ESG+ Newsletter – 24 October 2024

CSRD is the first up on this week’s ESG+, as we review the potential for a delay in CSRD reporting following comments from the French Premier. The newsletter also provides an update from COP16; reviews the delays on the implementation of the EU Deforestation Regulation; and looks at the continuing trials and tribulations at the world’s largest carbon credit provider, Verra. 

Will a green pushback mean watering down the CSRD?  

The Corporate Sustainability Reporting Directive is currently facing a wave of anti-green sentiment in the EU. Initially met with enthusiasm in 2021, only eight of the 27 member states had met the deadline to implement the CSRD into national law in July 2024. This delay highlights the larger challenge facing the CSRD, with leaders struggling when it comes to balancing the demands of extensive regulations from the EU, and economic concerns from certain sectors. New French Prime Minister, Michel Barnier, recently expressed a desire to reduce the scope of the CSRD, and this would appear to be a sentiment shared by a number of his European counterparts, according to Forbes. A broader green pushback was evident in the European Parliament elections during the summer, as the conservative EPP won seats thanks to a campaign which focused on the Green Deal as problematic for many businesses. Meanwhile, the Green-European Free Alliance and Renew Europe suffered heavy electoral defeats, losing 38 seats overall.

Now, as the vast majority of member states have failed to put the CSRD in place, discussions about minimising the CSRD are rippling through the European Parliament, much to dismay of climate activists. The extent of minimisation remains to be seen – but it could include removing reporting requirements for small and medium-sized enterprises, and for those which are not EU-based, as well as raising the minimum standards for required reporting. Despite the latest commentary, a significant rollback remains unlikely with many companies already down the garden path to compliance. 

COP16 begins with stark warning on nature 

The annual Convention on Biological Diversity began on Monday against a backdrop of stark warnings about the state of nature, including claims that biodiversity is declining at a faster rate in protected areas than outside them. The task for this iteration of the biodiversity COP is clear with countries expected to submit National Biodiversity Strategies and Action Plans (NBSAPs) which support the goals of the Global Biodiversity Framework (GBF) agreed two years ago. While the creation of NBSAPs has always been the goal of this COP, only 33 out of 196 countries attending COP actually did their homework and arrived with plans ready for presentation. COP16 runs until Friday 1st November, with negotiations often extending into the weekend after the conference concludes, so there remains time for things to change. Over the remainder of COP16, we will see whether signatories to the GBF can agree on how to deliver its goals and targets.  

As COP16 progresses, FTI Consulting is on the ground gathering updates. For more information on what to expect during COP16, see our piece on COP16: New Business Terrain. 

EU Envoys delay deforestation law implementation  

This week, Reuters reported that European Union ambassadors have decided to delay the implementation of the EU Deforestation Regulation (EUDR) by one year, with the new start date set for the end of December 2025. This decision follows significant pressure from member states and major agricultural exporters like Brazil and Malaysia. Initially agreed upon in June 2023, the law aimed to combat deforestation, the second largest source of greenhouse gas emissions after fossil fuels. The EUDR mandates that companies importing products such as beef, coffee, palm oil, and timber must prove their supply chains do not contribute to deforestation or face substantial fines. Under the new timeline, large operators and traders must comply by 30 December 2025, while smaller and mid-sized firms have until 30 June 2026. The law considers products deforestation-free if they have been produced on land that was not deforested or degraded after 31 December 2020. If approved, the postponement will provide additional time for companies to adjust their supply chains to meet the stringent requirements aimed at preserving the world’s forests and mitigating climate change. 

Governance debates at leading GHG crediting body   

Verra manages the Verified Carbon Standard Program, the world’s most widely used greenhouse gas (GHG) crediting programme. Such programme aims at certifying projects that reduce or remove GHG from the atmosphere and drive finance towards these activities. This week, the Financial Times reported that one of Verra’s former board members, who was also a client of the organisation, had been charged with fraud involving credits that Verra had certified. US federal prosecutors accused the former director of faking certain data to drive investment into a specific project. With the court case, raising further doubts on the governance structure of Verra, its CEO argued that allowing this director to sit on Verra’s Board while his company also developed projects that it paid Verra to accredit was “not inappropriate”, and that banning project development clients from the board would be “like saying you shouldn’t have a tech person on your board because you’re trying to digitise your processes right now.” 

While we would recognise the expertise that such a profile would bring to the board, we would also stress the importance of conflicts of interest that come with any board appointment. Even in the presence of strong guardrails to manage conflicts of interests, the nature of the situation can impact stakeholders’ trust in an organisation. In this regard, it is noteworthy that a proposal for establishing guardrails for a global carbon trading system is expected to be presented at the UN climate summit in Baku next month, aimed at enhancing the credibility of carbon credits. 

ICYMI 

• Norges Bank Investment Manager has emphasised the importance of ISSB baselines in response to Swiss sustainability reporting laws, advocating for ‘equivalence’ based on ISSB standards rather than EU alignment, Responsible Investor reports.  
• The International Panel for Ocean Sustainability is gaining traction, as Monaco and Canada have recently pledged their support. According to E+E Leader, this highlights a growing global commitment to strengthening the link between ocean science and policymaking. 
• The UK government has released its Transition Finance Market Review. As reported by Enviornmental Finance, the independent review provides a framework on how to scale the transition finance market in the UK and globally.