EU Adopts Corporate Environmental, Human Rights Enhancement Standards

Last week, the European Union announced that member states had approved the Corporate Sustainability Due Diligence Directive. This move marks the final step in the adoption of a measure that makes it compulsory for large companies to address any negative impact they have on the environment and human rights across their value chains.

The directive’s final adoption had been thrown into uncertainty in the last couple of months when a previous version wasn’t approved by member states in the council. Initially, the directive was tabled by the European Commission in 2022. It detailed responsibilities of companies to identify, evaluate, prevent, alleviate, address and find solutions to their impacts on planet and people, ranging from emissions, deforestation, pollution and damage to ecosystems to slavery and child labor.

Following some amendments, the recently approved directive required that companies also align themselves with the goal under the Paris Agreement to limit global warming to 1.5^o C. In addition, it makes it compulsory for some member states to establish supervisory bodies to look into and penalize companies that don’t comply with these regulations.

While the council and EU parliament found middle ground on the new measure in December last year, the vote was postponed to January this year after Germany revealed that it wouldn’t support the directive based on concerns the possible legal impact could have on companies. Following this announcement by Germany, Italy also withdrew its support, which kept the directive from being approved in February after France tried to curtail the scope of new regulations so they could only apply to the larger companies in the European Union.

Among the amendments made in the recently approved directive include curtailing of the number of companies covered by the measure. Revisions increased the thresholds to entities with revenue that exceeded €450 million ($488 million), up from €150 million ($162.7 million), and those with 1,000 employees or more, up from 500. The new thresholds reduce the number of companies in the directive’s cope by about two-thirds.

Other changes to the directive included phasing the rollout of the measure, starting with companies with more than 5,000 workers and revenue that exceeded €1.5 billion ($1.6 billion) in 2027. This is followed by companies with more than 3,000 employees and €900 million ($976 million) revenues in 2028 and for all other companies in the scope of the law in 2029.

The amended directive also eliminated the requirement for companies to promote the implementation of climate transition plans via financial incentives.

Many more regional jurisdictions, such as North America, are likely to also pass their own corporate reporting requirements on mitigating environmental and human rights issues. Companies such as Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) that have had a head start in incorporating ESG could have an edge over their peers in the years to come.

NOTE TO INVESTORS: The latest news and updates relating to Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) are available in the company’s newsroom at https://ibn.fm/RFLXF

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