Decoding the CSRD: A step-by-step guide to becoming CSRD ready

The CSRD is a new law and a material step up from sustainability reporting that has previously been mandated in Europe. There are significant areas of uncertainty that require careful navigation and emerging areas of legal risk inherent in sustainability reporting which need to be appropriately managed from the outset.

Linklaters and Holtara are teaming up to bring you a practical webinar focused on CSRD readiness. The webinar will provide insights on scoping, double materiality, reporting requirements, data gathering, and risk identification. Learn more about the event and register here

EU: CSRD transposition: where are we in September 2024?

The Corporate Sustainability Reporting Directive (CSRD) was due to be transposed into national law in every EU member state by 6 July 2024. To date, the CSRD has been fully transposed in Bulgaria, Croatia, Finland, France, Denmark, Ireland, Italy, Norway, Romania, Slovakia and Sweden. Many of the remaining countries are still in the parliamentary process or have made no progress in Parliament towards meeting the transposition requirements. View our updated CSRD Transposition Tracker to find out the current status in each country. For more information on the CSRD, see our CSRD Demystified materials.

UK: FRC publishes 2024 annual review of corporate reporting

On 24 September 2024, the Financial Reporting Council (FRC), as regulator for reporting and audit in the UK, published the results of its latest Annual Review of Corporate Reporting. The FRC has identified comparatively few compliance issues. However, some companies continue to find TCFD-aligned reporting challenging, and the matter has just moved into the top ten issues this year. The most common issue looked at by the FRC is a lack of clarity around statements of consistency with the TCFD framework. Generally, the FRC notes that disclosures could be more concise and that material information should not be obscured. For more information, see our blog post.

EU CSDDD explained: new podcast series

The EU Corporate Sustainability Due Diligence Directive (CSDDD or CS3D) is set to revolutionise corporate responsibility in global supply chains and require companies to adopt climate transition plans. In this podcast series, we explore different aspects of the CSDDD – in bite-sized format – including its scope and timing, its application to the financial sector, due diligence requirements, penalties and enforcement, transition plans, how the CSDDD compares with the CSRD, and much more. Listen to the first six episodes here.

Stay tuned for further episodes. To be alerted when we have published a new podcast, sign up to the Sustainable Futures blog by clicking on the "Subscribe" button at the top of the blog homepage.

UK: FCA sets out temporary measures for firms on ‘naming and marketing’ sustainability rules

The Financial Conduct Authority (FCA) has announced that is offering limited temporary flexibility, until 5pm on 2 April 2025, for firms to comply with the ‘naming and marketing’ rules (i.e. ESG 4.3.2R to ESG 4.3.8R of the FCA's ESG sourcebook) in relation to a sustainability product which is a UK authorised investment fund in exceptional circumstances where the firm:

• has submitted to the FCA a completed application for approval of amended disclosures in line with ESG 5.3.2R for that fund by 5pm on 1 October 2024; and
• is currently using one or more of the terms ‘sustainable’, ‘sustainability’ or ‘impact’ (or a variation of those terms) in the name of that fund and is intending either to use a label, or to change the name of that fund.

For more information, see our blog post.

Global: First-of-its-kind carbon removal bond to fund Amazon reforestation

In our latest episode of Bond Beats, the Linklaters team welcome Shirmila Ramasamy (the World Bank’s Senior Counsel and Team Lead of Innovative Finance) to explore the World Bank's latest outcome bond: a first-of-its-kind carbon removal bond to fund Amazon reforestation. The discussion covers the Amazon bond’s structure, how outcome bonds have evolved over time and the World Bank's ambitions for future outcome bonds supporting sustainable development. This episode of Bond Beats is part of a wider podcast series discussing the hottest topics in debt capital markets right now. These podcasts will provide insights into key developments and challenges as well as picking up the key trends we see in the market. Listen to the full series here.

