Legal Update – Graf von Westphalen, May 2024

In this guest article, our partner Graf von Westphalen provides a compact update on the current legal situation regarding ESG laws in Germany. It covers topics such as the formal adoption of the Corporate Sustainability Due Diligence Directive (CSDDD) by the Council, changes to reporting obligations under the German Supply Chain Act (LkSG), the new Ecodesign Regulation, the introduction of a regulation on critical raw materials and the ban on products made from forced labor. 

EU Council gives final approval to the CSDDD 

On May 24, 2024, the Council of the European Union gave its final approval to the Corporate Sustainability Due Diligence Directive (CSDDD). The Directive requires large companies and certain non-EU companies to identify human rights and environmental risks in their supply chains and to mitigate their impact and prevent violations. The CSDDD applies to companies with more than 1,000 employees and a global turnover of more than 450 million euros. It will enter into force gradually and aims to combat negative impacts on human rights and the environment and promote transparent business practices. In some respects, the directive goes beyond the German Supply Chain Due Diligence Act (LkSG), meaning that companies that are already obliged under the LkSG will be subject to new obligations. 

LkSG reporting obligation postponed 

According to Section 10 LkSG, companies are obliged to prepare annual reports on the fulfillment of due diligence obligations and to publish these no later than four months after the end of the financial year. BAFA has announced that it will not review the submission of annual reports until January 1, 2025. Companies that submit their reports by December 31, 2024 at the latest will not have to fear any sanctions for late submission. Irrespective of this, the due diligence obligations pursuant to Sections 4 to 10 (1) LkSG must continue to be fulfilled. Numerous companies have already submitted their reports and published them on their websites. 

EU Council approves Ecodesign Regulation 

On May 27, 2024, the Council of the European Union approved the new Ecodesign Regulation, a further step in the EU’s “Green Deal”. The regulation replaces a directive from 2009 and extends the ecodesign requirements to a large number of products. Important features of the planned regulation include the introduction of a digital product passport to improve transparency and sustainability information as well as a ban on the destruction of unsold textiles and shoes. The regulation aims to improve the durability, reusability, reparability and recyclability of products and thus promote a more sustainable and circular economy. To this end, the European Commission is setting product group-specific requirements within 12 months – presumably starting with textiles and metals. Longer transition periods will apply to medium-sized companies, while smaller companies will be exempt from some requirements. 

Regulation on critical raw materials enters into force 

On May 24, 2024, Regulation (EU) 2024/1252 of the European Parliament and of the Council of April 11, 2024, establishing a framework to ensure a secure and sustainable supply of critical raw materials (Critical Raw Materials Act) entered into force. The regulation defines strategic and critical raw materials, promotes technological advances and resource efficiency, and sets common targets for member states to avoid supply disruptions and bottlenecks. The regulation thus includes measures to strengthen value chains and forms the basis for benchmarks for the production and recycling of critical raw materials by 2030. 

EU bans products from forced labor 

On 23 April 2024, the European Parliament adopted a new regulation that bans the sale, import and export of products manufactured using forced labor on the EU internal market. The regulation enables member state authorities and the European Commission to investigate suspected goods, supply chains and manufacturers. If a product is found to have been manufactured using forced labor, it can be withdrawn from the EU market. The regulation affects both products manufactured in the EU and imported products and is intended to ensure that no goods produced using forced labor can be sold on the internal market. The Council of the European Union still has to approve the regulation, after which it will be published in the Official Journal and enter into force. The regulation is expected to apply from 2027. 

Implementation of the CSRD Directive on sustainability reporting 

The Federal Ministry of Justice (BMJ) recently published the draft bill for a law to implement Directive (EU) 2022/2464 (Corporate Sustainability Reporting Directive, CSRD). The new sustainability reporting obligations include disclosure requirements on environmental, social and governance factors in order to increase transparency and comparability. On May 13, 2024, the BMJ published around 80 comments from various companies and associations on the draft bill. The main topics of the comments include the link to the Supply Chain Duty of Care Act (LkSG), the personal scope of application, the requirements for the (group) management report in the standardized electronic reporting format, options for group exemption and aspects of the audit. The implementation law must be passed by July 6, 2024. CSRD sustainability reporting will then take place for the first time in 2025 for the 2024 financial year. 

Further current legal news can also be found on the GvW blog: https://www.gvw.com/en/news/blog