Businesses will be subject to new sustainability due diligence obligations

Climate impacts are more widespread and severe than expected, and managers' concerns are growing along with it, according to a Deloitte study. In order to meet the targets set by the Green Deal, the European Commission has adopted a proposal for a Directive on corporate sustainability due diligence, which sets out mandatory human rights and environmental due diligence obligations for larger companies. What is also worth attention is the new Guidelines on State aid for climate, environmental protection and energy, which are designed to facilitate the development of economic activities in a way that contributes to environmental protection.

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Report Climate Change 2022: Impacts, Adaptation and Vulnerability

The contribution to the IPCC Sixth Assessment Report comprehensively assesses the impacts of climate change, future risks and the capacity and limits of the natural world and human societies to adapt to this change. It focuses on ecosystems, biodiversity and human communities at global and regional levels.

Climate change is affecting every corner of the world – extreme droughts, heatwaves and severe flooding are now threatening the food security and livelihoods of millions of people. Even as the world rapidly decarbonises, greenhouse gases in the atmosphere and their emissions will make some significant climate impacts inevitable by 2040.

What will happen with global warming of 1.5 degrees Celsius?

  • Many glaciers around the world will disappear completely or lose most of their mass.
  • 350 million people will face water shortages by 2030.
  • Up to 14% of terrestrial species will face a high risk of extinction.

The report therefore calls for an urgent need for change that will require immediate and coordinated efforts to reduce emissions, preserve ecosystems and radically increase funding to address losses and damage. Otherwise, the impacts of climate change risk may be catastrophic.

Sustainability from the perspective of CxOs

During September and October last year, Deloitte surveyed more than 2,000 senior executives in 21 countries to find out where companies stand on sustainability and climate change. Nearly 79% of CxOs see the world at a tipping point when it comes to responding to climate change, with 88% of respondents agreeing that immediate action can limit the worst impacts of climate change. At the same time, there may be no room for optimism when it comes to action. There is a noticeable gap between ambition and implemented activities and their impact. The most frequently implemented measures are only external, and those that are substantial and systematic are only sporadic. It is also evident that most senior executives do not perceive the long-term and strategic benefits of sustainability. At the same time, there are large gaps between leaders and laggards. The key is to set a good long-term plan, educate management, and set accountability for specific actions.

New directive on corporate sustainability due diligence

The European Commission has adopted a proposal for a Directive on corporate sustainability due diligence. The Directive is being developed in line with the objectives set out in the Green Deal for Europe and the UN Sustainable Development Goals. In particular, the proposal aims to reduce the adverse impacts of businesses in global supply chains, both in terms of human rights and environmental protection. Human rights due diligence and environmental due diligence should be the main means of achieving this objective.

What do human rights due diligence and environmental due diligence mean in corporate practice

  • integrating due diligence processes into company policies;
  • identifying actual or potential adverse impacts on human rights and the environment;
  • avoiding potential adverse impacts and eliminating or minimising actual impacts;
  • establishing grievance procedures; and
  • monitoring the effectiveness of due diligence policies and related measures and publicly reporting on the due diligence carried out.

The obliged entities under the Directive should be companies established in the EU Member States and in third countries. In the case of European companies, these should be businesses with more than 500 employees and a net turnover of more than EUR 150 million, as well as businesses with more than 250 employees and a net turnover of more than EUR 40 million, provided that at least 50% of the turnover is generated in sectors such as textiles, agriculture or mineral extraction.

Guidelines on State aid for climate, environmental protection and energy 2022

The European Commission has published new Guidelines on State aid for climate, environment and energy (CEEAG), which are applicable from January 2022. The Guidelines provide guidance on how the Commission will assess the compatibility of State aid for environmental protection and notifiable energy aid measures (under Article 107(3)(c) TFEU).

The guidelines focus on key energy and climate protection topics such as infrastructure, promoting clean mobility, circular economy, reducing pollution, and biodiversity. Significant investments, including investments in renewable energy, will be needed to achieve the objectives defined in the Green Deal for Europe. The guidelines provide a framework for public authorities to support the achievement of the objectives effectively and with minimum distortion of competition. The guidelines extend the categories of investments and technologies that Member States can support and allow the level of aid to cover up to 100% of costs under certain conditions.

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