EU: Key sustainability issues in the Draghi report on EU competitiveness

On 9 September 2024, the former European Central Bank President Mario Draghi delivered his long-awaited report on the future of European competitiveness to the President of the European Commission. The report calls for a “new industrial strategy for Europe”, calling on the EU to raise investments by €800 billion a year to fund radical and rapid reform and avoid "a slow agony". Ursula von der Leyen, who commissioned the report, has indicated her support of the fundamental principles of the report, including the need to ensure the EU’s long-term competitiveness through shifting away from fossil fuels and towards a clean, competitive, and circular economy. She also highlighted the importance of resilience and building more robust industrial value chains, including access to critical raw materials. The Draghi report is not legally binding and is meant to serve as inspiration for the work of the new European Commission, which is in the process of being assembled. Ursula von der Leyen and her new Commission will need to decide how much of its recommendations to pursue. See our blog post for the key sustainability issues raised in the report, including recommendations on reducing the sustainability reporting burden, streamlining permitting procedures, CBAM and critical raw materials.

EU: New European Commission starts to take shape

On 17 September 2024, European Commission President Ursula von der Leyen announced the list of Commissioners-designate for her new Commission. We expect the new Commission to start on 1 December, but delays are possible. See our blog post for more information on the Commissioners-designate most relevant to the EU's work on net zero and ESG, which will include creation of a new Clean Industrial Deal, an Industrial Decarbonisation Accelerator Act and a new Circular Economy Act, among other things.

UK: The advent of the National Energy System Operator

The National Grid Electricity System Operator (ESO) had previously set out its plans for shortening the lengthy queue of projects waiting for connection to the UK’s electricity grid. Following consultation earlier this year, the government has decided to acquire the ESO, thereby transferring it into public ownership. The rebranded National Energy System Operator (NESO) will, from 1 October 2024, be responsible for overseeing the holistic planning of Britain's gas and electricity networks. NESO will be designated the Independent System Operator and Planner (ISOP) for the purposes of the Energy Act 2023, taking on responsibilities across electricity, gas and hydrogen, including all the existing functions of the ESO. This long-anticipated change is expected to streamline the development of new energy infrastructure and enhance coordination across the sector. The government’s hope is that NESO will also have a significant impact on the current connections queue. For more information, see our blog post.

Global: Linklaters hires new global sector lead for energy transition

Linklaters has bolstered its Energy sector offering with the appointment of Joanna Addison, who joins as the firm’s new Global Sector Lead for Energy Transition. Joanna Addison has an impressive track record and is recognised as a leading individual in the sector. She was previously Head of Legal for Shell in Qatar and before that partner at Herbert Smith Freehills. This strategic appointment adds a wealth of expertise to Linklaters’ Energy sector, bringing over twenty years' experience in the project development, operations, and acquisition and disposal of all aspects of the energy value chain, both conventional oil and gas and power, as well as energy transition projects including carbon capture, usage and storage. Joanna will be based in London but will have a global focus, including drawing on her vast expertise in the Middle East. For more information, see our press release.

UK: New CMA greenwashing guidance for the fashion industry

The Competition and Markets Authority (CMA) has published a new compliance guide for fashion businesses when making environmental claims and issued a warning to 17 unnamed fashion brands to review their business practices. The CMA has made it clear that the new example-based practical guide means there’s no excuse for using misleading claims and reminded businesses that failure to ensure practices are aligned with consumer protection rules could carry a risk of up to 10% global turnover under the Digital Markets Competition and Consumers Act (DMCCA), when those powers take effect in Spring 2025. The guidance makes it clear that all stakeholders in the supply chain for the supply of clothes, footwear, fashion accessories and related services (such as packaging, delivery and returns) are responsible for ensuring their environmental claims are accurate and substantiated. For more information, see our blog post.

EU: ECB stresses the legal implication of nature-related risks for financial institutions and their supervisors

Frank Elderson, a Member of the Executive Board and Vice-Chair of the Supervisory Board of the European Central Bank (ECB), delivered an important keynote speech at the European System of Central Banks (ESCB) Legal Conference on 6 September 2024. He highlighted two growing legal ramifications of nature degradation for the financial sector: nature-related litigation and the impact on central banks’ and supervisors’ mandates. Mr Elderson underscored the necessity for central banks and financial institutions to address these pressing risks in light of the ECB's stepped-up climate supervision work. For more information, see our blog post.

