plans).
Regulated financial undertakings will be in-scope with regard to their own operations, those of their subsidiaries and their upstream operations in addition to the obligations regarding Climate Transition Plans. The joint EU Council – Parliament political statement (agreed post-trilogues) on the need to develop appropriate sustainability due diligence requirements for regulated financial undertakings regarding the activities of, among others, their clients has been withdrawn. The Commission is to submit a report, no later than two years after the CSDDD enters into force, to the Parliament and EU Council on whether such requirements are needed.
The CSDDD will apply to large EU companies and non-EU companies operating in the EU:
- EU companies with more than 1,000 employees on average and net worldwide turnover of more than €450 million in the last financial year.
- Non-EU companies with a net turnover of more than €450 million in the EU in the year preceding the last financial year. There is no employee threshold for non-EU companies.
- Companies with franchising or licensing agreements where royalties amount to at least €22.5 million in the last financial year, with a net worldwide net turnover of €80 million in the last financial year. Thresholds are within the EU and by reference to the year preceding the last financial year for non-EU companies.
- Ultimate parent companies of a group that reach the thresholds on a consolidated basis are also in-scope.
SMEs are out-of-scope but, similar to the Corporate Sustainability Reporting Directive, may be indirectly affected where they form part of the chain of activities of in-scope companies.
The CSDDD will apply on a phased basis from its entry into force:
- 3 years (from 2027) – EU companies with more than 5,000 employees and €1,500 million net worldwide turnover and non-EU companies with more than €1,500 million net turnover generated within the EU.
- 4 years (from 2028) – EU companies with more than 3,000 employees and €900 million net worldwide turnover and non-EU companies with more than €900 million net turnover generated within the EU.
- 5 years (from 2029) – EU companies with more than 1,000 employees and €450 million net worldwide turnover and non-EU companies with more than €450 million net turnover generated within the EU.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.