The EU's Carbon Border Adjustment Mechanism (CMAB)
The CBAM is, effectively, an import tax on carbon intensive products, such as cement, steel, iron, aluminium and electricity. During the current transitional phase, businesses subject to CBAM must report on a quarterly basis the embedded emissions in CBAM goods. Looking forward, the next report will be due on 31 October 2024 (for the reporting period 1 July to 30 September 2024).
The European Commission has published a communication template for CBAM installations, as well as a number of template examples for each sector, both of which should help non-EU exporters understand what is required of them. All CBAM resources can be found on the Commission's website here.
CSRD (Corporate Sustainability Reporting Directive) FAQ
As we discussed in the spring, CSRD will apply to many large EU-based companies from financial years starting on or after 1 January 2025, with reporting in 2026 (those in the first reporting wave should already be collecting data for reporting next year). In August, the Commission published a FAQ document responding to some of the many questions it has received on the Directive.
The FAQ includes some important clarifications for non-EU companies who may need to prepare a CSRD report in 2028/2029 if they have a legal presence and revenues in the EU. These companies will have the option to report under a separate set of non-EU reporting standards, to be developed by June 2026. The Commission has confirmed that these will be based only on the material impacts of the company on ESG matters and not on a double materiality basis, which would include material impacts of ESG on the company from a financial perspective.
The EU Corporate Sustainability Due Diligence Directive (CS3D)
CS3D finally came into force on 25 July 2024 and will have significant consequences for in-scope EU and non-EU companies:
- The way in which the financial sector is dealt with creates some uncertainties, particularly for large asset managers in scope.
- Firms should review the scope of the final text and identify whether they will be covered.
- Firms that are covered should consider the extent of their obligations, which will relate to their own operations and any "subsidiaries", which has an extended definition, and upstream business partners in their "chain of activities".
Member States have two years from July 2024 to enact implementing law. CS3D applies to EU companies with 1,000 employees and more than €450m worldwide turnover, whilst for non-EU companies there is no employee threshold, but net turnover must exceed €450m EU-derived turnover. Once enacted, CS3D will require in-scope EU and non-EU companies to conduct environmental and human rights due diligence across their operations, subsidiaries and value chains, and act on any impacts they identify. It will also be the first piece of EU legislation that mandates companies to adopt a climate transition plan.
The requirements will start to apply for the very largest companies in 2027 (meaning EU companies with more than 5,000 employees and net worldwide turnover of €1.5 billion, and non-EU companies with net turnover generated in the EU of over €1.5 billion), with all companies in scope by 2029. To learn more about the impact of CS3D on financial services businesses, read our briefing.
Sustainability Insights... in conversation
Listen to our podcast series, Sustainability Insights ... in conversation, where we are joined by thought-leaders to discuss topical ESG issues for the private markets. In our fourth episode, Simon Witney speaks to Diandra Soobiah, Director of Responsible Investment at Nest, the National Employment Savings Trust. Their discussion explores Nest's significant commitments to the private markets and, with 15% of Nest's £42 billion AUM allocated to private markets, Diandra explains what more she wants to see from the sector. Listen on our website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