EU: Belgium first to transpose EU Pay Transparency Directive for public sector

On 12 September 2024, the Federation Wallonie-Bruxelles in Belgium published a Decree, thus becoming the first EU Member State to transpose the EU Pay Transparency Directive (PTD) for the public sector. Although it currently applies only to the public sector within the French Community, it could indicate how Belgium intends to implement the PTD for the private sector by 2026. The Decree sets forth enforcement measures and additional protections for employees exercising their rights, as well as introducing some enhanced provisions. While the Decree closely adheres to the PTD, it lacks some of the detailed clarity employers might have expected. However, the government is authorised to further transpose certain provisions, which should provide the necessary guidance. With an impending deadline of 7 June 2026 for federal transposition, businesses in the private sector should begin preparations without delay. See our briefing for an analysis of recent and important updates concerning the Pay Transparency Directive (PTD) and its transposition into Belgian law.

UK: Employment Law Reforms Tracker

Employment law in the UK is poised for significant change. Many of the proposed reforms will be included in the Employment Rights Bill, due to be published in October, such as changes to flexible working, strengthening protections for new mothers and making various statutory rights available from day one. Changes to gender pay gap reporting and new mandatory ethnicity and disability pay gap reporting obligations are also expected as part of the government’s employment reforms. To help clients prepare and stay up to date with the changes, our team of employment law experts have launched the UK Employment Law Reforms Tracker.

PFAs Litigation

Lawsuits alleging contamination from per- and polyfluoroalkyl substances (PFAS) remain on the rise. On 30 August 2024, a class action lawsuit was filed in the U.S. District Court for the District of Minnesota against three chemical companies for allegedly distributing PFAS containing stain and soil repellant products to carpet manufacturers that were used on carpets during and/or after the manufacturing process and later exposed adults, children and consumer property to PFAS emissions. The complaint brings over 100 claims against the defendants, further alleging that they failed to disclose the dangers of PFAS to carpet manufacturers, retailers and consumers, and, instead, collaborated to purposefully conceal this information to drive sales.

On 9 September 2024, a proposed class action lawsuit was filed in the U.S. District Court for the Southern District of New York against a household products manufacturer, alleging that a brand of their latex and non-latex male condoms contains PFAS that can enter the body through skin absorption and pose a serious health and safety risk to consumers. The complaint claims that the defendants intentionally failed to disclose the presence of PFAS chemicals on the product labeltrans and packaging in order to procure a premium from consumers by representing that the expected quality of the products was above or at least comparable to that of defendant’s competitors. The proposed class is seeking declaratory and injunctive relief as well as compensatory, statutory, and punitive damages.

Also on 9 September 2024, the U.S. District Court for the Northern District of California issued an opinion in a proposed class action lawsuit brought against a popular sports drink manufacturer alleging that its products contain PFAS, and as a result, various packaging and advertising representations that it is made with healthy ingredients were false and misleading. The Court ruled on the defendant’s motion to dismiss, denying some claims but finding that the plaintiff had established standing by alleging that she purchased the product during the class period and providing independent testing results that showed unsafe levels of PFAS, and that the plaintiff sufficiently plead an implied warranty of merchantability claim since the PFAS found in the product exceed the U.S. Environmental Protection Agency’s (EPA) recommended limit for drinking water and would render it unsafe for consumption.

On 18 September 2024, the U.S. District Court for the Eastern District of North Carolina issued an order in a case brought by a group of North Carolina residents against chemical companies for their operations at a manufacturing plant in Bladen County, North Carolina. The plaintiffs alleged that the wastewater discharges from the plant contaminated water systems connected to plaintiffs’ residences and caused them to develop cancer and other serious health conditions. The Court ruled on the defendants’ motion to dismiss, denying some claims but finding that plaintiffs plausibly alleged that defendants have interfered with plaintiffs’ use and enjoyment of their property by allegedly discharging PFAS and hexafluoropropylene oxide dimer acid (GenX), another toxic chemical, into plaintiffs’ property, causing plaintiffs’ personal bodily injuries.

