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EU Parliament approves company governance ESG regulation, advances climate transition plans

June 9, 2023

The European Parliament has voted in favour of significant new rules designed to reshape corporate practices and strengthen accountability for the environmental and social impacts of companies.

The regulations will require companies to identify, address, and mitigate the effects of their activities and value chains on human rights and the environment.

This decision represents the Parliament’s stance on the EU Commission’s proposed corporate sustainability due diligence directive (CSDDD), which was unveiled in February 2022.

Of particular significance is the mandating of climate transition plans for affected companies. These plans must align with the Paris Agreement and encompass Scope 1, 2, and 3 emissions, reflecting a holistic approach to combating climate change. In parallel, companies will be compelled to conduct due diligence on climate impacts, ensuring their activities align with the Paris Agreement’s objectives. Due diligence policies will also need to be made available on the European Single Access Point (ESAP) for investors to access.

Another noteworthy provision entails linking directors’ variable compensation to targets outlined in the climate transition plans. This aims to integrate sustainability goals into corporate governance structures and incentivise commitment to climate action.

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