Key highlights from February 2024 in the sustainability space.
1-CS3D fails in Council vote
The European Union’s Corporate Sustainability Due Diligence Directive (CS3D) faced strong and swelling opposition after the release of its final draft on the 20th of January. Initially scheduled on the 9th of February, the Council vote was postponed after Germany announced that they would abstain followed by an announcement to the same effect by Italy.
The reluctance of Germany and Italy to back the CS3D follows a recent but considerable chain of disregulatory moves by different EU institutions and member states, including Germany’s attempt to redefine small and medium enterprises to reduce the regulatory burden of the ESRS and a recently approved two year delay on the implementation of sector-specific standards under the CSRD.
The vote on the CS3D was briefly rescheduled for the 14th of February, before being moved again to the 28th. The directive failed in this vote, giving rise to concerns that it might be dead for good given the approaching EU Parliament Elections. As the composition of the Parliament is likely to change after the next elections, removing the majority support for the CS3D that was in place before Germany’s decision to abstain, the CS3D may have taken its last breath.
This is a major blow to global human rights according to Volker Turk, the UN High Commissioner for Human Rights, who had urged EU leaders to vote to pass the directive. Overall, this failure does not bode well for the future of the EU Green Deal after the June elections.
2-Investors pull climate motion after ExxonMobil sues
In January, two minor investors in ExxonMobil (Follow This, an Amsterdam-based green shareholder group, and Arjuna Capital, a US registered investment adviser) had introduced a resolution to urge the company to set more ambitious climate targets at its annual meeting. On the 22nd of January, ExxonMobil unexpectedly responded by suing to prevent the vote on this motion arguing that the shareholders violated SEC rules for such investor petitions.
On the 2nd of February, the investors responded by withdrawing the resolution, in a move that is likely to have a chilling effect on shareholder activism in corporate America. However, in an even more unexpected turn of events, ExxonMobil decided to press on with the lawsuit. This marks a new stage in the ongoing conflict over ESG investing between publicly listed companies such as Exxon and their more activist-minded shareholders. While corporate actors argue that the proliferation in such politically motivated proposals go beyond the appropriate scope of the proxy ballots in which they are typically introduced, investors have sounded the alarm over the possibility of an illegitimate interference with shareholder rights.
Exxon has been widely criticised for this move. Natasha Lamb, the chief investment officer at Arjuna capital, said that this amounts to a tactic of intimidation and bullying.
3-China’s new mandatory sustainability reporting requirements
Three major stock markets in China, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the Beijing Stock Exchange (BSE), announced the publication of new sustainability reporting guidelines for listed companies. Beginning in 2026, large companies listed on the Shanghai, Shenzhen, and Beijing Stock Exchanges will have to disclose a range of sustainability information across a range of ESG related topics including climate change, biodiversity protection and rural revitalisation. This complements the National Biodiversity and Strategy Action Plan published by the Chinese Government last month.
The rules include disclosures relating to Scope 3 emissions and adopt the “double materiality” approach of the EU for the disclosure threshold. They are predicted to apply to 50% of the listed value of these markets, composed of about 500 companies.
4-Malaysia’s consultation on the ISSB standards
On the 15th of February, Malaysia’s Advisory Committee on Sustainability Reporting (ACSR) published a consultation paper to solicit feedback from stakeholders on the proposed adoption of the ISSB disclosure standards. The consultation period runs from the 15th of February until the 21st of March. The issues currently open for consultation include the proposed timing of the adoption of the disclosures, transition relief for certain requirements, and the implementation of a mandatory external assurance framework.
This is significant for the global progression of the ISSB standards as Malaysia has joined the UK, Canada, Brazil, Brunei, Myanmar, Nigeria, Kenya, Japan, South Korea and Vietnam in their intention to adopt the ISSB standards into their national regime as mandatory disclosure standards.
- Content prepared with the help of Defne Fresko Tasci.