Oil and Gas and Mining Litigation

Lawsuits in the oil and gas and mining sector continued to develop this month. On 13 September 2024, the U.S. District Court for the District of Columbia issued an opinion in a case brought by two environmental groups, against the U.S. Department of Interior and the U.S. Bureau of Land Management, challenging the approval of an oil and gas project in Wyoming. The plaintiffs claimed that the defendants violated the National Environmental Policy Act (NEPA), the Administrative Procedure Act (APA), the Federal Land Policy and Management Act (FLPMA), and the Mineral Leasing Act (MLA). In its opinion, the Court ruled that the Environmental Impact Statement (EIS) for the project was deficient and further applications for permits to drill (APD) approvals based on the project’s EIS would be enjoined, while the Court decides whether to vacate the project approval.

On 18 September 2024, two environmental organizations filed a lawsuit in California state court challenging the Port of Stockton’s approval of a hydrogen production and dispensing facility project that would have a wide range of environmental impacts, including air pollution, greenhouse gas emissions and fossil fuel consumption. The plaintiffs claim that the defendants violated the California Environmental Quality Act (CEQA) by failing to prepare an Environmental Impact Report (EIR) for the project, failing to adequately evaluate the project’s environmental impacts and its consistency with California’s climate, clean energy, and greenhouse gas reduction goals and mandates, and failing to adopt mitigation measures that would sufficiently reduce the project’s environmental impacts.

On 11 September 2024, an indigenous group filed a petition for writ of certiorari with the U.S. Supreme Court, challenging a Ninth Circuit decision to reject their plea to prevent destruction of a sacred religious site for mining purposes. The case was originally brought by the group against the federal government for its authorization of a transfer of the site to a mining company for construction of a copper mine. The Ninth Circuit ruled that although destroying the site would “literally prevent” the group from engaging in religious exercise, it concluded that doing so would not “substantially burden” their religious exercise under the Religious Freedom Restoration Act (RFRA). The group requests that the Court grant their petition, alleging that the Ninth Circuit improperly applied the RFRA and its decision threatens the permanent eradication of their religious identity.

Greenwashing

State officials, NGOs and consumers continue to file greenwashing suits against corporations for alleged deceptive marketing. On 23 September 2024, the Attorney General for California filed suit in California state court against a major oil corporation claiming the company issued deceptive campaigns to minimize public understanding of fossil-fuel based plastic products. The plaintiff argues that the oil company promoted the development of fossil-fuel-based single-use plastic products and deceptively advertised individualized recycling as a cure-all for the mounting plastic waste crisis. The plaintiff seeks abatement, equitable relief, injunctive relief and civil penalties. The same day, four environmental NGOs filed a similar suit against the oil company, claiming the corporation “engaged in a fifty-year operation to bury the truth, promoting the fiction that single-use plastic waste can be safely, technically, and economically disposed by landfilling, recycling, or incineration.”

Also in September, an environmental NGO sued a multinational meat corporation in the Superior Court of the District of Columbia, alleging that the business made misleading marketing claims about the company’s climate impact in violation of the D.C. Consumer Protection Procedures Act. The complaint argues that the company falsely advertised “a pledge to achieve ‘net-zero’ climate emissions by 2050 and marketing ‘climate-smart’ beef,” while continuing to produce vast amounts of climate-warming emissions. The plaintiff seeks declaratory and injunctive relief.

Anti-ESG Legislation and Legal Challenges

Anti-ESG sentiment and legislation continues to gain traction in the U.S. In September, Republicans in the U.S. House of Representatives passed two bills to limit ESG considerations in investments and agency-required climate disclosures. The “Protecting Americans’ Investments from Woke Policies Act” (H.R.5339) would restrict pension fund managers from considering non-pecuniary factors like ESG when making investments. The second bill, the “Prioritizing Economic Growth Over Woke Policies Act” (H.R.4790), would limit the U.S. Securities and Exchange Commission’s (SEC) disclosure promulgation authority and would remove private liability for failing to make a non-material disclosures such as climate-related disclosures. Both bills were referred to the U.S. Senate for consideration.

Business organizations are challenging many of the state anti-ESG policies. In September, the American Sustainable Business Council sued the Texas State Comptroller and the Attorney General in the U.S. District Court for the Western District of Texas to challenge Texas Senate Bill 13 (S.B. 13), which prohibits state public entities from boycotting fossil-fuel energy companies. The complaint argues that the state law seeks to “coerce and punish businesses that have articulated, publicized, or achieved goals to reduce reliance on fossil fuels,” in violation of the First and Fourteenth Amendments of the U.S. Constitution. The plaintiff seeks declaratory and injunctive relief.

