Legislative news and ESG initiatives in Estonia, Latvia, Lithuania
Status of the Corporate Sustainability Reporting Directive’s transposition into local laws
Lithuania
Following the draft CSRD transposition package that was published at the end November 2023, now the proposal has been adjusted and a new version was put forward in March 2024. There are no substantial changes in this revised draft package that would materially impact companies now preparing for the disclosure of sustainability information. According to the schedule of the sittings of the Parliament of the Republic of Lithuania, the issue of transposing the CSRD into Lithuanian law will be discussed in April 2024. We can expect the draft CSRD transposition package to be approved following this discussion.
Estonia
During the consultation period, ministries gave initial feedback regarding the draft law on the CSRD transposition. The impact assessment has led to the requirement to complement the explanatory memorandum as follows:
- How much of Estonia’s total economic turnover is accounted for by the economic turnover of these businesses?
- What proportion of all people working in Estonia are employed by these enterprises?
- What proportion of the assets held by all companies in Estonia is owned by companies that will be subject to the new reporting obligations?
- What is the impact of sustainability reporting on businesses throughout the value chain, including impact on the SME?
The next step is that feedback will be examined and if necessary, amendments to the draft law should be made. Any disagreement that arises during the consultation period should be discussed with the ministries and an attempt should be made to reach a common position.
Latvia
Since the draft law was published on 29 January and the consultation period concluded on 15 February, the proposal is currently pending before the Cabinet of Ministers and has not yet been sent to the Latvian Parliament. The law is expected to come into force on 6 July 2024, thus it must be adopted within the upcoming months. The obligation to prepare a sustainability report will be phased in, starting with the 2024 reporting year, and will apply to all categories of companies falling within the scope of the CSRD. One of the key requirements is that sustainability reports, including group-level reports, are to be made available in Latvian, with an indication of whether or not the translation is a certified one done by an auditor.
The draft law entails amendments to 10 other laws, including the Accounting Law, the Law on Annual Statements and Consolidated Annual Statements, the Financial Instrument Market Law and others.
EU-level news
European Council approves the long-awaited Corporate Sustainability Due Diligence Directive (CS3D/CSDDD)
On 15 March 2024, the EU Council reached long-awaited agreement on the Corporate Sustainability Due Diligence Directive (CS3D/CSDDD). Although its scope is significantly reduced from earlier versions, it is still a groundbreaking document with far-reaching impact. Companies falling within its scope will need to conduct due diligence processes to manage potential and existing adverse impacts on human rights and the environment throughout their supply chain. Furthermore, they will be obligated to disclose these processes, openly ensuring considerable transparency for stakeholders. This means that entities operating within these supply chains will have to have the ability to collect transparent and verifiable data about their own operations.
- The CSDDD will now apply to EU companies with more than 1,000 employees on average and more than EUR 450 million global net turnover in the last financial year for which annual financial statement have been or should have been adopted. Non-EU companies with more than EUR 450 million net turnover in the EU also fall within its scope, as do franchises with a net worldwide turnover of EUR 80 million and EUR 22.5 million in royalties. The applicability of the CS3D will be phased in, with the first group reporting in three years.
- The CSDDD will also apply to the ultimate parent company of a group that reached the thresholds during the last financial year for which consolidated annual financial statements were or should have been adopted
- The new wording eliminates the high-risk sectoral approach
- Climate transition plans have been extended to the financial sector
- The provisional agreement introduced the “chain of activity” concept, covering only specifically listed parts of the value chain.
- The provision on civil liability has been further adjusted. The maximum limit for pecuniary penalties will be no less than 5% of the worldwide net turnover of the company in the financial year preceding the decision to impose a fine
The Legal Affairs Committee approved the text on 19 March 2024. Once formally approved by the European Parliament and the member states, the directive will enter into force on the twentieth day following its publication in The Official Journal of the European Union.
Environmental crimes: MEPs adopt an extended list of offences and sanctions
The European Parliament approved new rules on environmental crimes and related sanctions.
- new list of environmental crimes to include illegal timber trading and depletion of water resources
- individual offences punishable by up to 10 years in prison
- fines for companies of up to 5% of worldwide turnover or 40 million EUR
- environmental crime is the fourth most common and most lucrative criminal activity worldwide
The directive will enter into force on the twentieth day following its publication in The Official Journal of the European Union. Member states will have two years to transpose the rules into their national legislation.
