Monthly ESG Update from Germany – 07 May 2024
Welcome to our ESG newsletter which covers selected key developments in Germany, the EU and globally on the full range of ESG topics.
"April marked a milestone for EU banking regulation as the EU Parliament passed CRR3 and CRD6, inter alia embedding ESG risks and respective management into core banking rules. The amendments lead to a formal strengthening of sustainability requirements and enhancement of the supervisory authorities’ roles. Banks need to closely monitor what the amendments mean against the existing backdrop of extensive sustainability regulations and supervisory expectations."
Dr Frederik Winter, Partner, Financial Regulation
Business & Human Rights
EU: Parliament gives final approval to CSDDD
On 24 April, the EU Parliament formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD) without making further changes to the text. After formal approval by the Council the Directive can be published in the EU’s Official Journal. For more information, see our blog post and our FAQs on the main changes.
EU: New directive targets strategic or abusive lawsuits
The Directive (EU) 2024/1069 on protecting persons who engage in public participation from manifestly unfounded or abusive court proceedings (SLAPPs Directive) was published in the EU’s Official Journal on 16 April. It provides safeguards for natural and legal persons such as journalists, whistleblowers, human rights defenders as well as NGOs, trade unions, artists, and academics. For more information, see our blog post.
Europe: ECtHR rulings on climate change cases against Portugal, France, and Switzerland
On 9 April, the European Court of Human Rights (ECtHR) issued its long-awaited rulings in three landmark climate change cases against Portugal, France, and Switzerland. While dismissing two cases on procedural grounds, the ECtHR decided that Switzerland’s insufficient measures to combat climate change amounted to a violation of the individual human rights of European citizens. For more information, see our blog post.
Climate Change & Environment
EU / Netherlands: Airlines challenged on misleading green claims
Following a Dutch court’s judgement in March (see our blog post) EU consumer authorities, in coordination with the EU Commission, have sent letters to 20 airlines identifying several potentially misleading green claims and inviting them to align their practices with EU consumer law (see our blog post). The Durch court had ruled that several statements by a Dutch airline in relation to marketing campaigns and/or products were misleading, unlawful, and violated the Dutch implementation of the EU Unfair Commercial Practices Directive.
EU: Parliament votes for withdrawal from the Energy Charter Treaty
On 24 April, the EU Parliament voted in favour of a withdrawal of the EU from the Energy Charter Treaty (ECT), following a recommendation by its Committees. The ECT was designed to protect foreign investments in the energy sector since 1998 but is increasingly viewed as an obstacle to climate action. Several EU Member States have already withdrawn from the ECT (see our previous blog post).
EU: Parliament adopts revised Energy Performance of Buildings Directive
The revised Energy Performance of Buildings Directive (EPBD) seeks to decarbonise the EU's building stock by 2050 and facilitate the renovation of buildings. The EU Parliament formally adopted the final text in March. After formal approval by the Council, the Directive can be published in the EU’s Official Journal. For more information, see our blog post.
EU: Revised Environmental Crime Directive introduces new offences
The revised Environmental Crime Directive was published in the EU’s Official Journal on 30 April. It provides for new environmental crimes and introduces a so-called “qualified offence” which is comparable to “ecocide”, as well as increased imprisonment sentencing and fines. For more information, see our blog post.
Disclosure & Reporting
Germany: New Commercial Code thresholds impact sustainability reporting
In implementing the Delegated Directive (EU) 2023/2775, Germany introduced higher thresholds in the German Commercial Code (Handelsgesetzbuch, HGB) with the Second Act to Amend the DWD Act and to Amend Commercial Law Provisions, which came into force on 17 April 2024. Specifically, the new law raises the financial thresholds for classifying companies as “small”, “medium-sized”, or “large”. This also affects the scope of the new reporting obligations under the Corporate Sustainability Reporting Directive (CSRD) and Article 8 Taxonomy Regulation. Companies must consider the new thresholds for all financial years starting after 31 December 2023. There is an option for companies to apply the increased thresholds to financial years commencing after 31 December 2022. For more information, see our weekly corporate newsletter.
EU: CSRD reporting standards: where are we now?
Since the April edition of our ESG Newsletter, there have been further developments regarding the European Sustainability Reporting Standards (ESRS):
- The EU Commission is given the power to delay the sector-specific ESRS and the ESRS for non-EU companies until 30 June 2026. For more information, see our blog post.
- A corrigendum to the first ESRS set makes a number of minor amendments to ESRS 1 and 2 and the topical ESRS.
