1、ESG POLICY GUIDETHE FUTURE OF SUSTAINABILITY LEGISLATION FOR LUXURYTHIRD EDITION OCTOBER 2024POSITIVE LUXURY 2024ESG POLICY GUIDE2CONTENTS Introduction 3Six things luxury brands need to know about ESG 4Interactive legislative timeline 5Part 1:Environmental 7Part 2:Social 20Part 3:Governance 26 Spotl

2、ight on:The impact of sustainability and ESG legislation on small and medium-sized enterprises(SMEs)6 Green up your lease 19 Rise in OECD ESG-related complaints 25 Competition and sustainability 31 AI and sustainability 32 Acknowledgements 33POSITIVE LUXURY 2024INTRODUCTIONLuxury brands are at the f

3、orefront of delivering a lifestyle of quality,innovation and style to their clients.The need to be sustainable,socially conscious and protect our environment is now a further and fundamental part of the luxury offering.This Guide highlights the key responsibilities that brands need to be aware of,an

4、d help brands anticipate what to expect down the road,as they navigate the environmental,social and governance (ESG)legislative landscape.This is Positive Luxury and Baker McKenzies third edition of The ESG Policy Guide:The future of sustainability legislation for luxury,which focuses on ESG legisla

5、tive developments in the key markets of the European Union(EU),United Kingdom(UK)and the United States(US).The updates to this years Guide include:An interactive legislative timeline An update on the implementation of the EUs Corporate Sustainability Due Diligence Directive An analysis of the defore

6、station regulations in the EU and the UK The progress of State fashion sustainability legislation in the US Considerations around sector collaborations and competition risks The advantages and tensions of utilising AI for sustainability We hope you find this Guide helpful in your journey to achievin

7、g your brands ESG ambitions and objectives.Katia Boneva-Desmicht Global Chair,Consumer Goods and Retail Group,Baker McKenzie,ParisESG POLICY GUIDE3POSITIVE LUXURY 2024POSITIVE LUXURY 2024THE SIX THINGS LUXURY BRANDS NEED TO KNOW ABOUT ESG Here are six key actions for luxury brands to prepare for ESG

8、 compliance:ESG POLICY GUIDE41.2.Prioritisetransparencyfromstarttofinish:The EU Corporate Sustainability Reporting Directive(CSRD)and the EU Corporate Sustainability Due Diligence Directive(CSDDD)emphasise the need for transparency throughout the entire product life cycle.Brands must reassess their

9、supply chains and prepare comprehensive documentation from raw material origins to the final product to meet the requirements on forced labour and environmental impact.Prepare your climate transition plan:The CSDDD will require very large companies(those with over 1,000 employees or a turnover of mo

10、re than EUR 450 million)to adopt and implement a climate transition plan to align their business strategy to the 1.5C target of the Paris Agreement and the EUs climate objectives.Verify and substantiate green claims:While one in four consumers are prepared to pay more for sustainability*,with the in

11、creasing scrutiny over green claims and the rise in greenwashing legislation and enforcement it is crucial for brands to meticulously verify their ESG statements to ensure accuracy and compliance.Measurable data and certifications can help build credibility,trust and avoid reputational risk.Embrace

12、new opportunity for innovation:Environmental strategies are driving exciting innovations,including the development of neweco-friendly materials,enhanced recycling capabilities,and process improvements.These advancements open up new market opportunities for luxury brands.Align functions on ESG compli

13、ance:ESG issues are pertinent to all areas of a product or service life cycle,from research and development(R&D),suppliers,distribution,and marketing.It is essential for all departments to be aligned and communicate effectively with those overseeing ESG compliance.Educate internal and external stake

14、holders:Educating the inhouse teams about ESG obligations and opportunities is vital.Additionally,informing the public about new materials and processes,recycling methods and sharing information is an integral part of a brands ESG journey.*What consumers care about when it comes to sustainability|De

15、loitte3.4.5.6.POSITIVE LUXURY 2024INTERACTIVE LEGISLATION TIMELINEThe ESG regulatory landscape is rapidly evolving,making it crucial for businesses to stay informed.Below is a timeline of some of the recent ESG regulations in key regions.The icons show whether a regulation pertains to environmental,

16、social,or governance aspects.By clicking on the legislation,you will be directed to the first reference of the regulation in the Guide.Environmental Social Governance2022US California Garment Worker Protection Act Oregon Plastic Pollution and Recycling Modernization Act Colorado Producer Responsibil

17、ity Program for Statewide Recycling Act US Federal Uyghur Forced Labor Prevention Act California Plastic Pollution Prevention and Packaging Producer Responsibility Act California Nature-Based Climate Solutions California Neonicotinoid Pesticides UK UK Plastic Packaging Tax 2023 EU German Act on Corp

18、orate Due Diligence Obligations in Supply Chains EU Regulation on Deforestation-Free Supply Chains EU Regulation Amending Annex XVII to Regulation(EC)No 1907/2006 of the European Parliament and of the Council concerning the Registration,Evaluation,Authorisation and Restriction of Chemical(REACH)as r

19、egards synthetic polymer microparticles US California Climate Data Accountability Act California Climate-Related Financial Risks Act 2024EU EU Corporate Sustainability Reporting Directive(CSRD)EU Revised Packaging and Waste Directive and updates to the Waste Framework Directive EU Directive to Empow

20、er Consumers for the Green Transition EU Regulation on Prohibited Products Made with Forced Labour on the Union Market EU Single Use Plastic Directive EU Corporate Sustainability Due Diligence Directive(CSDDD)EU Ecodesign for Sustainable Products Regulation EU Directive on Common Rules promoting the