Nature restoration: Parliament adopts law to restore 20% of EU’s land and sea
Over 80% of European habitats are in poor shape. The European Parliament adopted a new law that sets a target for the EU to restore at least 20% of the EU’s land and sea areas by 2030, and all ecosystems in need of restoration by 2050.
- EU countries must restore at least 30% of habitats in poor condition by 2030, 60% by 2040, and 90% by 2050
- provisions for agricultural ecosystems can be temporarily suspended under exceptional circumstances
To reach the overall EU targets, member states must restore at least 30% of the habitats covered by the new law (ranging from forests, grasslands and wetlands to rivers, lakes and coral beds) so that their condition improves from poor to good by 2030, increasing to 60% by 2040, and to 90% by 2050. In line with the parliament’s position, EU countries should prioritise Natura 2000 areas until 2030. EU countries must ensure these areas, once in good condition, do not significantly deteriorate. Member states must also adopt national restoration plans detailing how they intend to achieve these targets.
The council must also adopt the law before being published in The Official Journal of the European Union and entering into force 20 days later.
EFRAG releases second set of technical explanations on ESRS
The European Financial Reporting Advisory Group (EFRAG) announces the release of the second set of technical explanations (in English only) to assist stakeholders in implementing the ESRS via the EFRAG ESRS Q&A Platform. These responses are provided as part of the EFRAG’s role as technical advisor to the European Commission. They are expected to provide practical and timely support for preparers and others on implementing the ESRS. The 12 explanations released are grouped into chapters according to their nature (cross-cutting, environment, social, and governance).
The first set of explanations is available here.
Deal on new rules for more sustainable packaging in the EU
Each European citizen generates almost 190 kg of packaging waste every year. Aiming to reduce this amount, the European Parliament and Council reached a provisional agreement on revamped rules to reduce, reuse and recycle packaging; increase safety; and boost the circular economy.
- Measures cover the entire life cycle of packaging
- Less packaging, less waste, restrictions on certain packaging formats
- Ban on “forever chemicals” (PFAS) in food contact packaging (see map below)
Source: Forever Pollution Project
The European Parliament and Council must formally approve the agreement before it can enter into force.
Consumer protection against misleading claims to be improved
During the first reading of the Green Claims Directive, the European Parliament adopted a position on establishing a verification and pre-approval system for environmental marketing claims in order to protect citizens from misleading ads.
- Companies should submit environmental marketing claims like “biodegradable” or “less polluting” for verification before being allowed to use them. Appropriate national procedures should be set up.
- Simple and common types of claims should benefit from easier or faster verification.
- Companies that break the rules may face penalties. Penalties may include exclusion from procurement processes, confiscation of revenues, or a fine of at least 4% of annual turnover.
The parliament wants claims and their evidence to be assessed within 30 days, but simple claims and products could benefit from quicker or easier verification. The new rules would not cover micro-enterprises, and SMEs would have an additional year to achieve compliance compared to larger businesses.
The initiative will now have to be followed up by the new parliament after the European elections that will take place from 6 to 9 June 2024.
Energy efficiency of buildings: MEPs adopt plans to decarbonise the sector
Buildings account for 36% of EU greenhouse gas emissions. In the course of revision of the Energy Performance of Buildings Directive, members of the European Parliament (MEPs) adopted plans, already agreed upon with the Council, to help reduce energy consumption and greenhouse gas emissions from the buildings sector, and to make it climate neutral by 2050.
- New buildings to be zero-emission from 2030
- Measures to help lower energy bills and fight climate change
- Agricultural buildings and historic buildings can be excluded
In order to become law, the revised directive will now have to be formally endorsed by the Council of Ministers as well.
Some sustainability-related preliminary references will be referred to the General Court instead of the CJEU
This year, the reform of the preliminary ruling procedure under Article 267 TFEU came into force. The General Court will take on answering preliminary references from national courts in several specific areas of EU law, including the scheme for greenhouse gas emission allowance trading.
Subscribe here if you would like to receive ESG-related newsletters directly to your email.
Our ESG team is at your disposal, should you need advice on any legal issues you are facing.
Contact the authors:
Co-head of Sorainen ESG team, Lithuania
vitalija.impoleviciene@sorainen.com
Senior Associate, Latvia
Associate, Estonia
