The CS3D Digest #34
Ripple Research
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Welcome to the 34th 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's new Ecodesign requirements, the newly launched deforestation due diligence registry, EFRAG report assessing preliminary challenges in CSRD implementation, ESMA's sustainability disclosure recommendations for financial products, and BCG report highlighting the current state of Scope 3 disclosures.
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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.
The Ecodesign for Sustainable Products Regulation (ESPR), effective from July 18, 2024, is set to replace the Ecodesign Directive and broadens the scope to cover nearly all physical products sold in the EU. The new regulation aims to set new environmental sustainability requirements for products, encompassing factors such as energy efficiency, durability, repairability, recyclability, and the reduction of hazardous substances. These requirements will be implemented through both product-specific and horizontal regulations, ensuring that products across different categories meet consistent sustainability standards. A significant innovation under the ESPR is the Digital Product Passport (DPP), a digital tool to track and manage the environmental impact of products throughout their lifecycle. It will provide detailed information about product components, their environmental performance, and their end-of-life management. The regulation also introduces measures to prevent the destruction of unsold textiles and footwear, requiring companies to disclose annual data on discarded products.
The European Union has announced the launch of the Deforestation-Free Products Registry to ensure that products sold within the member states are not linked to deforestation. This registry is a crucial element of the EU’s broader legislative framework aimed at tackling environmental degradation associated with global supply chains. Companies will be required to furnish proof that their key commodities, including soy, cocoa, coffee, palm oil, and timber, are sourced from supply chains that are certified as deforestation-free. This will involve rigorous documentation and verification processes to ensure transparency and accountability. The registry will also streamline the process of creating and managing due diligence statements required under the EU Deforestation Regulation (EUDR), allowing operators, traders, and their representatives to electronically submit these statements to be processed by the relevant authorities.
EFRAG has released a new report, supported by Boston Consulting Group (BCG), that examines the early implementation of the European Sustainability Reporting Standards (ESRS) among 28 large EU companies. The findings note that moving from judgment-based to data-driven approaches for assessing ESG impacts, with approximately 70% of them incorporating data-driven methods, backed by stakeholder inputs, to conduct Double Materiality Assessments. Furthermore, most companies rely on EFRAG’s Implementation Guidance 3 for gap analysis, yet only 40% effectively understand how to assess the materiality of individual data points. The report also highlights the need for sector-specific guidance, as companies continue to face challenges in achieving comprehensive and accurate value chain mapping.
The European Securities and Markets Authority (ESMA) has published recommendations to implement minimum sustainability disclosure requirements for all financial products, including those with no stated sustainability objectives, to cover basic environmental and social indicators such as greenhouse gas emissions and human rights. To help investors understand the sustainability characteristics of financial products and simplify product selection, ESMA has suggested defining transition investments, creating EU labels for transition bonds, and using the EU Taxonomy as the primary reference for assessing sustainability performance. Additionally, ESMA has called for stricter regulation of ESG data products to ensure their reliability and comparability. This will involve bringing ESG data providers under regulatory oversight to define their responsibilities and set standards for disclosure and data quality.
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A new report from Boston Consulting Group (BCG) and Carbon Disclosure Project (CDP) has revealed most companies and investors are not effectively measuring or targeting reductions in Scope 3 emissions. that Despite Scope 3 emissions being, on average, 26 times higher than Scope 1 and 2 emissions, they are less frequently measured and targeted for reduction. The report highlights that companies often overlook the financial risks associated with Scope 3 emissions, which can lead to substantial unreported liabilities. For instance, upstream emissions from sectors like manufacturing, retail, and materials could accrue a carbon liability of over $335 billion based on projected carbon prices. The study notes that only half of the companies disclosing through CDP assess financial risks from upstream emissions, and a third of these recognize risks to their profits.
Voices from this week
??Tom Hayes, Managing Partner at Brussels European Employee Relations Group, discusses Irish CSRD Regulations that emphasize the role of employee perspectives in the due diligence reporting process.
??Julian Oram, Senior Director at Mighty Earth , welcomes the launch of Deforestation Due Diligence Registry to ensure that companies verify and report that the agricultural products being placed in the EU market comply with EUDR
??Pui D., ESG Consultant, shares progress on ESG-related regulations across the globe and the associated implementation approaches.
??Richard Gardiner, Head EU Public Policy World Benchmarking Alliance , emphasizes the critical need for immediate and substantial improvements in corporate due diligence and sustainability practices as the July 2027 deadline for CSDDD approaches.
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