21、 Repair of Goods EU Nature Restoration Law US US Rules from the US Securities and Exchange Commission(SEC)on Climate-Related Disclosures California Responsible Textile Recovery Act of 2024 New York The Retail Worker Safety Act OTHER Canada Fighting Against Forced Labour and Child Labour in Supply Ch

22、ains Act 2023 ESG POLICY GUIDE52024 ONWARDSThe following pieces of legislation were not enacted at the time of publishing this Guide but are anticipated and discussed in the Guide.EU European Green Bond Standard Regulation EU Regulation on the transparency and integrity of Environmental,Social and G

23、overnance rating activities US California Voluntary Carbon Market Disclosures Act 2025 ONWARDSEUUSUKOTHER EU Revised Textile Labelling Regulation EU Green Claims Directive France Fast Fashion Act New York Fashion Sustainability and Social Accountability Act Washington Fashion Sustainability and Acco

24、untability Act Massachusetts Fashion Sustainability and Social Accountability Act US Federal Bill establishing the Fashioning Accountability and Building Real Institutional Charge(FABRIC)Act New York Fashion Workers Act UK Forest Risk Commodities Regulations UN Global Plastic Treaty POSITIVE LUXURY

25、2024ESG POLICY GUIDE6Certain pieces of legislation may not be apparently applicable to SMEs.For example,the Corporate Sustainability Due Diligence Directive(CSDDD)primarily targets very large EU and non-EU companies with significant turnover in the EU(i.e.,those with more than 1,000 employees and a

26、net worldwide turnover exceeding EUR 450 million).However,SMEs can still be affected as direct or indirect business partners within the supply chains of these larger companies.This means that even if SMEs are not the primary subjects of the legislation,they may still need to comply with certain requ

27、irements imposed by their larger partners to ensure the entire supply chain adheres to the CSDDD.Other legislation,such as the UK Plastic Packaging Tax,also has certain thresholds,which might make SMEs exempt.Small operators who import or manufacture less than 10 tonnes of plastic packaging per year

28、 are exempt from paying the tax.Once a business meets the 10 tonnes de minimis,it must register with HMRC.All businesses are required to report plastic packaging data and pay for the tax quarterly.But again,it is important for SMEs to be aware of such thresholds so they do not inadvertently go above

29、 the limits.SMEs should stay informed about such regulations and understand their potential impact on their operations and relationships with larger companies.Further reading:The impact of EU legislation in the area of digital and green transition,particularly on SMEs Product Risk Radar:UK Plastic P

30、ackaging Tax Many of the sustainability and ESG-related regulations discussed throughout this Guide require changes in current business models or investment in new processes(e.g.,from manufacturing to auditing),as well as internal education for team members.Although this investment may seem more sig

31、nificant for SMEs,the gains from aligning their business to sustainability policies include attracting employees,stakeholders and customers and enabling greater financial investment opportunities.It also provides a stronger compliance position for growing the business.This is a factor recognised by

32、the EU in their recent report on the impact of EU legislation in the area of digital and green transition on SMEs.The report identifies the following pieces of legislation as having a significant impact on SMEs:Corporate Sustainability Reporting Directive(CSRD)Packaging and Packaging Waste Directive

33、(PPWD)Proposal for a new Ecodesign for Sustainable Products Regulation(Ecodesign Regulation)Proposal for a Directive on common rules promoting the repair of goods(Right to Repair Directive)SPOTLIGHT ON:THE IMPACT OF SUSTAINABILITY AND ESG LEGISLATION ON SMALL AND MEDIUM-SIZED ENTERPRISES(SMEs)POSITI

34、VE LUXURY 2024ESG POLICY GUIDE7E IS FOR ENVIRONMENTALPART ONE:POSITIVE LUXURY 2024Our habitat is a key concern for most of us and its wellbeing is vital for our own health and future prosperity.Accordingly,governments are taking action to reduce the impact of both consumers and companies on the natu

35、ral environment by introducing a wide range of laws and regulations.Here,we look at what luxury companies need to be aware of as they navigate this journey.EUROPEAN UNION EU GREEN DEALWhat is the EU Green Deal?The EU Green Deal,launched in 2019,is the EUs ambitious decarbonisation strategy.It sets a

36、 target of a carbon-neutral EU by 2050 with the aim to mainstream climate and environmental objectives into all sectors of the economy through legislative action.The Green Deal is neither a piece of legislation nor a specific policy but is a collective term that covers measures and regulations intro

37、duced as part of this strategy.Such measures are already having tremendous impact on consumers and companies throughout the EU.Although the recent EU elections that took place in June 2024 are unlikely to reverse ESG policies,we are awaiting to see if there will be some simplifications or changes in

38、 approach or pace in the adoption of legislation.Which features of the Green Deal are most relevant to the luxury and fashion sector?One of the Green Deals objectives is the promotion of longer lasting products that can be repaired,recycled and reused.To achieve this aim,the European Commission has

39、adopted two overarching policy plans:The Circular Economy Action Plan introduces a number of legislative and non-legislative actions to improve the circularity of products in the EU market.The EU Strategy for Sustainable and Circular Textiles provides a framework for the sustainable production and c

40、onsumption of textiles.These two plans contain various legislative initiatives that will particularly affect the business of the luxury and fashion sector operating in or supplying to the EU.ESG POLICY GUIDE8“THE EU IS AT THE FOREFRONT OF DEVELOPING ESGLEGISLATION AND POLICY.IT IS CRUCIAL TO MONITOR

