ESG: in focus
The IBA has created a dedicated page collating content published about ESG.
ESG: European Union pushes the envelope with raft of ‘green’ legislation
The EU has recently adopted a raft of new legislation focused on making the bloc the first sustainable, net zero economy. These initiatives form part of the ‘European Green Deal’ and are spread across numerous sectors. The EU Packaging Regulation, for instance, seeks to bolster the circular economy, and includes a target for all packaging to be recyclable by 2030, as well as measures to incentivise reuse and refill.
The Corporate Sustainability Reporting Directive (CSRD) introduces sectorial rules to ban products made with forced labour and via deforestation, and implements expanded reporting and supply chain due diligence obligations. It’s complemented by the Corporate Sustainability Due Diligence Directive, which will require companies to prevent adverse environmental and human rights impacts in their business operations and supply chains.
‘The EU is definitely leading the way in terms of the volume and breadth of the new regulations on environmental sustainability matters’, says Ed Turtle, Website Officer on the IBA Product Law and Advertising Committee and a lawyer at Cooley in London. ‘We have seen an unprecedented volume of new legislation […] during the current EU Commission’s mandate, under the umbrella of the EU Green Deal. The obligations imposed on companies in this new legislation often go well beyond similar requirements imposed in jurisdictions outside the EU.’
‘The EU has the highest ambition in the world in regard to sustainability’, says Thomas Delille, a partner at Squire Patton Boggs, who’s based in both Brussels and Paris. However, ‘the feedback we are hearing is that the burden placed on businesses may not create a level-playing field with what is happening elsewhere in the world. Industry is keen to be part of the sustainability push, but the regulatory burden is being seen as a threat to the EU’s competitiveness, especially for smaller entities’.
The obligations imposed on companies in this new legislation often go well beyond similar requirements imposed in jurisdictions outside the EU
Ed Turtle
Website Officer, IBA Product Law and Advertising Committee
A number of measures introduced – across several different pieces of legislation – are focused on waste reduction and ways to capture data about the environmental impact of products and production processes. For example, ‘right to repair’ measures are included in the EU Packaging Regulation and the Ecodesign for Sustainable Products Regulation, as well as the Right to Repair Directive itself. The EU’s objective here is to end ‘throwaway culture’ and ensure that manufacturers provide timely and cost-effective repair services for their products, as well as keeping consumers informed about their rights in this area.
Turtle believes the obligations on ‘right to repair’ – which are applicable to companies both inside and outside the EU that exceed certain thresholds – will make bringing products to market more complex and costly. ‘There will also be greater risks of liability associated with selling products in the EU’, he explains, as this will probably be ‘an active area for consumer claims’.
The ‘right to repair’ requirements fall under the EU’s class actions regime, which has applied since summer 2023. Within this space, says Turtle, there’s a number of active consumer organisations who will seek to police compliance with EU sustainability laws. ‘Where product safety risks eventuate, there are also associated risks of product liability claims. The risks will increase from 2026, when the EU’s revised Product Liability Directive will start to apply, ushering in a more claimant-friendly regime’, he adds.
For manufacturers, the measures on ‘right to repair’ will require the redesign of many product lines. The legislation will also force them to consider certain safety issues, such as the need to create products that are safe for repair by consumers themselves, that function safely over a longer lifespan and that potentially operate with third-party components. For distributors, statutory warranty rights will need to be amended to incentivise repair over replacement where a product develops faults. Distributors will be required to provide more information to consumers about the repairability of goods at point of sale.
The sustainability reporting obligations found in the CSRD and the upcoming Corporate Sustainability Due Diligence Directive will apply across all sectors and to large companies that pass certain turnover thresholds and who are operating in EU markets. For example, non-EU companies meeting the thresholds will be required to report on environmental, social and governance (ESG) metrics if they meet revenue, asset and/or employee headcount thresholds and must also review the environmental and social risks within their supply chains. ‘Very few companies currently make fulsome ESG disclosures in the way that will be required of them for CSRD compliance going forward’, says Emma Bichet, Special Counsel at Cooley, Brussels. ‘So in that respect the majority of businesses are far from being compliant.’
Other countries are moving to adopt similar initiatives relating to sustainability, including in the US where the Securities and Exchange Commission adopted a new climate reporting rule in March. However, commentators appear to agree that non-EU jurisdictions are imposing rules on businesses that are less extensive than the bloc’s.
Given the array of new requirements emerging from the EU, ‘many companies are hiring sustainability counsel within their legal department, upskilling existing legal and compliance teams or relying on external counsel to support them in becoming compliant ahead of entry into application of all of the new rules’, says Bichet.
Meanwhile, the EU is also pushing consumers to weave sustainability into their everyday behaviour. It’s a central theme of the EU’s circular economy legislative initiatives, such as the Right to Repair Directive and the Ecodesign for Sustainable Products Regulation. Alessia Cristiana Oddone Wales, Vice Chair of the Diversity and Inclusion Group within the IBA European Regional Forum and a partner at CastaldiPartners, Milan, highlights that several studies show a discrepancy between what consumers say and what they actually do when it comes to sustainable behaviours. ‘The EU’s green initiatives will encourage consumers to progressively behave in a more sustainable manner, but this will happen over time and will not be driven by legislative change only’, she says. ‘There should be a strong focus on communication and education, to ensure true cultural change.’
Lawyers play an important role in sustainability. In March the IBA published its updated guidance note on business and human rights and the role of lawyers in this changing landscape, which highlights the critical role that the legal profession plays in risk reporting and disclosure by companies.
View the updated note here.