ESG Insights
Join Cooley lawyers Beth Sasfai, Emma Bichet and Michael Mencher as they discuss the major environmental, social and governance (ESG) topics that companies should be looking at in a rapidly evolving regulatory environment.
Key takeaways
- Setting targets and goals is often more difficult than companies realize – when accounting for strict Science Based Targets initiative (SBTi) standards, multiple stakeholders and the methodology of implementing targets.
- Many US companies are within scope of reporting requirements for the Corporate Sustainability Reporting Directive (CSRD) as of fiscal year 2025, and the Corporate Sustainability Due Diligence Directive (CSDDD) requires these same companies to adopt a climate transition plan starting in 2027. These regulations are changing the landscape, as they take companies outside of their own legal responsibility and broaden it out to their entire supply chain.
- The CSRD is now effective in the European Union and will not be litigated, so companies need to start preparing now. Any US companies with EU subsidiaries will be in scope and expected to publish their first disclosure in 2026. These companies should be giving themselves plenty of lead time to understand the scope of the CSRD and how they are affected, decide whether they want to publish a global report or an EU-focused report, and conduct a double materiality assessment.
- The CSDDD also will require due diligence policies, such as supply chain diligence and mitigating/ending adverse impacts in a company’s supply chain.
- It is important to recognize that there has been pressure on companies to set very ambitious climate goals, even if they may not be realistically possible to meet by 2030. Best practices to mitigate this risk include regular and up-to-date disclosures on progress and strategy to your stakeholders and, if companies are not comfortable with transparent disclosures, taking the necessary steps to revise their targets and goals. A lot of climate goals were set at a time when sustainability was not very integrated into the business function, and companies need an integrated approach to make targets achievable and realistic.
- For most companies, the question is no longer what regulation applies to a company, but rather, when will it apply? A lot of US companies have corporate clients globally that must disclose their supply chains and have lofty goals for vendors as related to compliance. These corporate demands tend to be more impactful than specific regulatory laws being litigated today.
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