41、 EU POLICY DEVELOPMENTS,NOT ONLY FOR THEIR IMPACT ON EU OPERATIONS BUT ALSO FOR THEIR BROADER IMPLICATIONS ON NON-EU OPERATIONS THAT MAY ULTIMATELY BE PART OF AN EU SUPPLY CHAIN.ADDITIONALLY,THE STRATEGIES AND POLICIES ADOPTED BY THE EU MAY SERVE AS INDICATORS OF FUTURE TRENDS IN OTHER JURISDICTIONS

42、.”William-James KettlewellCounsel,Baker McKenzieBrusselsPOSITIVE LUXURY 2024Documentationofspecificsustainability criteria and prevention of destruction of unsold goodsThe Ecodesign for Sustainable Products Regulation was adopted in 2024.Relevant provisions which are due to be introduced include:1.S

43、ustainability criteria.Before placing aproduct in the EU market,manufacturersmust ensure that it complies with specificsustainability criteria.These will varydepending on the product type andinclude factors relating to energy efficiency,emissions of harmful substances(suchas CO2),recyclability,durab

44、ility andrecycled content.Products would haveto be accompanied by a Digital ProductPassport(See Digital Product Passports).2.Prevention of product destruction.Companies must take all necessarymeasures to prevent the destruction ofunsold consumer products(being anyproduct that is primarily intended f

45、orconsumers,excluding components andintermediate products).Products alsoinclude surplus stock,excess inventory,deadstock and products returned by aconsumer.Specific categories of products(including certain types of clothing andfootwear)are additionally subject to anoutright prohibition on destructio

46、n fromJuly 2026.3.Reporting requirements.Economicoperators will be required to report on(among other things)the number andweight of unsold consumer productsdiscarded(either directly or through thirdparties)per year on an easily accessiblepage of their website.ESG POLICY GUIDE9IMPACT OF EU POLICY DEV

47、ELOPMENTS“THESE PROVISIONS ENCOURAGE LUXURY BUSINESSES TO CREATEPRODUCTS THAT LAST LONGER,ARE EASIER TO REPAIR,REUSE AND RECYCLE.INSTEAD OF DESTROYING STOCK,BE CREATIVE AND INVEST IN REUSE,RECYCLING OR REMANUFACTURING PROCESSES.”Csenge Gulyban Sustainability Consultant,Positive LuxuryPOSITIVE LUXURY

48、 2024ESG POLICY GUIDE10Verificationandsubstantiation of green claims In 2024,the EU adopted a Directive empowering consumers for the green transition.The Directive amends the Unfair Commercial Practices Directive and aims to combat greenwashing practices by providing consumers with better informatio

49、n on the durability and repairability of products on the EU market,as well as the products impact on the environment.It prohibits the use of generic environmental claims such as eco or green where the excellent environmental performance of the product cannot be demonstrated or validated.It also rest

50、ricts the ability of companies to create their own voluntary sustainability labels.To further support this objective,the EU has also proposed the Green Claims Directive requiring companies to substantiate claims relating to the sustainability of their products.As a result of these developments,the l

51、uxury and fashion sector will be required to be more transparent and more cautious regarding any claims made as to the sustainability of a particular product.Third-party verification will play a more important role in backing up claims.Being Prepared for the EmpCo Directive and the EU Green Claims D

52、irectiveValue chain due diligence and climate neutrality planThe Corporate Sustainability Due Diligence Directive(CSDDD)establishes value chain-related due diligence requirements and the obligation that companies adopt and put into effect a climate transition plan.The CSDDD will require the adoption

53、 and implementation of effective due diligence policies to identify,prevent,mitigate and bring to an end actual and potential human rights and environmental harms in companies business operations and value chains(both upstream and downstream).The CSDDD applies to very large EU and non-EU companies w

54、ith significant turnover in the EU,specifically those with more than 1,000 employees and a net worldwide turnover exceeding EUR 450 million.While small and medium-sized enterprises(SMEs)do not directly fall under the scope of the CSDDD,they may still be affected as direct or indirect business partne

55、rs within the supply chains of larger companies that are in scope.The luxury and fashion sector,by virtue of its typically lengthy and complex value chains and its reliance on high-impact textiles,will undoubtedly be significantly affected by the CSDDD.Moreover,impacted luxury and fashion companies

56、will be required to adopt a plan to ensure that their business model and strategy align with the transition to a sustainable economy and the goal of limiting global warming to 1.5C,in line with the Paris Agreement.This effectively makes combatting climate change a legal obligation.Find out more abou

57、t the CSDDD:CSDDD Explainer Series:What Does it Mean for Businesses?In the UK,in September 2024,the Competition&Markets Authority(CMA)issued a document on complying with consumer law when making environment claims in the fashion and retail sector following a number of investigations into brands and

58、the types of claims they were making.For further information,see:Complying with consumer law when making environmental claims in the fashion retail sector-GOV.UKPOSITIVE LUXURY 2024Extended Producer ResponsibilitiesThe new Packaging and Packaging Waste Regulation,and the amendments to the Waste Fram

59、ework Directive,introduce Extended Producer Responsibility(EPR)for textiles.This legislation introduces mandatory EPR requirements for textiles in all EU Member States,similar to the schemes already in place for Waste Electrical and Electronic Equipment(WEEE)and batteries.More specifically,the direc

60、tive requires that EPR be imposed on household textile products,articles of apparel,certain clothing accessories and footwear.Member States would be required to establish a register of producers of covered products to monitor their compliance with the requirements of the EPR,which would be organised

