The European Union has been at the forefront of sustainability-centric legislation in recent years amid the enduring growth of “green” products and services, and a spike in environmental, social, and governance (“ESG”) reporting by companies in connection with their corporate strategies. As companies look to cater to increasingly eco-conscious consumers and investors, there is an undeniable “trust deficit” that comes with “the broad scope for misleading claims” at play in the climate realm, according to Travers Smith LLP attorneys.
Because of the complexity of the issues and the large-scale lack of uniformity (and cherry-picking) that accompanies voluntary ESG reporting and efforts to define terms like “sustainability,” it is “particularly difficult” for consumers, as well as investors, analysts, and other stakeholders, “to know whether to trust companies’ environmental claims,” they assert. And this is not helped by the fact that there is also “significant scope for [climate and other ESG] claims to be misleading.”
Against that background, lawmakers and regulators are aiming to implement legislation to bolster transparency about companies’ climate – and broader ESG – claims and credentials. In several key cases, the regulation comes in one of two key forms: (1) directives that aim to provide insight into companies’ operations by requiring them to conduct due diligence on climate/sustainability aspects of their business and disclose/report on those findings, and (2) bills that govern the “green” claims that companies make to consumers, investors, analysts, etc. about their products and/or services.
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