Business and Human Rights Update

A Legal newsflash on business and human rights

We are witnessing a regulatory avalanche relating to businesses’ respect for human rights. This update will keep you advised of initiatives of relevance for your business. We are also relentlessly chasing new tools for business to effectively address potential harm to people and environment. In the end, what protects people is also what best protects our businesses.

The EU Commission has clarified what it wants on corporate sustainability reporting. The German Constitutional Court has ruled that future fundamental freedoms are threatened by the fact that climate action post-2030 is likely to be draconian.

On 21 April, the EU Commission proposed a Corporate Sustainability Reporting Directive
The EU Commission describes the proposal as a key enabler for the realisation of the Green Deal Initiatives. It is firmly rooted in the dual materiality principle; that companies report both on how sustainability issues affect their performance etc., as well as how their activities affect people and planet.

The EU Commission proposes more specific sustainability reporting elements. This Update specifically notes proposed compulsory reporting of companies’ due diligence efforts throughout their value chains, in line with the UNGPs and other authoritative standards. It would also require companies to disclose how their corporate strategies and business models “take account of the interests of the group’s stakeholders and the impacts on the group on sustainability matters”.

It is proposed to make sustainable reporting mandatory for all private and publicly listed large companies and all listed SMEs, i.e. approximately 41,000 companies (compared to 11,700 to which the NFRD applies today).

The proposal introduces mandatory auditing to address concerns from investors and others that companies’ sustainability reporting to date may not be sufficiently reliable. Audits should be made possible by others than the usual auditors. Digital reporting is another key theme.

Next step is for the EU Parliament and Council to negotiate a final legislative wording. In the meantime, the European Financial Reporting Advisory Group (EFRAG) will be working on a first set of draft reporting standards. According to the EU Commission, at the earliest, companies will need to report on its financial year 2023 applying the new standards. Through this initiative, the EU also wants to contribute to the convergence of global sustainability reporting standards.
The German Constitutional Court has partly rejected the German Climate Act
On 29 April, in a very interesting ruling, the German Constitutional Court has found that the Federal Climate Change Act, by offloading significant emission reductions onto the future, jeopardizes “practically every type of freedom protected by fundamental rights”. The reasoning: If we were to use much of the remaining CO2 budget by 2030, we risk “serious losses of freedom because there would be a shorter timeframe” to reach climate neutrality “in a way that respects freedom”. The German Parliament will have to specify by next year what emission reductions will be required after 2030. This discussion will likely also find its way to the EU.

If you have questions or want to discuss any of these issues, you can always reach out to your existing contacts at the firm. You are also welcome to contact the members of our Corporate Sustainability and Risk Management team, some of whom are listed at the bottom of this page.

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Contact

Erica Wiking Häger, partner, erica.wiking.hager@msa.se

Malin Helgesen, Specialist Counsel, malin.helgesen@msa.se

Peter Linderoth, partner, peter.linderoth@msa.se

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