61、 as is the case with other EPR schemes through a designated producer responsibility organisation which would notably have to establish a separate collection system for used and waste textile.In parallel,the European Commission also launched its Textiles Ecosystem Transition Pathway Co-creation and c

62、o-implementation process inviting input and collaboration from EU textile ecosystem stakeholders in the co-creation of a transition pathway for the textiles ecosystem and identifying what specific actions and commitments are needed.Further information:Textiles Ecosystem Transition Pathway cocreation

63、 process(europa.eu)Updates to labelling requirementsThere is a proposed revision to the Textile Labelling Regulation to ensure consumers are well-informed about the products they are buying.This regulation would introduce requirements for physical and digital labelling of textiles,including sustaina

64、bility and circularity parameters.Right to RepairThe recently adopted EU Directive on Common Rules Promoting the Repair of Goods seeks to achieve the product sustainability and circularity objectives of the EU Green Deal by granting consumers the right to request the repair of products that fall und

65、er its scope.At present,the proposal is not specifically directed at textiles;however,the concept of right to repair could eventually be applied to textiles.Therefore,it might be a good time to start considering how to incorporate repair services into the services provided,for the full remit of good

66、s offered,as well as considering the durability of items.ESG POLICY GUIDE11WHAT IS AN EU DIGITAL PRODUCT PASSPORT?The Ecodesign for Sustainable Products Regulation regime will require certain products sold in the EU market to have a digital product passport(DPP).This will have a big impact on brands

67、.A DPP is a digital record of a unique products complete life cycle,storing key traceability data about the product.This includes product information across the entire value chain,including data on raw material extraction,production,recycling,etc.This data aims to support the circular economy,decarb

68、onisation,and sustainability.Requirements for the first product groups to have a DPP are expected to be adopted from 2026,with another large range of products expected to be covered between 2028 and 2030.The European Commission has already specified eight priority industries,including textiles,elect

69、ronics,plastics and chemicals,in its Circular Economy Action Plan.Customs officials will have the authority to prevent products without DPPs from entering the EU market.“COMPANIES ARE INCENTIVISED TO USE MORESUSTAINABLE MATERIALS,AS MORE ENVIRONMENTALLY FRIENDLY TEXTILE PRODUCTS COME WITH REDUCED EP

70、R COSTS.THIS ENCOURAGES MORE SUSTAINABLE PRACTICES AND HELPS REDUCE WASTE.”Csenge Gulyban Sustainability Consultant,Positive LuxuryPOSITIVE LUXURY 2024WHATS NEXT?Member States will need to transpose much of the recently adopted legislation into national law.This provides some time for brands to star

71、t identifying requirements relevant to their business and start designing a compliance strategy that is efficiently embedded into the business strategy in anticipation of the new requirements.Watch out to see which part,if any,of the Green Deal legislation will be made weaker or more flexible as par

72、t of the current EU Commissions business simplification initiative.OTHER APPLICABLE LEGISLATIONPLASTIC&CIRCULARITYFor many years,environmentalists and policymakers have been concerned about the impact of plastics on our environment and health.Consequently,we are witnessing increasingly stringent leg

73、islation on this issue.The introduction of the UN Global Plastic Agreement signifies that this trend will continue.UN GLOBAL PLASTIC TREATYIn March 2022,at the UN Environment Assembly in Nairobi,representatives from UN Member States endorsed a resolution titled End Plastic Pollution:Towards an inter

74、nationally legally binding instrument to end plastic pollution and agree an international legally binding agreement by 2024.These negotiations will continue at INC-5 in Busan,South Korea in November 2024.The treaty will be based on the Paris Agreement model,allowing Member States to adopt their own

75、rules and regulations depending on their own national policies and plans,and their own capabilities and circumstances.This is likely to lead toacomplexcollectionofdifferingrequirements for global retailers and will be something for brands to actively monitor.ESG POLICY GUIDE12EU SINGLE USE PLASTIC D

76、IRECTIVEThis Directive recently came into force in 2024 and provides that where sustainable alternatives are easily available and affordable,single-use plastic products cannot be placed on the markets of EU Member States.This applies to cotton bud sticks,cutlery,plates,straws,stirrers,and sticks for

77、 balloons.It will also apply to cups,food and beverage containers made of expanded polystyrene,and on all products made of oxo-degradable plastic.It is recommended that brands look closely at all their plastic components to see if these can be replaced with more sustainable alternatives.PLASTIC TAX

78、IN THE UKAn example of governments taking action against the use of plastic is the UKs Plastic Packaging Tax(PPT)which came into force on 1 April 2022.The tax is applied to plastic packaging that contains less than 30%of recycled plastic content.As of 1 April 2024,a rate of GBP 217.85 per metric ton

79、ne is applied to such packaging manufactured or imported into the UK.The PPT aims to encourage the use of more sustainable plastic packaging,increase the use of recycled plastic,and help reduce plastic waste.A crucial aspect of the PPT regime is that downstream businesses that buy plastic packaging

80、on which the tax should have already been paid may be found jointly and severally liable for any unpaid tax.“THE CIRCULAR ECONOMY IS A FUNDAMENTAL PART OFTHE EU GREEN DEAL THE WORK YOU DO TO MAKE YOUR BUSINESS CIRCULAR IS ALSO WHAT IS GOING TO MAKE YOUR BUSINESS RESILIENT AND SUSTAINABLE FOR THE LON

