The CS3D Digest #29

Welcome to the 29th edition of The CS3D Digest, a dedicated newsletter by Ripple Research and your weekly compass for navigating conversations that matter in the corporate sustainability landscape. Our goal is simple—to keep you informed about the latest developments in the Corporate Sustainability Due Diligence Directive (#CSDDD) space as we further our understanding of it.

Read our previous editions to catch up, and subscribe for future updates!

Today's focus: EU member states approve Nature Restoration Law, child labor associated with luxury perfume companies, potential aftermath of ESMA guidelines on ESG fund names, stakeholder scrutiny of EU Green Claims Directive, and EU's revision of the Waste Framework Directive.

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What are we reading?

We've employed our proprietary AI tools to curate the most engaging news about CS3D and related regulations. Our focus extends beyond what's trending at the moment to showcase headlines that are fueling meaningful conversations around the world.

1. EU member states greenlight Nature Restoration Law after Austria's swing-vote

The European Council has formally adopted the Nature Restoration Law that mandates the restoration of at least 20% of the EU's land and sea areas by 2030, with a comprehensive approach covering terrestrial, marine, freshwater, forest, agricultural, and urban ecosystems. Italy, Sweden, and Finland emerged as staunch opponents throughout the deliberations sharing concerns over potential economic impacts, logistical challenges in implementation, and the law's alignment with national interests. Austria played a pivotal role by initially expressing reservations but ultimately supporting the law after a decisive shift in position announced by Vienna’s environment minister, Leonore Gewessler. Slovakia, despite earlier uncertainties, also backed the law during the crucial vote, contributing to its narrow passage. Following its formal adoption by the Council, the Nature Restoration Law will be published in the EU’s Official Journal and will soon become enforceable across member states.

2. Luxury perfume companies linked to child labor, BBC reports

A recent BBC investigation uncovered that children, including those under the legal working age of 15, are employed in the jasmine fields of Egypt, supplying major luxury perfume brands such as Lanc?me (L'Oréal) and Aerin Beauty (Estée Lauder). The investigation also found that multinational fragrance houses dictate stringent budgets to suppliers like A Fakhry and Co, Hashem Brothers, and Machalico. These suppliers, in turn, set the prices for jasmine, influencing the dire economic conditions that force families to engage children in labor. Despite claims of ethical sourcing and commitments to human rights standards, such as those outlined by the UN, the auditing systems used by these companies, including Sedex and UEBT, have been criticized as inadequate. Reports indicate that audits often focus narrowly on factory conditions rather than examining the full extent of labor practices in the supply chain, including wages and child labor issues on smallholder farms.

3. ESMA guidelines on ESG fund names could lead to $40 Billion divestments, Morningstar predicts

Last month, European Securities and Markets Authority (ESMA) released new guidelines aimed at curbing greenwashing within the ESG fund sector in Europe, mandating that funds using sustainability-related terms should adhere to strict investment thresholds and exclusion criteria. A Morningstar report anticipates that many funds will opt to either drop ESG terms from their names or reposition themselves as "transition" funds under the CTB criteria to navigate these regulatory challenges. The report identifies approximately 4,300 mutual funds and ETFs potentially affected by these regulations, with around 2,500 having sufficient data on their stock holdings. Of these, over 1,600 were found to hold stocks that breach the new exclusion rules, such as those related to Paris Aligned Benchmarks (PABs) or CTBs. This indicates a significant compliance challenge for fund managers, potentially requiring them to divest up to $40 billion worth of stocks to align with the new regulations.

4. Farmers allege fast fashion influence on EU Green Claims Directive

A letter signed by nearly 900 stakeholders representing farmers in natural fibers supply chains has criticized the EU's Green Claims Directive, alleging it has been co-opted by fast fashion giants like H&M, Nike, Inditex, and VF Corp. These major brands now dominate participation and voting in the Product Environmental Footprint (PEF) tool under the directive, facilitated by San Francisco-based Cascale (formerly the Sustainable Apparel Coalition). Recently, Cascale significantly increased the cost of participation and voting in the PEF Category Rules for Apparel and Footwear (PEFCR), pricing out smaller stakeholders. Out of the 26 members of the technical secretariat overseeing PEFCR, only 14 have voting rights, with over half representing fashion brands. The farmers argue that PEF's bias against natural fibers ignores their sustainable farming practices, which include maintaining soil health and supporting rural communities. They contend that endorsing PEF within the Green Claims Directive would exacerbate challenges posed by climate change and could force many farmers out of business. The European Council is set to decide on the incorporation of PEF into the Green Claims Directive on June 17, 2024.

5. EU Council set to revise Waste Framework Directive

The European Council has adopted its 'general approach' on the targeted revision of the Waste Framework Directive, emphasizing food and textile waste management. The directive mandates a separate collection of textiles for reuse, preparation for re-use, and recycling by January 1, 2025, with specific targets expected by 2028. Harmonized Extended Producer Responsibility (EPR) schemes will be established within 30 months of the directive's enforcement, incorporating microenterprises. Fee levels will reflect product circularity and environmental performance, incentivizing waste prevention and higher fees for fast fashion practices. Additionally, member states with higher textile reuse can impose lower fees on commercial reuse operators. The directive also aims for a 10% reduction in food waste processing and a 30% per capita reduction in retail, restaurant, and household waste by 2030. This comprehensive approach seeks to advance a sustainable and circular European economy, marking a crucial step towards negotiations with the European Parliament under the new legislative cycle.

Voices from this week

??Mathieu Vervynckt, Head of Unit Value Chains Swedwatch , shares insights from the newly released UN Working Group on Business and Human Rights report on ESG, Investors, and Human Rights, emphasizing the need for greater scrutiny of ESG ratings providers and more robust, conflict-sensitive due diligence by investors.

??In light of luxury perfume companies linked to child labor, Kathryn Baldacchino, Head of Anti-Trafficking at British Red Cross , companies need to do more than make public commitments and conduct third-party inspections to reduce exploitation and slavery in their supply chains.

??Brett Mathews, Editor at Apparel Insider , discusses how EU's Green Claims Directive can potentially sideline smaller stakeholders such as farmers and skew environmental impact assessments against natural fibers.

??Ioannis Aeon Agapakis, International and European Environmental Lawyer at ClientEarth , welcomes the adoption of the Nature Restoration Law, despite an exceptionally volatile legislative trajectory, and highlights the collaboration amongst NGOs, scientists, lawyers, (youth) activists, businesses, and EU leaders in making #RestoreNature a reality.

??Dirk-Jan Visser, Senior Lecturer at Royal Academy of Arts , discusses the role Leonore Gewessler's decisive vote played in final approval of the Nature Restoration Law and shares the voting consensus among the member states.

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