Pollution Litigation

On 6 September 2024, the State of Maryland Department of the Environment filed suit in Maryland state court against a group of developers and builders to enjoin unpermitted discharge of pollution caused by an ongoing housing development project. The plaintiff alleges that the defendants failed to abate and control drainage from the project construction site, resulting in sediment pollution in the Gunpowder River and one of its tributaries. The plaintiff seeks injunctive relief and civil penalties.

Also in September, a non-profit organization sued the City of Atlanta in the U.S. District Court for the Northern District of Georgia, alleging ongoing pollution to the Chattahoochee River. The complaint argues that due to poor management and lack of routine maintenance to one of the city’s wastewater treatment plants, the city has unlawfully “discharged pollutants including ammonia, phosphorus, suspended solids, and harmful levels of bacteria,” into the river. The plaintiff seeks declaratory and injunctive relief.

Youth Climate Litigation

On 12 September 2024, a group of twenty-one youth climate activists filed a petition for a writ of mandamus to the U.S. Supreme Court, asking the court to revive their complaint, which had been dismissed by the Ninth Circuit Court of Appeals. The complaint alleges that the U.S. national energy system has resulted in negative climate impacts, causing injury to their fundamental constitutional rights of life and liberty. The Ninth Circuit had ruled in 2020 that supervision of remedies meant to address climate change was outside the purview of the judiciary, and in May 2024 dismissed the case on the basis that the plaintiffs did not have the right to amend their complaint.

EPA Action

On 16 September 2024, an automative performance company announced it had entered into a settlement agreement with the EPA over violations of the Clean Air Act that occurred between 2015 and 2017. The EPA’s enforcement action asserted the company had manufactured and sold over 90,000 aftermarket tuning devices that could be used to bypass elements of vehicles’ EPA-approved emissions control systems. The company stated that it fully cooperated with the EPA’s investigation of these claims and maintained that all of its products were EPA compliant, but that it was in the best interest of the company’s employees and customers to enter into a settlement agreement. The settlement requires the company to pay a $2.9 million civil penalty, destroy the violative products in its inventory, and notify customers that the relevant parts violate the Clean Air Act.

On 20 September 2024, the EPA announced a $15 million climate pollution reduction grant for community-driven solutions to cut climate pollution would be given to the Miccosukee Tribe of Indians of Florida. The Tribe plans to use the grant for various greenhouse gas reduction efforts, including: conducting a fleet sustainability study, replacing internal combustion engine school buses with electric buses, and installing 70 solar-powered charging stations. The same day, the EPA released their final rule (Final Rule) for the management of hydrofluorocarbons (HFCs) and substitutes under the American Innovation and Manufacturing Act of 2020. The Final Rule establishes regulations to control the servicing, disposal, and installation of equipment that involves certain HFCs and their substitutes. This rule is projected to prevent approximately 120 million metric tons of carbon dioxide equivalent in HFC emissions between 2026 and 2050.

SEC Action

On 10 September 2024, the SEC reached a $1.5 million settlement with a leading beverage company regarding allegedly misleading statements made in their 2019 and 2020 fiscal statements. According to the SEC, the company had stated that its testing with recycling facilities validated that its product could be “effectively recycled,” while failing to disclose that two of the largest recycling companies in the United States had indicated that they did not intend to accept the product for recycling. In addition to the $1.5 million payment, the company has agreed to a cease-and-desist order.

Also in September 2024, a SEC spokesperson confirmed that the SEC had disbanded its Enforcement Division’s Climate and ESG Task Force within the past few months. The task force, which was originally launched in March 2021, was tasked with investigating ESG matters and has been responsible for bringing various ESG-related enforcement actions throughout the past few years. Although ESG enforcement responsibilities are no longer housed within one group, the spokesperson indicated that the overall strategy has been effective, “and the expertise developed by the task force now resides across the Division”.

Singapore Exchange Regulation publishes response to the public consultation on mandatory climate-related reporting requirements

On 23 September 2024, the Singapore Exchange Regulation (SGX RegCo) published amendments to the SGX-ST Listing Rules (Mainboard) (the Mainboard Rules) and the SGX-ST Listing Rules (Catalist) (the Catalist Rules, together the Listing Rules) to incorporate the International Sustainability Standards Board (ISSB) standards into its sustainability reporting rules (see SGX RegCo press release). This is in response to the public consultation launched in March 2024 (see our previous client alert).