81、G TERM SO TAKE THE TIME TO CLEARLY MAP YOUR SUPPLY CHAIN,LOOK AT YOUR PROCESSES,YOUR SOURCING,YOUR TECHNOLOGIES AND SEE WHAT CHANGES YOU CAN MAKE THAT WILL LAST AND WHICH WILL SERVE AS BUILDING BLOCKS FOR YOUR FUTURE DEVELOPMENT.”Alyssa AubergerChief Sustainability Officer,Baker McKenziePOSITIVE LUX

82、URY 2024MICROPLASTICSHighly relevant to the fashion and cosmetics industry is the amendment to Annex XVII to Regulation(EC)No 1907/2006 of the European Parliament and of the Council concerning the Registration,Evaluation,Authorisation and Restriction of Chemicals(REACH)as regards synthetic polymer m

83、icroparticles,to limit the use of intentionally added microplastics in various products.The legislation was published in September 2023 and restricts microplastics in leave-on cosmetics,including skincare products,perfume,and lip care products and nail varnishes.The legislation provides for various

84、transitional periods,including four years for microparticles used for encapsulating fragrances and 12 years for lip care products and nail varnishes.The European Commission has also proposed measures to prevent the unintentional release of plastic pellets,the raw material used for producing all plas

85、tics,into the environment.The proposal lays out precautionary measures for operators handling plastic pellets and will impact both EU and non-EU operators.ESG POLICY GUIDE13“THE PPT HAS BEEN PROMOTED BYTHE UK GOVERNMENT AS A WORLD-LEADING MEASURE AND OTHER JURISDICTIONS ARE ALREADY PUTTING IN PLACE

86、SIMILAR REGIMES.WE EXPECT PLASTICS REGULATION TO CONTINUE GROWING WORLDWIDE IN COMING YEARS GIVEN THE CURRENT FOCUS ON SUSTAINABILITY.”Graham StuartPartner,Baker McKenzie,London Regimes such as this will disrupt supply chains and challenge the operations of many businesses in the luxury industry esp

87、ecially those in fashion that use clothes hangers,kimble tags,plastic labels and gift wrapping such as ribbon and sticky tape.Beauty businesses will also be forced to rethink primary packaging choices such as cream containers and bottles.Businesses will also have to deal with administrative reportin

88、g obligations and will have to factor in the costs associated with the implementation of such regimes,such as training employees,developing the necessary reporting framework to complete the required quarterly tax returns and keeping the appropriate accounts and records.Further information:UKs Plasti

89、c Packaging Tax enters into forceUK Governments Plastic Packaging Tax to Take Effect 1 April 2022(Webinar)POSITIVE LUXURY 2024USIn the US,a number of developments are impacting the luxury sector:New York Fashion Sustainability and Social Accountability Act SB S4746This New York state bill requires f

90、ashion companies with more than USD 100 million in revenues doing business in New York to map their supply chains and address the human rights and environmental impacts of their operations and in their supply chain,including those related to carbon emissions,water footprint,and worker wages.This law

91、 was first introduced in 2022 and was reintroduced in 2023.If passed,this would be the first US law with sustainability requirements focused on large fashion companies.Similar pieces of legislation have been introduced in other states,such as Washingtons proposed Fashion Sustainability Accountabilit

92、y Act and Massachusetts proposal for a Fashion Sustainability and Social Accountability Act.ESG POLICY GUIDE14While the US does not have federal laws regulating packaging,a growing number of states are considering such legislation.Several US states have passed and are beginning to implement extended

93、 producer responsibility laws,including:California Plastic Pollution Prevention and Packaging Producer Responsibility Act(SB 54)Signed into law in 2022,it establishes a producer responsibility program in California for paper and plastic packaging and will require certain reductions in single-use pla

94、stic packaging.Covered producers were required to register by 1 July 2024.Producers who do not comply with the law will be banned from selling in California in 2027,or when a plan is approved by a producer responsibility organisation,whichever is sooner.California Responsible Textile Recovery Act of

95、 2024(SB 707)Signed into law in September 2024,it requires a producer of apparel or textile articles to form and join a producer responsibility organisation.Regulations implementing this law still need to be adopted and it is predicted producers will be required to comply by 2030.Maine Extended Prod

96、ucer Responsibility Program(LD 1541)Signed into law in 2021,it establishes a producer responsibility program in Maine for certain types of packaging material.Maine intends to approve a producer responsibility organisation in 2026,following which producers will have one year to come into compliance w

97、ith the restrictions.Oregon Plastic Pollution and Recycling Modernization Act(SB 582)Signed into law in 2022,it establishes a producer responsibility program in Oregon for plastic packaging,paper,and food service ware.The rulemaking process is ongoing.Covered producers must become members of a state

98、-approved producer responsibility organisation by July 2025 in order to continue selling in the state.Colorado Producer Responsibility Program for Statewide Recycling Act Passed into law in 2022,it establishes a producer responsibility program in Colorado for packaging materials that reach the consu

99、mer at the point of sale,regardless of material type.Covered producers have until October 2024 to register with the state-approved producer responsibility organisation.Covered producers who do not comply with the law will be banned from selling in the state starting July 2025.In the US,a number of s

100、tates,including Maine,Minnesota,Vermont and Rhode Island,have passed regulations banning the use of per-and poly-fluoroalkyl substances(PFAS)in textiles.A growing number of states are proposing similar bans,including New York(S1322),which would prohibit the use of PFAS in apparel and outdoor apparel

101、 for severe wet conditions.Also known as forever chemicals,PFAS are often used in clothing to provide water,stain and grease resistance.POSITIVE LUXURY 2024BIODIVERSITY Biodiversity and its importance for current and future generations continue to be a key focus.In 2022,the UN established access to

