WR ESG Alert: The EU Council fails to endorse the Corporate Sustainability Due Diligence Directive, leaving the future of the Directive hanging in the balance

Environment

Circular economy: Council and Parliament strike provisional deal on the right to repair directive

On 1 February 2024, the European Parliament and the Council of the European Union (also the "EU Council") announced their provisional agreement on the new Right to Repair Directive. The European Commission first issued its proposal for the Directive in March 2023 and the European Parliament and Council adopted their negotiating mandates in November 2023.

Under the new rules, consumers will have the privilege of a novel "right to repair," applicable within and beyond the legal warranty, making product repair a more accessible and economical option as opposed to mere replacement. 

Key measures of the agreement include:

• A mandate for the manufacturer to facilitate the repair of widespread household products, with potential expansion to further products in due course.
• An obligation to inform consumers about a manufacturer's responsibility to repair.
• Provisions for consumers to rent a device while their unit undergoes repair or alternatively opt for a refurbished model.
• Free online access to estimated repair costs.
• An additional one-year extension of the legal warranty for repaired goods.

Furthermore, the Council and Parliament have reached agreement on prohibiting manufacturer practices that obstruct repairs, including contractual clauses or the use of hardware/software.  

The new rules will establish a European repair platform aiding consumers in easy location of local repair services. Member states will need to implement a measure promoting repair, such as repair vouchers or support for local initiatives.

As a next step, both Parliament and the Council will have to formally approve the agreement.

Net-Zero Industry Act: Council and Parliament strike a deal to boost the EU’s green industry

On 6 February 2024, the Council and the European Parliament reached a provisional deal on the Net-Zero Industry Act (NZIA).  These new rules will facilitate the conditions for investments in green technologies by simplifying permit granting procedures and supporting strategic projects. The NZIA aims to scale up the manufacturing of technologies that are key to achieving climate-neutrality. It will simplify the regulatory framework for the manufacturing of these technologies, and therefore help increase the competitiveness of the net-zero technology industry in Europe. 

The NZIA endorses, in particular, eight strategic technologies targeting net-zero emissions, and envisages a range of actions and strategies. The technologies include: i) solar photovoltaic and solar thermal technologies, ii) onshore wind and offshore renewable energy, (iii) batteries and storage, (iv) heat pumps and geothermal energy, (v) electrolysers and fuel cells, (vi) biogas/biomethane, (vii) carbon capture and storage (CCS), and (viii) grid technologies.

The proposed NZIA focuses on stimulating investment in net-zero technologies by:

• Streamlining processes and speeding up permitting procedures for strategic net-zero projects.
• Aiming for 50 million tonnes of yearly CO2 storage by 2030, with contributions required from EU's oil and gas producers.
• Promoting diversification for net-zero technologies in public procurement and auctions, also enhancing private demand.
• Ensuring workforce availability for clean energy transition by supporting training programmes and European academies.
• Providing regulatory sandboxes for testing innovative net-zero technologies.
• Collaborating with similar-minded countries for global adoption of net-zero technologies.

The provisional agreement reached with the European Parliament now needs to be endorsed and formally adopted by both institutions.

Taxo4: the EU Taxonomy’s final four environmental objectives – reporting obligations for Norwegian entities for the financial year 2023

In the EU, entities subject to reporting requirements pertaining to the four latest environmental objectives ("Taxo4") should include in their 2024 reports information about any involvement in the newly introduced activities for the financial year 2023 (taxonomy eligibility). Non-financial enterprises in the EU should report, in 2025, on taxonomy alignment towards the new criteria, while financial enterprises are to report, in 2026, on whether they finance activities that meet the criteria.

For this to apply in Norway, the delegated act (Taxo4) needs to be incorporated into the EEA Agreement. The delegated act (Taxo4) came into force for EFTA countries (including Norway) on 3 February this year. It was incorporated into Norwegian law on 5 February, and is therefore applicable to Norwegian businesses from this point onwards. Thus, Norwegian entities have no reporting obligations for Taxo4 activities for the financial year 2023. For the 2025 reporting obligations (for the financial year 2024), Norway will follow the EU's timelines.

Nevertheless, the Ministry of Finance's website encourages Norwegian businesses to familiarise themselves with the new criteria and to include information about the new taxonomy activities in their reporting for the financial year 2023.

Proposals to increase solar power and other local energy production (Norwegian) 

On 5 February, the Norwegian Water Resources and Energy Directorate (NVE) published an assessment regarding solar power and other local energy production. NVE recommended changing the licensing threshold to 5 MW, as compared to the current threshold whereby a licence is required if a new high voltage power installation must be built to get the electricity to the grid. According to NVE, the proposed change will release case handler resources and remove a regulatory barrier for new local power production of limited size.

On the same day, the Norwegian Energy Regulatory Authority (RME) proposed regulatory changes (Norwegian), which are also intended to ease the road to market for new solar production. RME proposed the introduction of a scheme to share self-produced electricity with neighbouring properties up to 5 MW installed capacity, supplementing the current scheme which has a threshold of 1 MW for self-produced electricity within the same property. The proposal presupposes that the electricity can be shared without electricity tax. In addition, grid tariffs will be avoided for the shared energy. Implementing the proposal will make sharing of self-produced energy more attractive to businesses, e.g. in business parks comprising several properties (where the current scheme is unavailable). 

