Monthly ESG Update from Germany – 3 December 2024
Welcome to our ESG newsletter which covers selected key developments in Germany, in the EU and globally on the full range of ESG topics. This is the last edition before the winter break. The next newsletter will be published in February 2025.
“Over the past year, the ESG landscape has become even more complex, and both sides of the Atlantic are navigating increasingly uncertain waters. With the pending CSRD Implementation Act and the EU’s promise to reduce company reporting red tape, there will be hardly any time to catch our breath over the holidays. Enjoy the festive season and have a good start to the new year!”
Julia Grothaus, Partner, Litigation, Arbitration & Investigations
Business & Human Rights
EU: Parliament votes on delay and amendments to EU Deforestation Regulation
On 14 November 2024, the EU Parliament approved the EU Commission's proposal to delay the application of the EU Deforestation Regulation (EUDR) by one year, to 30 December 2025 for large companies and 30 June 2026 for small and micro enterprises. The Council of the EU had already agreed to the one-year delay. The Parliament also approved various amendments to the EUDR, notably the introduction of a new category for countries posing "no risk" on deforestation. This is in addition to the existing categories of "low", "standard", and "high" risk. Countries classified as “no risk” will face significantly less stringent requirements. The Council and Parliament must negotiate these amendments swiftly to finalise them by year's end. For more information, see our blog post.
ESG@Linklaters: CS3D webinars – navigating financial service implications
We launched a new CS3D webinar series focused on its impact on financial services. The first webinar highlights key milestones, due diligence challenges, contractual clause issues, and practical value chain implications. Click here to listen to the first webinar.
You are also welcome to join us for two additional discussions about this framework: On 5 December, we will cover the CS3D transition plan requirement, and on 17 December, we will discuss how CS3D is related to other due diligence regimes. Register here.
Climate Change & Environment
Global: COP29 – What was decided and what does it mean in practice for business?
Nearly 200 countries and thousands of attendees gathered in Baku, Azerbaijan this year for COP29, the annual UN climate summit. The two-week conference closed on 24 November 2024, two days late, after some very heated negotiations. For the key takeaways from COP29, see our blog post.
Global: COP16 – Key takeaways from the global biodiversity summit
The 16th Conference of the Parties to the United Nations Convention on Biological Diversity (COP16) was held in Cali, Colombia from 21 October until 2 November 2024. COP16 was the first opportunity for governments to come together and collectively review their progress towards the targets and commitments established in the Global Biodiversity Framework (GBF) which was adopted at COP15 in 2022. According to the event organisers, COP16 was also intended to help make nature and biodiversity as important to governments and businesses as climate change and the energy transition. For more information, see our blog post.
ESG@Linklaters: Webinar on US election impact on global energy transition
In this webinar, our industry panel discusses the latest macro energy transition trends, key legal and market issues with a focus on the US election outcome and its impact on the global energy transition. See here for a recording.
Disclosure & Reporting
Germany: Update on CSRD implementation
Following the public hearing in the Bundestag's Legal Affairs Committee in mid-October 2024, reports suggest that SPD and Grüne have agreed on a draft law to implement the Corporate Sustainability Reporting Directive (CSRD) into German law. However, it remains unclear whether the law can be passed during the now abbreviated legislative period. The current situation leaves significant uncertainty, particularly for companies preparing for reporting starting in 2025.
The Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer in Deutschland e.V. – IDW) recently had the consequences of a delayed implementation for companies examined in a legal analysis. Please note that different legal views may exist regarding the questions discussed therein.
EU: CSRD – Transition Plan Implementation Guidance, final FAQs and NESRS
Since the publication of our November ESG Newsletter, there have been additional developments at the EU level concerning the CSRD:
- On 4 November, the European Financial Reporting Advisory Group (EFRAG) met to discuss the draft Implementation Guidance on Transition Plans for Climate Change Mitigation (TP IG or Guidance). This non-authoritative Guidance accompanies the European Sustainability Reporting Standards (ESRS) under the CSRD but does not form part of them. According to the Cover Note for the EFRAG Sustainability Reporting Technical Expert Group (TEG) meeting, the draft reflects an early stage of EFRAG’s position and may change following further revisions by TEG and EFRAG’s Sustainability Reporting Board (SRB). For more information, see our blog post.
- On 13 November, the final version of the EU Commission's FAQs on the CSRD was published in the EU’s Official Journal, with no major changes to the draft that was published in August. The FAQs provide interpretations of certain CSRD provisions, as well as explanations relating to the ESRS and the EU Disclosure Regulation (SFDR). For more details on the FAQs, see our blog post published in August.
- On 21 November, the TEG approved the sector-agnostic NESRS. The NESRS were prepared by amending the ESRS to comply with the specific requirements for non-EU groups reporting. In December, the SRB is set to conduct the review, with public consultation starting in Q1 2025. EFRAG must deliver the drafts to the Commission by the end of 2025. Main changes made to the ESRS include removal of the datapoints related to sustainability-related risks, opportunities and/or dependencies, meaning that NESRS requires reporting on sustainability-related impacts only and not on financial materiality. For more details, see our blog post.