102、a clean,healthy and sustainable ecosystem as a human right.While the resolution is not legally binding on the 193 UN Member States,advocates are hopeful it will have a trickle-down effect,prompting countries to enshrine the right to a healthy environment in national constitutions and regional treati

103、es,and encouraging businesses to implement those laws.At COP15 of the Convention on Biological Diversity in December 2022,world leaders adopted the Kunming-Montreal global biodiversity framework,encouraging public and private sectors to align their financial flows and nature-related commitments.It w

104、ill influence the next decade hopefully changing our relationship with nature into the more harmonised one our planet deserves.COP16,held in Cali,Colombia,focused on reviewing the implementation of the biodiversity framework and resource mobilisation for advancing biodiversity conservation.The Taskf

105、orce on Nature-related Financial Disclosures(TNFD)is a global initiative established in 2021.Its primary goal is to help businesses and financial institutions understand and disclose their impacts and dependencies on nature.This initiative aims to shift financial flows from nature-negative to nature

106、-positive outcomes.The TNFD framework published in September 2023 is structured around four key pillars,similar to the Task Force on Climate-related Financial Disclosures(TCFD):Governance:How an organisations governance structure manages nature-related risks and opportunities.Strategy:The actual and

107、 potential impacts of nature-related risks and opportunities on the organisations business,strategy,and financial planning.Risk&Impact Management:How the organisation identifies,assesses,and manages nature-related risks and impacts.Metrics&Targets:The metrics and targets used to assess and manage re

108、levant nature-related risks and opportunities.The TNFDs recommendations are designed to align with the goals of the Global Biodiversity Framework,supporting businesses in making informed decisions that contribute to biodiversity conservation.It is clear biodiversity is an area where more regulation

109、and reporting are expected.Further Information:Positive Luxurys Biodiversity ReportESG POLICY GUIDE15POSITIVE LUXURY 2024PLASTIC AND RECYCLABILITY LITIGATION:BEST PRACTICES TO MINIMISE RISKIn a recent trend,citizen advocates and environmental groups have been filing lawsuits asserting novel theories

110、 against major companies that use or rely on plastic,even if the companies do not produce plastic products or are not involved in the disposal of plastic products.The disruptive increase in plastic-related ESG litigation is poised to affect companies in virtually all industries,including luxury and

111、fashion and food and beverage(F&B)and hospitality,as environmental organisations target companies that use plastic anywhere in their supply chains,even if the use of plastic is ancillary to their actual business.The steep increase in lawsuits against companies suggests that recyclability and other p

112、lastics-related litigation is only going to continue to increase.Companies should become actively involved in overseeing and helping mitigate the litigation risks that have arisen or may arise in the future.Click here to read Baker McKenzies article discussing some notable developments around plasti

113、c litigation and recommended best practices that companies should consider to mitigate the risk of litigation.Further information:Plastic and Recyclability Litigation:Best practices to minimize riskEven though TNFD entails an initial investment in environmental assessment and data gathering,the bene

114、fits are likely to outweigh the short-term costs.Understanding your nature-related impacts and risks leads to identifying opportunities to reduce impact,innovate and overall enhance your resilience as you mitigate vulnerabilities.POSITIVE LUXURY 2024HOW COUNTRIES ARE REACTING DEFORESTATIONEU Regulat

115、ion on Deforestation-Free Supply Chains(EUDR)With the intention of preventing further biodiversity loss,the EUDR entered into force on 29 June 2023.The Regulation requires companies to conduct due diligence if they export or place on the EU market a wide range of products made from or containing com

116、modities such as palm oil,cattle,soy,coffee,cocoa,timber and rubber,to ensure that they have not been obtained as a result of deforestation.This is particularly relevant to luxury and fashion companies as it would potentially cover a wide range of imported materials and ingredients used in EU manufa

117、cturing processes,including leather (to be used,for example,in leather jackets or handbags)and rubber(to be used in rubber soled footwear)as well as various ingredients used in cosmetic products such as cocoa,soy and palm oil.Under the EUDR,such commodities must be produced on land that has neither

118、been deforested after 31 December 2020,nor has seen primary and naturally growing forests converted into plantations.Importantly,before placing on the market or exporting such commodities,businesses will be required to undertake due diligence and submit to the EUs newly created Information System a

119、due diligence statement to confirm that the relevant checks have been undertaken and identify the specific geolocation of all plots of land where the relevant commodities were produced to help facilitate compliance checks.Further,commodities must have been produced in compliance with all applicable

120、and relevant laws in force in the country of production and that the rights of affected indigenous peoples have been respected.On 2 October 2024,after months of speculation,the EU Commission announced a proposal for a further 12 months of phasing-in time for the implementation of the EUDR,as well as

121、 the publication of its long-awaited guidelines and updated FAQs relating to the EUDR(see press release here).Under this proposal,large companies will have until 30 December 2025,and small and micro enterprises have until 30 June 2025,to implement the requirements of the EUDR.Further information:EU

122、Commission proposes a 12-month extension to implementation of the EU Deforestation Regulation and confirms publication of new guidancePenalties will be established at Member State level for non-compliance potentially leading to products being confiscated and access being denied to the EU market.Fine

123、s can also be issued,with the maximum fine corresponding to 4%of total annual turnover in the EU.The EUDR further reinforces the need for companies to have a transparent and well-documented supply chains and put in place appropriate processes to ensure that signed due diligence statements can be pre

124、pared in respect of all shipments.Further information:European Union:Deforestation Regulation-New due diligence requirements to tackle deforestation and forest degradationESG POLICY GUIDE16POSITIVE LUXURY 2024UK ENVIRONMENT ACT 2021Under this act,all planning permissions granted in England(with a fe

