ESG Compliance 2024: What companies need to know now

CBAM, LkSG, CSRD, Deforestation Regulation: The year 2024 will continue to be characterized by ESG regulation. Companies will need to keep track of the many new obligations and incorporate them into their compliance systems in a timely manner. Below is an overview of the key issues.

1. Implementation of the CBAM reporting obligation by 31 January 2024 at the latest

As of October 1, 2023, importers of goods from CO2-intensive production will be required to submit a quarterly report to the European Commission on the CO2 emissions caused by the production of the imported goods. The first report must be submitted by January 31, 2024. The report must be submitted via the customs portal, where a special CBAM portal has been set up.

The Carbon Border Adjustment Mechanism (CBAM) came into force on October 1, 2023. In the future, importers of CO2-intensive goods such as iron, steel or cement will have to pay a fee for the carbon emissions contained in the goods, which will be phased in between 2026 and 2034. There is a transition period from October 1, 2023 to December 31, 2025.

Click here for further information on the CBAM reporting obligation.

2. LkSG now also affects companies with at least 1,000 employees

As of January 1, 2024, the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, LkSG) will require companies with at least 1,000 employees to comply with human rights and environmental standards.

• Obligations for companies: Companies must pay appropriate attention to environmental protection and the proper handling of human rights, such as protection against child labor, forced labor, land expropriation and health protection. To this end, companies must establish a risk management system and define responsibilities. Preventive measures must be taken in the event of risks, remedial measures must be taken in the event of violations, and complaint procedures must be facilitated.
• Outlook: Due to the potential sanctions, it is advisable to implement the due diligence obligations immediately. Please note that the EU Supply Chain Act will impose further due diligence obligations on companies in the future.

Click here for further information about the LkSG.

3. Obligations arising from the Corporate Sustainability Due Diligence Directive, CSDDD

The EU Supply Chain Act will impose far-reaching human rights and environmental due diligence obligations on companies. On December 14, a preliminary political agreement was reached on the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D).

• Obligations for companies: Companies will have to identify human rights and environmental risks along their entire value chain and take preventive and remedial measures. They will be subject to reporting requirements.
• Outlook: After the adoption of the CSDDD, probably in the course of 2024, a two-year implementation period by the member states is planned. The German legislator will have to adapt the existing obligations under the German Supply Chain Due Diligence Act (LkSG) to the Directive, which will lead to stricter requirements for companies.

Click here for further information on obligations under the EU Supply Chain Act and the companies affected by it.

4. Sustainability reporting obligation for companies 

The EU Corporate Sustainability Reporting Directive (CSRD; Directive (EU) 2022/2464) entered into force on January 5, 2023. The CSRD aims to close existing gaps in sustainability reporting and to introduce uniform, binding reporting standards at EU level.

• Scope: The CSRD applies to large companies in the sense of accounting law, capital market-oriented small and medium-sized enterprises (SMEs) and companies from third countries with a net turnover of more than 150 million euros in the EU. However, this only applies if they have at least one subsidiary or branch in the EU. Micro-enterprises are not affected.
• As of January 1, 2024, companies already subject to the Non-Financial Reporting Directive will be required to report.
• Outlook: The CSRD reporting obligation will be extended to all other large companies in the sense of the Accounting Law (from January 1, 2025) as well as to SMEs (from January 1, 2026) and companies from third countries (from January 1, 2028).

Click here for further information on the CSRD.

5. EU Deforestation Regulation

The EU Deforestation Regulation entered into force on June 30, 2023, and will apply from December 30, 2024, after an 18-month transition period. Small companies have a transition period of 24 months

• Scope: Article 3 of the Deforestation Regulation prohibits the import and export of the following commodities: cattle, cocoa, coffee, oil palm, rubber, soy, and timber and their products. An exception is made for deforestation-free goods that have been produced in compliance with the relevant legislation of the producing country and for which a due diligence declaration is available.
• Obligations for companies: Companies must ensure that the raw materials in question have not been produced on land that has been subject to deforestation or forest degradation since December 31, 2020. In addition, the raw materials and products must comply with the laws of the country of origin and have been produced in compliance with fundamental human rights as detailed in the Regulation. Companies must confirm their due diligence and compliance with the Regulation in a Due Diligence Statement.

lick here for further information on the Deforestation Regulation.

6. Batteries Regulation

The Battery Regulation ("BATT2") came into force on August 17, 2023 and will apply from February 18, 2024 after a six-month transition period. BATT2 applies to all batteries. For the first time, it explicitly includes traction, electric vehicle and light vehicle batteries. It also covers batteries incorporated into other products. It applies to producers, manufacturers, importers, distributors and recyclers of batteries. Any company that first places a battery on the market is considered a producer.

• Obligations for companies: Producers must assume extended product responsibility and guarantee that the battery complies with the legal requirements. They must also register in the producer register. They are obliged to take back the batteries and must set up a collection system in the long term. The obligations of each company depend on the type of battery and the field of activity. For example, manufacturers of portable and light vehicle batteries must ensure that these batteries can be removed from the products and replaced.
• Outlook: Many obligations under the Battery Regulation will be introduced in stages or depend on an implementing regulation yet to be issued by the EU Commission. These include carbon footprint declarations for batteries, minimum recycled content for batteries, new collection targets for spent batteries, information and labeling requirements, a deposit system and a digital battery passport. From August 18, 2025, companies with an annual turnover of at least 40 million euros will have to implement a risk management system.

We can help you identify the requirements that are relevant to your business and integrate them into your compliance system in a timely manner. Please do not hesitate to contact us!

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