Both recommendations have been sent to the Ministry of Energy for consideration. The proposals aim to respond to requests from the Norwegian Parliament (Nw.: anmodningsvedtak), with a key target being to contribute to the political goal of 8 TWh of solar power by 2030.

Nature: submission of report from Norway's Nature Risk Commission (Norwegian)

On 12 February, the Norwegian Nature Risk Commission submitted its report on nature risk to the Minister of Climate and Environment. The terms of reference for the expert commission were approved by the Norwegian Government by Royal Decree on 22 June 2022. The commission has been chaired by Aksel Mjøs, Head of Department and associate professor at the Norwegian School of Economics and Business Administration (NHH).

Loss of biodiversity constitutes a threat to sustainable development. Both the loss of biodiversity itself and measures to mitigate such loss will influence the conditions for and risks associated with economic activities. An important background to the report is the global framework for biodiversity which was adopted at the United Nations Biodiversity Conference (COP15) in December 2022. This new framework will require stricter national policies. Also, there are several new EU regulations in the area that might be incorporated into the EEA agreement. 

Nature risk has in recent years been launched as a similar concept to climate risk, in the field of biodiversity. An important initiative in this respect is the Taskforce on Nature-related Financial Disclosures (TNFD), which has developed a framework that companies may use to report on and manage nature-related risks and opportunities. 

The report from the Nature Risk Commission describes nature risk and how Norwegian industries and sectors are affected, in addition to giving advice on how nature risk methodology can play a vital part in nature related decisions, both in the private and public sector. The Commission was not mandated to propose policy instruments or measures that in themselves affect the loss of biodiversity.       

Social 

EU Council fails to endorse Corporate Sustainability Due Diligence Directive, leaving the Directive's future uncertain

On 28 February 2024, the EU's proposal for the Corporate Sustainability Due Diligence Directive (CS3D), the first draft of which was forwarded by the European Commission in February 2022, failed to win sufficient support in the Council of the European Union. The CS3D is proposed to apply to EU companies of a considerable size and economic heft, and contains two key obligations for in-scope companies. First, companies will be required to integrate a due diligence regime, covering human rights, environmental impacts and labour rights, into their policies and risk management systems. Second, companies will have to adopt a plan to ensure that their business models align with the goal of restricting global warming to 1.5°C. Breaches could, according to the draft directive, be met with substantial fines and/or civil liability.

The Council adopted its negotiating position on the CS3D in December 2022, and reached an informal agreement with the European Parliament on 14 December 2023, as described in our ESG Alert from January 2024. The final draft was released on 30 January 2024, and the Council was originally scheduled to vote on its approval on 9 February. However, following an indication from Germany and, subsequently, several other member states, that they would abstain from the vote, it became clear that the Directive would not receive the required majority. The vote was therefore pulled from the agenda, and postponed to 14 February, before being postponed once again. 

The CS3D reappeared on the Council's agenda for 28 February, but more than half of the member states reportedly opposed, or announced that they would abstain from, the vote. It was, among other things, reported that France had proposed a significant downsizing of the scope of the companies to which the CS3D would apply. 

While EU legislation like the CS3D is passed through a negotiating process between the European Commission, the European Council and the European Parliament, the final draft resulting from the negotiation process cannot be amended before voting. The voting bodies must either approve or reject the proposal. In order for the CS3D to be adopted before the elections to the European Parliament in June 2024, the European Parliament Committee on Legal Affairs must approve it by 7 March, and the European Parliament must approve it by 15 March. Before that, the draft must be approved by the Council. While advocates have called for the Belgian Presidency of the EU to secure a majority by that deadline, the opposition of large member states makes an approval unlikely. Unless approved, new negotiations between the Council and the Parliament will need to be conducted after the parliamentary elections in June. It is expected that any renegotiation efforts will entail a largely watered-down directive.

EU deal on rules to combat gender-based violence

On 6 February, the European Parliament and Council reached a provisional deal on a new directive to combat gender-based violence and protect the victims of such violence. The informal agreement includes measures to prevent rape, tougher rules on cyber violence and better support for victims.

Importantly, for the first time there will be EU-wide rules mandating the criminalisation of certain forms of gender-based violence and better access to justice, protection and prevention. Member states will also be expected to raise awareness that non-consensual sex is considered a criminal offence.

The new legislation will include:

• a longer list of aggravating circumstances for offences, including crimes against a public figure, journalist or human rights defender, intent to punish victims for their sexual orientation, gender, skin colour, religion, social origin or political beliefs, and intent to preserve or restore “honour”;
• rules against female genital mutilation and forced marriage;
• specific rules for online crimes, including the release of intimate material and "cyberflashing";
• improved procedures for victims’ health and safety, taking into account intersectional discrimination and access to healthcare, including sexual and reproductive healthcare services; and
• enhanced reporting and evidence gathering by authorities.

The draft text was approved at first reading in committee on 15 February. Next, both Parliament and the Council will have to formally approve the agreement. The new rules will come into force twenty days after their publication in the EU Official Journal, following which member states will have three years to implement the provisions.