WR ESG Alert: Final approval of EU Corporate Sustainability Due Diligence Directive and Net-Zero Industry Act

Environment

Critical Raw Materials Act entered into force 

On 23 May 2024, the EU Critical Raw Materials Act entered into force. The Act is part of the Green Deal Industry Plan. The core element of the regulation is to ensure a diverse, secure, and sustainable supply of critical raw materials for the EU's industry. Currently, the EU relies almost exclusively on imports from suppliers located in a limited number of countries, making it vulnerable to geopolitical risks and supply chain disruptions.  As the world increasingly recognises the importance of minerals for transitioning to a lower carbon economy, the new law is a major initiative by the EU to accelerate the development of green technologies necessary to achieve a net zero society. 

The Act primarily aims to reduce dependency on one single source of supply, to stimulate mine production within Europe, and to increase processing and recycling of minerals.  

The Act sets benchmarks to enhance capacities for extraction, processing, and recycling of critical raw materials in the EU and supports diversification efforts. Additionally, it establishes a framework for selecting and implementing Strategic Projects (as defined in the Act), which benefit from simplified permitting and improved access to finance. It also outlines national requirements for developing exploration programmes in Europe. Further, the regulation will promote the circularity and efficient use of critical raw materials by creating value chains for recycled materials.

To achieve its goals, the Act lists 34 critical raw materials, including 17 strategic raw materials such as aluminium, cobalt and copper. It also sets out several targets to be achieved by 2030, such as for the EU to mine at least 10% of the strategic raw materials it consumes, to increase the recycling capacity for strategic raw materials to at least 25%, and to increase processing to at least 40% of EU needs. 

Final adoption of the Net-Zero Industry Act 

On 27 May, the Net-Zero Industry Act (NCIA) was adopted. The Act is a part of the Green Deal Industry Plan. The NZIA aims to scale up the EU's manufacturing capacity of the technologies needed to achieve climate-neutrality such as solar panels, wind turbines, heat pumps, batteries, electrolysers and nuclear technologies, including key components of such technologies, such as photovoltaic cells or the blades on wind turbines. 

The NZIA sets a benchmark to meet at least 40% of the EU’s annual deployment needs for strategic net-zero technologies by 2030. This benchmark offers predictability, certainty, and long-term signals to manufacturers and investors, allowing progress to be tracked. Additionally, to support carbon capture and storage projects and increase the availability of CO2 storage sites in Europe, the NZIA sets a target of achieving 50 million tonnes of annual injection capacity in EU geological CO2 storage sites by 2030.

The new regulation improves the conditions for investment in net-zero technologies by simplifying and accelerating permitting procedures, reducing administrative burden and facilitating access to markets. Public authorities will have to consider sustainability, resilience and other qualitative criteria in procurements procedures for clean technology projects and auctions for the deployment of renewable energy.

NZIA includes measures for investment in education, training and innovation with the establishment of Net-Zero Industry Academies. Also, regulatory sandboxes will be established for testing innovative net-zero technologies under flexible regulatory conditions. In addition, a Net-Zero Europe Platform will serve as a central coordination hub, where the Commission and EU countries can discuss and exchange information as well as gather input from stakeholders.

Public consultation on new battery regulation (Norwegian)

On 24 May, the Norwegian Environment Agency submitted for consultation a new battery regulation, on behalf of the Ministry of Climate and Environment. The regulation implements the EU’s already adopted Battery Regulation (2023/1542/EU). 

The purpose of the new regulation is to improve the quality of batteries, reduce negative environmental and social implications throughout the battery value chain, provide more efficient and safer batteries and provide stimulation for a more circular economy for batteries with lower lifecycle emissions. 

The regulation includes requirements for the supply chain, product design, documentation of carbon footprint and environmental characteristics, access to market information, digital battery passports, collection, recycling and green public procurement. It regulates all batteries placed on the market in Norway, including batteries in products, except for certain military and aerospace applications.

The legal basis for the battery regulation is the proposed Norwegian act pertaining to sustainable products and value chains (Nw: lov om bærekraftige produkter og verdikjeder) which has not yet entered into force. 

The deadline for submitting consultation responses is 25 August 2024.

Public consultation on amendments to the ecodesign regulation (Norwegian) 

On 2 May, the Norwegian Water Resources and Energy Directorate submitted for public consultation amendments to the Norwegian eco-design regulation. The amendments will implement thirteen EU regulations related to eco-design and the circular economy. 

Overall, the regulations set various requirements for the environmentally friendly design of products, such as resource efficiency, product durability, recycled content and carbon and environmental footprints. The new requirements will cover several product groups, such as servers, refrigerators and freezers, light sources, electronic displays, washing machines, tumble dryers, dishwashers, mobile phones, tablets, heaters and more.