The key changes to the Listing Rules, which apply to listed companies in Singapore, are: (i) all issuers must report Scope 1 and Scope 2 greenhouse gas (GHG) emissions from FY2025; (ii) all issuers will be required to provide climate-related disclosures (CRDs) incorporating the climate-related requirements in the IFRS Sustainability Disclosure Standards issued by the ISSB; (iii) the other primary components of a sustainability report (excluding CRDs) are to be disclosed on a “comply or explain” basis for FY2025, and on a mandatory basis from FY2026; and (iv) issuers that do not conduct external assurance on their sustainability reports must issue their sustainability reports together with their annual reports from FY2026, while issuers that conduct external assurance on their sustainability reports will, as a transitional measure, have up to five months from the end of their financial year to issue their sustainability reports.

In response to the challenges highlighted by the respondents to the March consultation on disclosure of Scope 3 GHG emissions, SGX RegCo have said that they will review listed companies’ experience and readiness before establishing the implementation roadmap for reporting Scope 3 GHG emissions. However, they intend to prioritise larger issuers by market capitalisation such that they report Scope 3 GHG emissions from FY2026. Separate public consultations will also be conducted to implement IFRS S1 beyond climate-related disclosures in due course.

Hong Kong SAR publishes exposure drafts of two Hong Kong sustainability disclosure standards for public consultation

On 16 September 2024, the Hong Kong Institute of Certified Public Accountants (the HKICPA) published the Exposure Drafts for HKFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and HKFRS S2 Climate-related Disclosures (the HK Sustainability Disclosure Standards) for public consultation. The HKICPA is the sustainability reporting standard setter in Hong Kong who is developing the HK Sustainability Disclosure Standards as a set of local sustainability disclosure standards aligned with the ISSB Standards.

In the exposure drafts the HKICPA is proposing full convergence of HKFRS S1 and HKFRS S2 with IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (the ISSB Standards), which is described by the ISSB Inaugural Jurisdictional Guide as “full alignment”, therefore the HK Sustainability Disclosure Standards are the same as IFRS S1 and IFRS S2 subject to only having an effective date of 1 August 2025 (see HKICPA press release).

As indicated in the Government’s Vision Statement on Turning Obligations into Opportunities in Developing the Sustainability Disclosure Ecosystem in Hong Kong (see our previous blog post), the application of HKFRS S1 and S2 will prioritise “publicly accountable entities” including listed entities and regulated financial institutions in Hong Kong such as banks, fund managers, insurance companies and MPF trustees. Relevant authorities/regulators (including the HKEX, HKMA, SFC, MPFA and IA) will conduct their own consultations to determine the approach and timing of adopting HKFRS S1 and S2, with reference made to the ISSB Inaugural Jurisdictional Guide that a jurisdiction’s process completion date of the adoption or other use of ISSB Standards should be no later than end-2029.

For listed entities in Hong Kong, HKEX published the new climate-related disclosure requirements in April 2024 (see our previous client briefing). As indicated in HKEX’s consultation conclusions, the final enhanced climate disclosure rules serve as an interim step to prepare listed entities for the eventual adoption of the HK Sustainability Disclosure Standards. When the HK Sustainability Disclosure Standards are available, HKEX will consider how to transition towards sustainability reporting in accordance with the HK Sustainability Disclosure Standards, including whether to replace its current ESG regulatory framework (which primarily comprises Appendix C2) with a straightforward Listing Rule requirement directing listed issuers to publish sustainability reports in accordance with those HK Sustainability Disclosure Standards.

HKICPA has also published a useful explanatory memorandum and FAQs as annexes to the exposure drafts. The HKICPA aims to publish the final HKFRS S1 and S2 by the end of 2024. This consultation closes on 27 October 2024.