- The European Financial Reporting Advisory Group (EFRAG) is working on implementation guidance to assist companies in disclosing their transition plans in accordance with the ESRS (see press release). The final guidance is expected in Q2 2024.
- The IFRS Foundation and EFRAG published Interoperability Guidance to illustrate the alignment between the International Sustainability Standards Board’s Sustainability Disclosure Standards (ISSB Standards) and the ESRS and to help companies efficiently comply with both sets of standards. For more information, see our blog post.
Global: ISSB to research on possible biodiversity and human capital reporting standards
The ISSB will research disclosure on risks and opportunities associated with biodiversity and human capital to assess whether standard setting is required (see press release). It will assess how it might build from existing initiatives such as the SASB standards and the work of the Task Force on Nature-related Financial Disclosures (TNFD).
The ISSB’s priority will nevertheless be supporting the implementation of its first two standards. In this context, the IFRS has launched a webpage listing which countries are consulting on implementing the ISSB Standards. For more information on the ISSB Standards, see our previous blog post.
Global: NGFS publishes reports on climate transition strategies
On 17 April, the Network for Greening the Financial System (NGFS) published three thematic reports for banks that are developing climate transition plans:
- A report examining the perspectives and challenges in emerging markets and developing economies financial institutions’ transition plans,
- a report on how financial institutions can use real economy transition plans to inform their own climate-related risk management, and facilitate transition finance and
- a report exploring key elements of credible transition plans.
An accompanying cover note highlights the key findings and provides cross-cutting recommendations.
Sustainable Finance
EU: Parliament adopts amendments integrating ESG considerations into banking rules
The EU Parliament formally adopted the amendments to the EU banking rules (CRR/CRD) that also aim to ensure that ESG considerations become an integral part of banking operations (see our April newsletter). For the first time, definitions of ESG risks have been integrated into financial supervisory laws. The sustainability-related requirements of CRD6/CRR3 not only show parallels with existing regulatory expectations but also introduce more stringent measures. Institutions will be required to systematically identify, disclose, and manage such risks as part of their risk management processes. They must also develop transition plans and take into account a longer time horizon for their strategic planning. After formal approval by the Council the Directive and the Regulation can be published in the EU’s Official Journal.
EU: ESMA consults on integration of ESG factors in credit ratings
The European Securities and Markets Authority (ESMA) currently consults on proposals to integrate ESG factors in credit ratings and to improve transparency regarding the inclusion of ESG risks in credit ratings and rating outlooks. This work sits alongside developments in respect of the EU’s ESG Ratings Regulation which expressly exempts credit ratings from its scope. For more information, see our blog post.
EU: EIOPA proposes revisions to treatment of natural disaster risks
The European Insurance and Occupational Pensions Authority (EIOPA) has launched a consultation with proposals to adjust the treatment of natural catastrophe risks in the standard formula. EIOPA is proposing new risk factors for various perils and regions and has suggested to include more countries prone to natural disasters in the formula. Consideration is also being given to the inclusion of wildfires, coastal floods, and droughts as additional hazards to be covered.
Global: LMA publishes sustainability coordinator letter
On 24 April, the Loan Market Association (LMA) published a new sustainability coordinator letter. This letter intends to provide a starting point for negotiation where a sustainability coordinator is to be appointed in connection with a sustainability-linked loan agreement (SLLs). The letter sets out the terms on which the sustainability coordinator should be willing to act and is aligned with the LMA’s model form provisions for SLLs published in May 2023.
Global: BCBS discusses climate scenario analysis
After publishing its principles for the effective management and supervision of climate-related financial risks in 2022, the Basel Committee on Banking Supervision (BCBS) has found that differences in the scope and approaches of climate scenario analysis (CSA) exercises across jurisdictions and banks limit the harmonisation of supervisory expectations and the comparability. In April, the BCBS now published a discussion paper on the role of CSA in strengthening the management and supervision of climate-related financial risks.
ESG@Linklaters: Introducing our Global Sustainable Finance Tracker
We have created a dynamic global tracker which provides updates on obligations relating to all aspects of sustainable finance. It covers developments in the UK, EU, the US, key Asian jurisdictions, the UAE, Brazil, Australia, and South Africa. The broad coverage in one tool provides a hard-to-find snapshot view of the sustainable finance touchpoints impacting businesses and institutions across the globe. Read more
ESG@Linklaters: Report on greenwashing risks in voluntary carbon market
Together with the International Swaps and Derivatives Association (ISDA), in April 2024 we published a report which unpacks the risk of greenwashing in the context of the voluntary carbon market.