EU: Commission publishes FAQs on EU taxonomy
On 29 November 2024, the Commission published a draft set of FAQs on the EU taxonomy, providing technical clarifications on its elements. Key points include annual assessments of economic activities for taxonomy alignment, technical screening criteria applications, and generic “do no significant harm” (DNSH) criteria concerning climate change adaptation, pollution, and biodiversity. The draft notice is to be formally adopted once available in all EU official languages.
EU: Commission FAQs on KPI reporting under the Taxonomy Regulation
A Commission notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation on the reporting of taxonomy-eligible and taxonomy-aligned economic activities and assets was published in the EU’s Official Journal on 8 November. This notice answers FAQs related to key performance indicators reporting under Commission Delegated Regulation (EU) 2021/2178, to provide interpretation and implementation guidance to financial undertakings. For more information, see our blog post.
EU: ESMA consults on amendments to prospectus regime including ESG proposals
The EU Listing Act, which changes the EU Prospectus Regulation (EU PR), was published in the EU’s Official Journal on 14 November 2024 (see final text here) and will enter into force on 4 December. However, many amendments of the EU PR will be phased in since they are reliant on delegated acts. Certain key changes to required ESG disclosures for sustainable bonds will not apply until 5 June 2026.
On 28 October 2024, ESMA published a consultation paper on draft technical advice concerning the EU PR, including proposed changes to Commission Delegated Regulation (EU) 2019/980, with a new disclosure annex for debt securities considering ESG factors or pursuing ESG objectives. For more information, see our blog post.
Global: Sustainability assurance standard ISSA 500 is published
On 12 November 2024, the International Auditing and Assurance Standards Board (IAASB) published the International Standard on Sustainability Assurance 5000 (ISSA 5000). The standard aims to establish a framework for sustainability assurance engagements. It is up to individual jurisdictions to decide whether compliance with this standard is necessary.
The Corporate Sustainability Reporting Directive (CSRD) mandates that the EU Commission adopts limited assurance standards by 1 October 2026. Meanwhile, the Committee of European Auditing Oversight Bodies (CEAOB) has published non-binding guidelines and is expected to prepare technical advice for the development of EU-specific add-ons to ISSA 5000 by May 2025. We recommend that companies proactively consult with their chosen assurance providers regarding applicable standards and jurisdictional variations. For more information, see our blog post.
Sustainable Finance
Germany: Recommendations for the German government on how to finance the transition
In November 2024, the Sustainable Finance Advisory Committee (Sustainable Finance-Beirat – SFB) handed over its final report for the current legislative term to the German government. The 40-page compendium entitled “Funding our tomorrow” includes the Committee’s recommendations for three areas, (i) sustainable finance regulation, (ii) transition finance, and (iii) national and international commitment. It also outlines a vision of a future sustainable finance system. Starting on page 8, the compendium sets out 13 core recommendations. These include amendments to the EU taxonomy, an ESG scale for financial products for private investors, availability of certain data, subsidised climate-friendly saving products, and the creation of a tax-privileged “German Transformation Fund”. For more information in English, see this press release.
EU: EIOPA recommends capital charges for fossil fuels
The European Insurance and Occupational Pensions Authority (EIOPA) has published its final report on the prudential treatment of sustainability risks within the EU’s Solvency II framework. The EU Commission had asked EIOPA to assess the potential for a dedicated prudential treatment of assets and activities associated with environmental or social objectives.
EIOPA concludes that fossil fuel-related stocks and bonds are more exposed to transition risks than assets connected to other economic activities, recommending additional capital charges for these assets. In the area of non-life underwriting risk and climate change adaptation, EIOPA highlights the need for more data to reach robust conclusions. For social risks, specific prudential treatment is not advised yet due to current data limitations, but EIOPA plans to develop guidance for evaluating these risks. The Commission will review the report and consider implementing the proposed additional capital requirements for fossil fuel assets.
EU: ESG Ratings Regulation moves one step forward
The Council of the EU adopted the proposed ESG Ratings Regulation on 19 November 2024 (see Council press release). The regulation is designed to govern the issuance, distribution, and, where relevant, publication of ESG ratings, without intending to regulate their use. The regulation now needs to be published in the EU’s Official Journal before it can enter into force. For more information, see our previous client briefing.
EU: Climate transition risks alone unlikely to threaten financial stability
According to the results of the one-off “Fit-for-55” climate scenarios analysis published on 19 November 2024 by the European Supervisory Authorities and the European Central Bank, climate-related transition risks alone are not likely to threaten the financial stability of the EU. However, these risks could lead to increased losses for financial institutions and disrupt the green transition if combined with unexpected shocks to the financial system. For more information, see our blog post.
Global: ESG bond issuance surpasses US$800 billion
Global sustainable bond issuance exceeded US$800 billion in the first nine months of 2024. Green bonds continue to be the most popular format, with over 1,600 issuances raising over US$475 billion this year to date. Europe is the leading region for issuance value, led by Germany and France. Government issuance dominated activity across green, social, and sustainability use-of-proceeds bonds. For more information, see our briefing.
Global: LMA publishes provisions for green loans
In November 2024, the Loan Market Association (LMA) published contractual provisions for green loans. The provisions are designed to be consistent with the LMA’s Green Loan Principles and accompanying Guidance. They follow the publication on 4 May 2024 of contractual provisions for sustainability-linked loans. All documents are available for members on the LMA’s website.
