ESG Regulations Round-Up #1

This month’s scoop: Amendments to the EU Deforestation Regulation, new reporting obligations in Asia and Canada, and more. Dive into our first and latest newsletter to learn about recent developments in sustainability regulations across the globe.

The Run-Up to the CSDDD: What to do With the LkSG?

In October, the German Bundestag voted against repealing the LkSG, meaning German companies must comply with the country’s Supply Chain Act until the EU CSDDD is transposed into national law.

The in-favor parties argued that the LkSG creates an unnecessary bureaucratic burden for German companies, ridding them of time that could be otherwise spent preparing for the incoming European due diligence directive. However, the point brought up on the opposing side was that turning a 180 on the LkSG makes Germany seem like it’s giving up on its commitment to be a trailblazer in codifying supply chain due diligence.

Where does this failed attempt to scrap the law leave companies today? Some companies can benefit from the deferra l of the LkSG reporting deadlines, and the federal government plans to introduce measures to smooth the path toward the CSDDD application while respecting the letter of the German Act.

CSDDD Implementation Status

All member states, like Germany, must now transpose the CSDDD into national law. The European Commission, which is guiding the 27 countries through the transposition process, will issue guidelines on the key aspects of the directive, with most due in 2027.

Meanwhile, the re-elected European Commission President Ursula von der Leyen hinted at trimming the regulatory red tape to cut back on reporting obligations of companies by 25% in an overall drive to increase the EU’s competitiveness. (Recently, Mario Draghi tasked by the European Commission to report on the future of the bloc’s competitiveness, identified the EU due diligence framework and its twin sustainability reporting directive as a “major source of regulatory burden.”)

The extent to which this drive for competitiveness impacts the EU’s regulatory agenda, including the due diligence directive, remains to be seen. For now, the newly appointed Director-General for Justice and Consumers, Michael McGrath, set to take charge of the CSDDD implementation, said that while he supports the Commission’s goal to cut reporting obligations, there’s no reason to delay or revise the application of the directive.

Inaugural Year of Canada’s Modern Slavery Act

Meanwhile, Canadian companies are visibly struggling with the reporting obligations forced on them by Canada’s Modern Slavery Act. With the first year of reporting complete, fewer than 5,800 due diligence were submitted, leaving a considerable gap between the number of entities qualifying for the reporting and those that submitted a report.

Under the Act, eligible entities must publicly report on their efforts to reduce the risk of forced or child labor in their business and supply chain by the end of May each year.?

Still, many of those that opted to report decided to disclose as little as possible about their chain of activities: 20% sourcing goods globally refused to provide information on where they source these goods, while as many as 90% claim they have no specific forced or child labor risks. (The detailed analysis by KPMG is here .)

As the Act moves to its second year, a low compliance rate and reluctance to provide the level of detail the Canadian Ministry anticipates may continue as companies weigh the benefits of full transparency – meaning having complete visibility over their supply chains – against the risks of financial penalties and public scrutiny.

Also in Canada: Mandatory Climate Disclosures on the Horizon

Full transparency over all aspects of business and being able to attest to that information is becoming more important than ever for Canadian companies, especially in the context of emerging litigation risks related to environmental claims.

The recently amended Canada’s Competition Act (Bill C-59) now includes provisions to enhance enforcement against false or misleading information on the environmental impacts of a product or practice. At the same time, the Canadian government announced plans to introduce mandatory climate reporting as part of the revamp to the Canada Business Corporations Act, therefore, it appears opting out of making public statements about environmental matters will not be an option – at least for large, federally incorporated companies, though the exact eligibility criteria must be hammered out.

Taiwanese Government’s Bid to Avoid Greenwashing

In Taiwan, the government is especially focused on weeding out deceptive statements regarding carbon neutrality and climate advances. The local Ministry of Environment released a set of voluntary guidelines to avoid “greenwashing” and “selective disclosure,” promoting only the positive aspects of a product’s or organization’s climate performance.

The ministry’s guidelines, compiled based on international standards such as the ISO14068-1 and GHG Protocol, outline three milestones to complete: a calculation of an organization's emissions (including Scope 3) or the products or services for which it wants to declare carbon neutrality; making the decarbonization pathway and progress public, following verification from an independent certification agency; and offsetting emissions by the accredited carbon credits.

Singapore Backs Down on Requirements for Scope 3 Disclosure

SGX RegCo, the local Exchange regulator, announced updates to its reporting rules for listed companies, including pushing back Scope 3 emissions disclosure requirements for smaller issuers.

The changes follow the statement earlier this year that Singapore’s authority, starting with the 2025 financial year, will implement mandatory climate-related reporting for listed and large non-listed companies. As per the requirements, the disclosures should follow the International Sustainability Standards Board (ISSB) recommendations.?

The ISSB has already given companies an extra year to report on emissions produced along the value chain and in the new announcement, SGX RegCo signaled it is ready to delay this requirement for smaller Singapore-listed entities even further. The intention is to focus on larger companies as they start reporting Scope 3 emissions from the 2026 financial year.?

Chopping Down the EU’s Deforestation Regulation

In November, the largest group in the European Parliament, the European People’s Party (EPP), proposed to water down key elements of the regulation on deforestation-free products and to delay it further – by two years instead of one as proposed by the European Commission a month before. However, in a last-minute move before the deciding vote, it backtracked some of the amendments, including the two-year extension.

What remained on the table and passed with a tight majority was the creation of a “no risk” category for countries with no deforestation, exempting them from most of the requirements.??

The Commission's original proposal, including the one-year delay, was adopted with nine amendments. This means that the European Parliament and the EU Council, representing the 27 member states, will enter into trilogue negotiations with the Commission to agree on the text. They have until mid-December to reach an agreement before the regulation takes effect on December 30. Otherwise, the regulation will apply from January 2025, as initially planned.