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ESG Excellence

March 7, 2022

Regulation rebooted: The EU publishes its hotly anticipated human rights and environmental due diligence proposals, the SEC pledges to combat greenwashing

After some delay, the EU’s draft directive on “Corporate Sustainability Due Diligence” was published on February 23, 2022. As expected, the proposed directive seeks to impose extensive and legally enforceable duties on large European companies, and on large non-EU companies doing business in Europe, with respect to the human rights and environmental impacts of their operations and value chains. After a phased implementation, an estimated 13,000 EU companies and about 4,000 non-EU companies are expected to fall within the ambit of the directive. The draft directive envisages requiring companies to establish or strengthen their human rights and environmental policies, board responsibilities, due diligence procedures and actions to avoid or mitigate adverse impacts. The requirements would be enforceable by administrative or judicial fines and enforcement orders. Suits for damages in European national courts would be allowed, and due diligence may be a defense.  

Meanwhile, SEC Commissioner Allison Herren Lee has stated that the SEC will combat alleged greenwashing and enforce disclosure standards on ESG reports as vigorously as it upholds rules for other corporate reporting. Speaking at a Regulation Innovation “Make Money Green” webcast, she noted that “companies are just churning out hundreds of pages of disclosure related to ESG right now,” and the “three touchstones” for ESG disclosure are “consistency, comparability and reliability”, adding that the SEC eventually plans to release standards for disclosure on board diversity and revised human capital disclosure rules. 

Read the EU draft directive here and listen to Commissioner Lee’s comments here 

King & Spalding partners Viren Mascarenhas, Douglass Cassel and Peter Hood have also published an analysis of the EU draft directive and its implications for clients.