125、w exemptions)will have to deliver at least 10%biodiversity net gain(BNG)from November 2023,and smaller sites from April 2024.BNG will be measured using Defras biodiversity metric and habitats will need to be secured for at least 30 years.The aim is to help halt the decline in species abundance by 20

126、30.Probably of more relevance to the luxury and fashion sector is that the act also provides the basis for the UK Forest Risk Commodities(FRC)regime,which aims to tackle deforestation by making it illegal for larger businesses operating in the UK to use key commodities,such as leather,cocoa,palm oil

127、 and soy,produced on land illegally occupied or used,with in-scope businesses required to undertake due diligence and report on this exercise annually.Secondary legislation to fully implement these requirements in the UK is still awaited.EU BIODIVERSITY STRATEGY 2030The European Commission has adopt

128、ed the new EU Biodiversity Strategy for 2030 and an associated Action Plan a comprehensive,ambitious,long-term plan for protecting nature and reversing the degradation of ecosystems.It aims to put Europes biodiversity on a path to recovery by 2030 with benefits for people,the climate and the planet.

129、A key element of the EUs Biodiversity Strategy is the Nature Restoration Law,which officially came into force on 18 August 2024.This landmark legislation aims to put measures in place to restore at least 20%of the EUs land and sea areas by 2030,and all ecosystems in need of restoration by 2050.It se

130、ts specific,legally binding targets and obligations for nature restoration in each of the listed ecosystems from terrestrial to marine,freshwater and urban ecosystems.EU SOIL STRATEGY FOR 2030Soil and the multitude of organisms that live in it provide us with food,biomass,fibres and raw materials.It

131、 regulates the water and carbon and nutrient cycles and makes life on land possible.Healthy soil is essential to reverse biodiversity loss,provide healthy food and safeguard human health.A key deliverable of the 2030 strategy,the EU soil strategy for 2030,provides the framework and concrete steps to

132、 restoring soils and ensuring sustainable use and will contribute to several objectives of the European Green Deal.Find out more here.US There are a number of state laws addressing the restoration and preservation of biodiversity.Below are specific to California:Nature-Based Climate Solutions AB 175

133、7:Requires the state to set targets for 2030,2038,and 2045 to remove greenhouse gas emissions from the atmosphere with nature-based methods such as planting trees and restoring wetlands.Neonicotinoid Pesticides AB 2146:Prohibits the sale,possession,or use of neonicotinoid pesticides for most non-agr

134、icultural uses.ESG POLICY GUIDE17“ALL IN ALL,IT IS CLEAR THATTHE STAKES ARE HIGH AND A LOT REMAINS TO BE DONE.A GLOBAL CONCERTED EFFORT IS NECESSARY IF WE ARE TO ACHIEVE THE GOAL OF STEMMING AND REVERSING THE NEGATIVE RAMIFICATIONS OF CLIMATE CHANGE AND LOSS IN BIODIVERSITY.”Renata AmaralPartner,Tre

135、nch RossiWatanabe*,Sao PauloFurther information:Positive Luxurys Biodiversity Report*Trench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting with foreign law.FRANCES FAST FASHION BILLThe French Parliament has approved a bill that aims to promote sustai

136、nability and protect Frances fashion industry from the threat posed by fast fashion.The provisions include requiring companies to be transparent about their impact on the environment,restrictions on advertising and a surcharge on fast fashion products,starting at EUR 5 and going up to EUR 10 in 2030

137、.Detailed provisions on implementation are yet to be provided.If adopted this type of legislation will cause disruption to the fast fashion model.POSITIVE LUXURY 2024ESG POLICY GUIDE18FOR UPDATES ON COP29,VISIT:Baker McKenzies COP29 Hub:STEPS TO Net ZeroFURTHER READING:CSDDD Explainer Series:What Do

138、es it Mean for Businesses?UKs Plastic Packaging Tax enters into forceUK Governments Plastic Packaging Tax to take effect 1 April 2022(Webinar)United States:Plastic and recyclability litigation-Best practices to minimize riskEU Commission proposes a 12-month extension to implementation of the EU Defo

139、restation Regulation and confirms publication of new guidanceEuropean Union:Deforestation Regulation-New due diligence requirements to tackle deforestation and forest degradationViews from Climate Week NYC 2024 Navigating Industrial Decarbonization,Carbon Markets,and ESG ChallengesPOSITIVE LUXURY 20

140、24ESG POLICY GUIDE19Improving the sustainability and efficiency of retail space is an important part of a brands sustainability strategy.In January 2024,the UKs Better Buildings Partnership introduced significant updates to its Green Lease Toolkit,providing stakeholders and advisers with a more robu

141、st legal framework for drafting sustainability-focused provisions in commercial leases.The toolkit contains suggested legal clauses(and detailed explanatory notes)at levels ranging from light to dark green depending on the level of commitment agreed upon by the parties across environmental action ar

142、eas.Further information:Global Sustainable Buildings Guide,3rd editionUnited Kingdom:Green up your leaseSPOTLIGHT ON:GREEN UP YOUR LEASEPOSITIVE LUXURY 2024ESG POLICY GUIDE20S IS FOR SOCIALPART TWO:POSITIVE LUXURY 2024HUMAN RIGHTS AND FORCED LABOUR New and developing legislation around the world is

143、forcing organisations to address issues of human rights and forced labour more closely in both their own businesses and their supply chains.As well as legislation specifically on forced labour,the issue of forced labour and modern slavery is increasingly being included in more general ESG legislatio

