Applicable to retailers and manufacturers doing business in California and having annual worldwide gross receipts exceeding $100 million. Companies that are part of the supply chains of these businesses will need to respond to ESG disclosure requests coming from their customers in order to comply.

The California Transparency in Supply Chains Act (S.B. 657) aims to eliminate slavery and human trafficking from global supply chains by requiring companies of the specified size and scope to disclose their efforts to eradicate these practices. The Act mandates organizations to disclose their verification, audit, certification, internal accountability, and training procedures. Non-compliance could result in reputational damage and possible legal actions by the Attorney General of California.

Companies within the scope of the California Transparency Act must disclose the following:

1. Verification of product supply chains to evaluate and address risks of human trafficking and slavery.
2. Audits of suppliers to evaluate supplier compliance with company standards for trafficking and slavery in supply chains. If the verification hasn’t been conducted by a third party, this should be specified in the disclosure.
3. Direct suppliers’ certification that materials incorporated into the product comply with the laws regarding slavery and human trafficking of the country or countries in which they are doing business.
4. Maintain internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking.
5. Training provided to management employees with direct responsibility for supply chain management on human trafficking and slavery, particularly with respect to mitigating risks within the supply chains of products.

Get an update on challenges and current practices on modern slavery due diligence in supply chains.

See how companies are leveraging EcoVadis to comply: Read more here

Applicable to all asset and fund managers.

The SFDR introduces reporting rules to make the sustainability profile of funds more comparable to investors. Eligible companies must disclose pre-defined metrics that assess environmental, social and governance outcomes. The regulation requires asset managers to provide standardized reporting on how ESG factors integrate at both company and product levels.

The green taxonomy is primarily a classification system to clarify which economic activities can be considered environmentally sustainable. The EU Taxonomy provides a framework to define when a company operates in ways benefiting society and the environment, thus limiting greenwashing and creating a level playing field for sustainable investing.

The EU Taxonomy Regulation applies to the following three groups:

1. Companies with more then 500 employees that fall under the Non-Financial Reporting Directive (NFRD)
2. Players in the financial sector including occupational pension providers that offer offer and distribute financial products in teh EU, even if they are based outside the EU
3. EU and member states institution when setting public measures, standards or labels for green financial products and corporate bonds

Requirements for companies from outside and within the financial sector differ, though some companies may fall into both categories.

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal regulatory reform initiated by the European Commission aimed at improving the landscape of non-financial reporting. It significantly extends the existing Non-Financial Reporting Directive (NFRD) by expanding its scope, tightening reporting requirements, and integrating sustainability into corporate governance.

What companies are affected?

The breadth of companies affected by the CSRD is vast, encompassing nearly ten times the number of businesses covered by NFRD. It includes approximately 50,000 companies within the EU and an additional 10,000 companies headquartered outside the EU. Moreover, the scope is not confined to publicly listed companies. Entities, whether operating individually or as part of a consolidated group, across various categories may be subject to these reporting requirements.

When will reporting be required?

The reporting timeline differs based on the entity type. Entities classified as “large undertakings” with securities listed on an EU-regulated market and with over 500 employees, as well as those that are subject to NFRD will need report in 2024 with reports to be published by 2025. All other large companies will have their reporting deadline in 2025 with reports to be published in 2026. Reporting requirements for smaller entities will kick in a year later, companies headquartered outside the EU will need to report throught their EU subsidiaries in 2028, with the publication deadline in 2029.

What are the key reporting requirements?

CSRD breaks new ground for reporting requirements compared to NFRD that it replaces and many other national standards to date. Central to these requirements is the ‘double-materiality’ principle. It mandates companies to recognize not just the sustainability challenges posing risks to their operations, but also the global ecological and societal impacts generated by their business. The topics covered include climate change as well as additional environmental topics such as pollution and biodiversity, social topics such as own workforce and workers in the value chain, and governance topics such as business ethics and supplier payment
practices.

Companies will need to report in accordance with required standards depending on company location, size and sector. Some of these standards, such as European Sustainability Reporting Standards (ESRS,) have already been finalized, others are still in development.