Product sustainability and other ESG reforms affecting products

Higher safety standards, increased liability for manufacturers, AI regulation… what else? Oh yes. There are environmental, social and governance reforms affecting products too.

As well as product safety concerns, legislators are responding to the impact of climate change and concerns around human rights abuses within supply chains. Once, again the EU is at the forefront of making reforms.

This article, the fourth in this series of five, gives a brief overview of those reforms, in the EU and the UK.

EU ESG Reform

The EU has a Circular Economy Action Plan (CEAP) which is part of the European Green Deal and Europe’s agenda for sustainable growth. Essentially, the EU plans to reduce waste and consumption throughout the life cycle of a product and keep products and resources circulating in the EU economy as long as possible.

The EU has introduced (or has proposed) various pieces of legislation which tackle the following environmental issues for businesses operating in the EU, including in the following areas:

• Sustainable product manufacturing – The new Ecodesign for Sustainable Products Regulation (ESPR) was provisionally agreed by the EU Parliament on December 4 2023, and, when formally adopted (expected May 2024), will introduce new requirements on businesses in the EU in relation to durability and reliability; reusability; energy and resource efficiency; recycled contents; carbon and environmental footprints; and expected generation of waste materials.
• Repair rather than replace – The new Right to Repair Directive (R2R) was proposed in March 2023 and formally adopted by the EU Parliament on 23 April 2024. Member states then have two years to implement the directive in national law. The R2R aims to encourage consumers to have products repaired rather than disposing of them and replacing the product with a new one. Sellers will need to offer a right to repair, subject to some exemptions and conditions.
• Greenwashing – The Green Claims Directive (GCD) was proposed in March 2023 and is expected to enter into force sometime in 2024, with the period after that for member states to implement the directive in national law. The GCD will (amongst other things): specify clear criteria on how organisations should prove their environmental claims and labelling; require any environmental claims and labels to be independently verified by an accredited body; and require organisations to provide consumers with substantiation information physically or via a link or QR code;
• Deforestation – The EU aims to guarantee that the products consumed by EU citizens do not contribute to deforestation or forest degradation worldwide through its Deforestation Regulation (DR), which applies from 30 December 2024 and requires mandatory due diligence on suppliers.

Social and governance

The EU requires companies to report sustainability activities relevant to them and carry out mandatory supply chain due diligence, specifically in relation to how they affect sustainability, human rights and the environment and a draft regulation on forced labour will prevent the sale in the EU of products made using forced labour and require manufacturers to ensure no forced labour is being used in supply chains.

UK ESG Reform

In comparison to the EU’s wave of legislative ESG reform, the UK government’s progress is far slower. However, the desire for ESG reform does exist.  

The UK government previously announced that it does not intend to replicate the EU legislation, but there has been an attempt (via the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill, a private member’s bill currently in the House of Lords) to introduce a duty for both commercial organisations and public authorities incorporated or operating in the UK to prevent human rights and environmental harms in their own operations, operations of their subsidiaries and in their supply chains.

The bill may struggle or be delayed without government backing. Nevertheless, it may lead to further scrutiny of current legislation and may force parliamentary debate on the topics, particularly in light of the EU reforms.

The UK government has announced a Carbon Border Adjustment Mechanism (CBAM) to be set up by 2027. The CBAM will apply a charge to carbon emissions embodied on imports in certain sectors (such as, for example, aluminium, ceramics and steel).

In addition, as of 11 December 2023, the Environment Agency (EA) can impose potentially significant financial penalties on companies that pollute the environment without the need to bring criminal proceedings. The range of offences for which variable monetary penalties can be imposed has been expanded, and the £250,000 cap on penalties has been removed.

Practical steps for businesses affected by the ESG reforms

While the EU races ahead with its ESG reforms and continues with the theme of increased regulation, we must wait to see how the UK responds. It will be interesting to see whether the UK intends to follow the reforms made by the EU or whether it intends to diverge and form its own path once again.

In the meantime, businesses should:

• Review product design and manufacturing processes, how products are designed for repair and how repairs would be carried out.
• Map the supply chains and engage with suppliers to identify high-risk areas.
• Establish and/or review due diligence policies and procedures to ensure robustness and compliance and document that process.
• Review due diligence policies annually.
• Ensure environmental claims made by the business are supported by verifiable scientific data.

In the next and final part of this series, we discuss how the reforms interact with each other and what further practical steps businesses can take to ensure compliance.

In the meantime, for further information or guidance on whether any of the reforms or proposed reforms apply to your business, contact Robin Adams at [email protected] or 0191 211 7949.