The legal basis for the amendments in the battery regulation is the proposed Norwegian act pertaining to sustainable products and value chains (Nw: lov om bærekraftige produkter og verdikjeder) which has not yet entered into force. As of today, the Norwegian Product Control Act is the legal basis for the eco-design regulation. 

The deadline for submitting consultation responses is 1 July 2024. 

Proposed regulation on the protection of marine areas (Norwegian)

On 21 May, the Norwegian Ministry of Climate and Environment submitted for public consultation a proposal for a new legislation on the protection of marine areas for public consultation. The new legislation will enable the creation of marine protected areas in all Norwegian marine areas beyond territorial waters, including the 200-mile zones off mainland Norway and Svalbard, as well as on the Norwegian continental shelf.

Most Norwegian marine areas lie outside the territorial limit, which is 12 nautical miles. At present, marine protected areas can only be established in more coastal areas. 

Marine protected areas are intended to safeguard valuable ocean biodiversity and ecological functions. Human activities have had substantial impacts in some coastal areas over a long period of time. Also, climate change is resulting in rising ocean temperatures and further negative impacts. At the same time, growing activity is expected in Norwegian waters, such as offshore wind, carbon storage below the seabed and hydrogen production. All these developments form an important part of the backdrop for the proposed legislation.  

The deadline for submitting consultation responses is 30 August 2024. 

Social 

EU formally adopts the Corporate Sustainability Due Diligence Directive

On 24 May, the Council of the European Union (the "Council") formally adopted the Corporate Sustainability Due Diligence Directive (the "CS3D"), which introduces obligations for large companies to mitigate their negative impact on human rights and the environment. The approving vote came one month after the European Parliament endorsed the CS3D, marking the final step of a long and irregular decision-making procedure. The CS3D is part of a wave of recently enacted or proposed pieces of EU legislation on sustainable and responsible business conduct, and may, directly or indirectly, affect a number of Norwegian companies.

The CS3D was first proposed by the European Commission on 23 February 2022. The directive is intrinsically linked with the Corporate Sustainability Reporting Directive ("CSRD", Directive 2022/2464/EU), which mandates transparency regarding the topics addressed under the CS3D, and which is scheduled to be implemented into Norwegian law within the implementation deadline set by the EU of 5 July 2024, as described in our newsletter from March 2024.

The Directive which has now been formally approved has a significantly narrower scope than the Commission's original proposal. As described in our ESG Alert from April 2024, the thresholds for application have been raised to 1,000 employees and 450 million euros in global turnover for EU companies, and 450 million euros in turnover in the EU for non-EU companies. It is estimated that only 0.5% of European companies will be covered by the CS3D, translating into around 5,400 companies, compared to the approximately 9,000 companies that are covered by the Norwegian Transparency Act.

The CS3D enshrines two main obligations. First, companies must conduct risk-based human rights and environmental due diligence. Second, companies must adopt and implement a climate transition plan to ensure, through best efforts, that the company's business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C, in line with the Paris Agreement. Non-compliance can be sanctioned with, amongst others, orders penalties, and civil liability.

After the CS3D has been signed by the President of the European Parliament and the President of the Council, it will be published in the Official Journal of the European Union. It will then enter into force on the twentieth day after its publication. EU Member States will have to implement the Directive into national law within two years of its entry into force. In Norway, in light of the CS3D having been marked as EEA relevant, alignments with the Transparency Act will likely be required upon implementation. The scope of the Directive will be phased in, meaning that its full scope will only be applicable five years after its entry into force.

Evaluation of the Norwegian Transparency Act (Norwegian)

The Norwegian Ministry of Children and Families has commenced an evaluation of the Norwegian Transparency Act. The evaluation was envisaged already in the preparatory works of the Transparency Act, and shall evaluate, amongst others:

• The effects of the Act.
• Whether smaller enterprises than those currently covered by the Act should also be covered by its obligations.
• Whether the material scope of the Act should be extended to include environmental impacts, and possibly also other areas covered by the OECD Guidelines for Multinational Enterprises.

The Transparency Act will also be evaluated in light of relevant EU legislation enacted after the Transparency Act's entry into force, in particular the Corporate Sustainability Due Diligence Directive (CS3D) and the Corporate Sustainability Reporting Directive (CSRD), the scope of which partly overlap with that of the Transparency Act.

We understand that the evaluation will consist of two separate studies. The first, conducted by KPMG, will involve a review of the due diligence accounts of a variety of companies and inspections conducted by the Consumer Authority. KPMG will also send out a questionnaire to a number of companies, evaluating the degree to which the Transparency Act has strengthened their work in relation to human rights and decent working conditions in their own operations, supply chains and business partner relationships.

The second study, conducted by Consumption Research Norway (SIFO), will evaluate, through surveys and a literature review, the effectiveness of the Transparency Act from the perspective of consumers, the media and civil society organisations. 

The final evaluation reports are scheduled to be completed by December 2024.