China publishes draft plan to include steel, cement and aluminium in its compliance carbon market in 2024

On 9 September 2024, the Ministry of Ecology and Environment of China released the draft Work Plan for the National Carbon Emission Trading Market to Cover the Cement, Steel, and Electrolytic Aluminum Industries for public comments. The draft plan intends to incorporate cement, steel and aluminum production into the carbon emissions trading scheme (the ETS) - China’s compliance carbon market. The inclusion of cement, steel and aluminum production aims to facilitate the coverage of the ETS to around 60 per cent of China’s carbon emissions. In particular, China expects to expand the ETS over two stages – (i) the first stage will cover the period 2024 to 2026, with the focus on familiarising market participants with the ETS processes and laying a solid foundation for managing carbon emissions; and (ii) the second stage will cover 2027 and onwards, with the focus on improving the relevant policy and regulatory structures and optimising the carbon emission quota allocation mechanism.

China conducts a second review of the draft energy law

On 13 September 2024, China’s National People’s Congress Standing Committee released the Energy Law (Draft for the Second Review) (the Second Draft) for public comments. The draft Energy Law was submitted for the first review in April this year (see our ESG newsletter June edition). The Second Draft introduces several key updates compared to the first draft, including: (i) newly proposed rules on the development and utilisation of renewable energy (e.g. wind energy, solar energy, biomass energy, geothermal energy, ocean energy and hydrogen energy), with the aim of promoting China’s green and low-carbon energy transition; (ii) a commitment to advancing the replacement of fossil fuel by non-fossil energy and increasing the proportion of non-fossil energy in overall energy consumption; and (iii) an emphasis on accelerating the construction of new types of power systems and enhancing the coordinated development of power generation and grids to support, allocate and regulate clean energy.

China announces first investigation under the PRC sanctions regime into US apparel company PVH on Xinjiang supply chain issues

On 24 September 2024, the Unreliable Entity List (UEL) Working Mechanism Office of China’s Ministry of Commerce issued the first ever investigation notice pursuant to the Provisions on the Unreliable Entity List, citing China’s Foreign Trade Law, National Security Law and the Anti-Foreign Sanctions Law, against U.S. apparel company PVH Group. The announcement marks a departure from the PRC authorities’ past enforcement of the UEL and related sanctions legislation, which have largely focused on Taiwan-related arms sales by non-Chinese entities. This development highlights the delicate balance that multinationals must manoeuvre in supply chain de-risking. For more information, see our client briefing.

Japan’s first youth climate lawsuit against thermal power companies

On 6 August 2024, 16 Japanese youths filed Japan's first youth climate lawsuit in the Nagoya District Court against ten domestic thermal power companies. The plaintiffs claim that (i) the ongoing carbon dioxide emissions by these companies is a breach of duty of care under Japan’s Civil Code and a violation of the younger generation’s right to live under a stable climate; and (ii) the emission reduction measures of these companies are insufficient and inconsistent with international targets, taking account of their emissions records and medium-term reduction measures. The plaintiffs seek an injunction to compel the defendant companies to reduce their CO2 emissions in line with the report published by the United Nations Intergovernmental Panel on Climate Change, to reduce CO2 emissions by 48% by 2030 and 65% by 2035 compared to 2019 levels.

Constitutional Court of Korea rules Carbon Neutrality Framework Act partially unconstitutional

On 29 August 2024, the Constitutional Court of Korea issued a landmark decision declaring as unconstitutional Article 8(1) of the Framework Act on Carbon Neutrality and Green Growth for Coping with the Climate Crisis, which mandated a reduction of national greenhouse gas emissions by at least 35 percent from 2018 levels by 2030. In particular, the Court found that (i) the absence of post-2030 targets meant there is no mechanism to ensure gradual but continuous reductions necessary to achieve carbon neutrality by 2050; (ii) this effectively shifted undue burden of climate action to future generations; and (iii) this constituted a failure to provide minimum protection from the adverse effects of climate change. The Court has ordered the National Assembly to enact a more concrete and specific revised legislation to include milestone targets up to 2050 (taking into account scientific facts, international standards and institutional effectiveness) by 28 February 2026. (** This newsletter is intended merely to highlight issues and is not intended to provide Korean law advice.)

ESG Disputes Bulletin - September 2024 -Read our newsletter

The EU perspective on greenwashing from the ESA's reports - Read our blog post

Going for green: ESG in sport – Read our blog post