Key ESG Developments – December 2022

COP 15 UN Biodiversity Conference ends with Kunming-Montreal Global Biodiversity Framework

COP15 took place from 7 to 19 December 2022. It ended with an historical international agreement, the Kunming-Montreal Global Biodiversity Framework, to cease biodiversity loss, protect ecosystems, and increase financing on biodiversity protection to developing nations. It is expected that this agreement will complement the Paris Agreement for Climate, as regards biodiversity protection. As referred by the EU Commission President Ursula von der Leyen, “the world has a double track of action for a sustainable global economy by 2050”.

This Kunming-Montreal Global Biodiversity Framework determines twenty-three global 2030 targets and it foresees four long-term goals to reach until 2050 to protect biodiversity:

1. stopping human-induced extinction of threatened species and reducing the rate of extinction of all species tenfold by 2050;
2. sustainable use and management of biodiversity to ensure that nature’s contributions to people are valued, maintained and enhanced;
3. fair sharing of the benefits from the utilization of genetic resources, and digital sequence information on genetic resources; and
4. adequate means of implementing the framework to be accessible to all Parties, particularly least developed countries and small island developing states.

Beside the adoption of the comprehensive framework mentioned, it was also established:

• targets to address overexploitation, pollution, fragmentation and unsustainable agricultural practices;
• a plan to safeguard the rights of indigenous peoples;
• an alignment of financial flows to drive finances toward sustainable investments.

EU Council of the European Union adopts general approach to Corporate Sustainability Due Diligence Directive

The EU Council presented on 30 November 2022 its general approach to the proposal for a Corporate Sustainability Due Diligence Directive (CSDDD). This negotiating position on the European Commission’s proposal suggests some amendments, which include:

• Introducing a phase-in approach regarding the application of the Directive:
  • Three years from entering into force for: EU companies with more than 1,000 employees and a net worldwide turnover of more than EUR 300 million and non-EU companies with the mentioned net turnover;
  • Four years from entering into force for:EU companies with more than 500 employees and a net worldwide turnover of more than EUR 150 million and non-EU companies with the same net turnover; and
  • Five years from entering into force for: EU companies with more than 250 employees and a net worldwide turnover of more than EUR 40 million – provided that at least 50% of this net turnover was generated in a “high-risk” sector and non-EU companies with net turnover of more than EUR 40 million but not more than EUR 150 million, provided that at least 50% of its net worldwide turnover was generated in one of the “high-risk” sectors.
• Predicting the possibility for the Member States to include financial services in the scope.
• The abandonment of the concept of “established business relationship”.
• Eliminating the Directors’ duty of care.
• Replacing the term “value chain” with “chain of activities”, which narrows the obligations of in-scope companies as it does not fully cover the use of companies’ products or the provision of companies’ services.

The general approach will now be reviewed by the European Parliament, which will also vote its initial negotiating position. After that, the Parliament and the Council will engage in negotiation to reach a final text for the Directive.

ILO presented its Global Wage Report 2022-23

ILO published the Global Wage Report 2022-23 on the impact of COVID-19 an inflation on wages and purchasing power. According to this report, due to rising inflation, real wage growth is falling into negative values in many countries. The most-impacted are lower-income earners. Also, on average, wage employees were deprived of around six weeks of wages during 2020-21. The report also concludes that minimum wages and social dialogue are essential to keeping the living standards of wage workers.

European Parliament and EU Council reach a provisional agreement to set up a Social Climate Fund to support the energy transition

The European Parliament and EU Council reached on 18 December 2022 a provisional agreement to establish a Social Climate Fund, which still needs to be formally approved by the Parliament and the EU Council. The Social Climate Fund aims at benefiting vulnerable households, micro-enterprises and transport users that are particularly affected by energy and transport poverty. The benefit of the support depends on the respect of the principal ‘do no significant harm’ and should aim to reduce fossil fuel dependency. The Social Climate Fund is expected to start in 2026, one year before the Emissions Trading System (ETS) is extended to cover buildings and road transport.

European Parliament and EU Council reach provisional agreement on an EU Regulation on deforestation-free supply chains

The European Parliament and the EU Council reached on 6 December 2022 a provisional agreement on an EU Regulation on deforestation-free supply chains, which still needs to be formally approved by the Parliament and the EU Council. The new rules aim at foreseeing due diligence processes on certain products before they are placed on the EU market, to stop investments that cause deforestation.

Canada proposed regulation to require that all new passenger cars, SUVs and pick-up trucks sold are zero emission vehicles by 2035

The government of Canada announced on 21 December 2022 proposed regulation for manufacturers and importers to meet annual zero-emission vehicles (ZEVs) regarding sales passenger cars, SUVs and light-trucks (light-duty vehicles). The proposed regulation includes the target of all new light-duty vehicles offered for sale in 2026 to be ZEVs. This target should be increased annually to at least 60% by 2030 and 100% by 2035.

Authors: Ana Carina Duarte and Inês Crispim