Key ESG Developments – October 2022
The Final Report on the functioning of the Minimum Safeguards in the Taxonomy
On the 11th of October 2022, the EU Platform on Sustainable Finance published its final report which advises on the application of the minimum safeguards (MS) in relation to the Taxonomy Regulation, specifically Articles 3 and 18. These MS are one of the four criteria that need to be fulfilled in order for an economic activity to be classified as sustainable.
The report mentions the two main expectations for companies developed in the UNGPs:
- Companies should respect human rights, meaning that they should avoid infringing on human rights of others and address adverse human rights with which they are involved; and
- To do so, companies should establish a due diligence process to continuously identify, prevent, mitigate, track, and account for actual and potential adverse impacts on human rights in their own operations, supply chains, and other business relationships.
Moreover, it complements this by mentioning what it means to be non-compliant with MS which is if :
- The inexistence or inadequacy of a human rights due diligence process (HRDD), as described in the UNGPs and de OECD Guidelines.
- There are signals that the company did not adequately implement HRDD, resulting in human rights abuses. These are:
- A finding of final liability of a company for a breach of labour law or human rights.
- The following two indicators signal that the company does not engage with stakeholders:
- An OECD National Contact Point has accepted a case, however the company refuses to engage with the party which has initiated it, or the company has been found noncompliant with the OECD guidelines by the NCP.
- The Business and Human Rights Resource Centre (BHRRC) has taken up an allegation against the company, and the company has not answered to it within 3 months, only if these letters are less than 2 years old.
This report validates the argument that HRDD are in the centre of the minimum safeguards, and consequently a part of the Taxonomy.
The European Council adopted a directive to promote more balanced gender representation on corporate boards
On 17 October 2022, the European Council adopted a directive on improving the gender balance among directors of listed companies. This Directive establishes that, in listed companies, at least 40% of non-executive director positions must be held by individuals of the underrepresented sex by 30 June 2026. If the Member States choose to apply the Directive to both executive and non-executive directors, the target will be 33% of all directors by 30 June 2026.
Additionally, the Directives requires companies to report annually about their board’s gender representation, as well as the measures taken to achieve the above-mentioned gender targets. The Directive also provides that listed companies which do not achieve these targets will have to adjust their selection process. As for the Member States, they will need to publish annually a list of companies that have achieved the objectives and targets of the Directive.
8th Session of the UN Intergovernmental Working Group on a proposed treaty on business and human rights
The UN open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights (IGWG) held its 8th session in Geneva from 24 to 28 October 2022 to discuss the proposed treaty on business and human rights. The report of the session is available here.
The European Parliament and the Council concluded a provisional agreement to reach zero-emission road mobility by 2035
On 27 October 2022, the European Parliament and the Council concluded a provisional agreement on revised CO2 emissions reduction targets for new passenger cars and light commercial vehicles, with the aim of reaching zero-emission road mobility by 2035. The agreement also included the following measures:
- The incentive mechanism for zero- and low-emission vehicles (‘ZLEV’) is revised with a higher benchmark in order to ensure that it is aligned with the current sales trends and brings affordable zero-emissions cars on the EU market;
- Manufacturers responsible for small production volumes in a calendar year (1,000 to 10,000 new cars or 1,000 to 22,000 new vans) may be granted a derogation until the end of 2035 (those responsible for less than 1,000 new vehicle registrations per year continue to be exempt);
- Existing rules for labelling of fuel economy and CO2 emissions for cars should be reviewed by the end of 2024.
Plastic litigation could exceed US$20 billion and may reach US$100 billion
A report presented from the Minderoo Foundation on social costs and corporate liabilities estimates that the costs to society from plastic pollution surpass US $100 billion per year. The costs include environmental clean-up, ecosystem degradation, shorter life expectancy and medical treatments. According to this report, “expected corporate liabilities from plastics litigation triggered in the period 2022-30 (“expected liabilities”) is preliminary but exceeds US$20 billion in the United States alone, which will be the centre of claims activity and where problem maximum liabilities (1% probability) could exceed US$100 billion”.
New proposal for SFDR disclosure rules in fossil gas and nuclear energy activities
On the 30th of September 2022, the three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have delivered to the European Commission their Final Report with draft Regulatory Technical Standards (RTS) regarding the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under the Sustainable Finance Disclosure Regulation (SFDR).
Earth’s wildlife population plummet by an average of 69% since 1970
According to the Living Planet Report 2022, a WWF’s study of trends in global biodiversity and the health of our planet, Earth’s wildlife population plummet by an average of 69% since 1970.
Authors: Ana Carina Duarte and Inês Crispim