144、n.Failure to comply with international labour and human rights standards can have a lasting impact on business strategies,legal risk profile and brand reputation.Companies can also face civil and criminal legal liability for labour and human rights abuses.These risks are only increasing as the direc

145、tion of travel of legislation in this area is for voluntary frameworks to become the basis for mandatory regulations.Consequentially,this will increase the burden on companies,for example,to not only report on labour and human rights issues but also to take steps to address the identified risks in t

146、heir supply chains.Companies are also realizing that making a conscious effort to promote basic rights among their workforces can create greater business value.THE EU CSRD AND CSDDD The EU Corporate Sustainability Reporting Directive(CSRD)and the EU Corporate Sustainability Due Diligence Directive(C

147、SDDD)The CSRD and CSDDD expand the range and detail of existing sustainability reporting requirements and supply chain due diligence.These include the organisations approach to identifying and managing any actual and potential material impact of its operations on the human rights of its own workforc

148、e and workers in its value chain including in relation to child labour and forced labour.The EU Forced Labour Regulation In April 2024,the European Parliament approved the proposal of the EU Forced Labour Regulation.Under the Regulation,all products(including their components)manufactured using forc

149、ed labour are banned from being placed or made available on the market in the EU or exported from the EU.The prohibition applies to products regardless of the sector,origin,or whether they are made domestically or imported,and also applies to each stage of a products supply chain,including its manuf

150、acture,harvest and extraction,and any working or processing related to the products.Once this Regulation enters into force,EU Member States will have three years to implement it into local law.A number of jurisdictions across Europe have already introduced mandatory due diligence requirements.France

151、s Duty of Vigilance law requires large companies in France to identify and prevent risks to human rights and the environment.In the Netherlands,the Dutch Child Labour Due Diligence Law obliges companies to investigate whether their goods or services have been produced using child labour.Germanys Sup

152、ply Chain Due Diligence Act 2021 imposes due diligence obligations on companies with a footprint in Germany.In Switzerland,the Ordinance on Due Diligence and Transparency mandates that companies comply with due diligence and reporting obligations concerning conflict minerals and metals from conflict

153、-affected and high-risk areas,as well as child labour.Companies are required to adopt a child labour supply chain policy,implement a supply chain traceability system related to child labour,establish a grievance mechanism,and adhere to annual reporting requirements.Other EU legislation,such as the E

154、U Deforestation Regulation,imposes obligations around forced labour(see page 16 above).This regulations objective is to ensure that commodities imported into the EU are not causing deforestation anywhere in the world.But there is also the obligation to verify that such goods are produced in complian

155、ce with local labour laws and brands can be held accountable for labour rights violations that take place in their supply chain.ESG POLICY GUIDE21POSITIVE LUXURY 2024UK UK Modern Slavery Act 2015 This Act requires certain commercial organisations to publish an annual modern slavery statement setting

156、 out the steps they have taken to ensure that their business and supply chains are slavery-free,or a statement that they have taken no steps to do this.The legislation is due to be significantly updated.Some of the expected updates to the legislation include mandated specific reporting topics that m

157、odern slavery statements must cover and the introduction of financial penalties for organisations that fail to meet their obligations.US In the US,as in the EU and the UK,forced labour is an area with an established regulatory framework.Increased enforcement in this area is driving further regulator

158、y reform:Uyghur Forced Labor Prevention Act(UFLPA)Taking effect in 2022,the UFLPA established a rebuttable presumption that any goods,wares,articles,and merchandise mined,produced,or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of the Peoples Republic of China are made wit

159、h forced labour and therefore not entitled entry to the US.A little more than two years into its implementation,there are significant lessons learned for the luxury goods industry,POSITIVE LUXURY 2024including surrounding the documentation and due diligence required to satisfy the US government that

160、 imports are out of scope of the UFLPA.Compliance with the UFLPA requires companies to maintain and potentially submit-clear and complete documentation tracing the origin of the parts,components and materials.If goods are detained by US Customs,such documentation must be provided within a short time

161、 limit to secure the release of the shipment.The UFLPA has identified certain sectors as high priority.Cotton is included in this high-priority list and,therefore,key trends surrounding UFLPA compliance are relevant to any company exporting cotton or cotton items,such as clothing,to the US.Any compa

162、ny importing goods into the US that originate,even in part,from the Uyghur region should consider pre-emptively preparing the compliance documentation to expedite the release of any detained goods.Further,in 2024,there has been increased enforcement of the UFLPA on goods that are shipped through thi

163、rd countries,such as Mexico or Canada,and then arriving in the US.It is,therefore,essential that a holistic review of supply chains and shipping routes is undertaken to ensure compliance.ESG POLICY GUIDE22POSITIVE LUXURY 2024However,there is tension with Chinese legislation.From a Chinese legal pers

164、pective,companies risk violating the Anti-Foreign Sanctions Law(AFSL)and Unreliable Entities List Regulations(UEL)if they(i)terminate or suspend contractual relationships or transactions with Chinese entities or individuals due to Xinjiang-related concerns,or(ii)impose due diligence or compliance re

165、quirements to address these concerns.In September 2024,Chinas Ministry of Commerce(MOFCOM)announced an investigation into a US fashion and apparel company under the UEL Regulations for allegedly violating normal market transaction principles,disrupting normal transactions,and implementing discrimina

166、tory measures against Chinese entities and individuals regarding Xinjiang-made products.Therefore,we advise seeking guidance on navigating this sensitive area.UFLPA FAQs Click here The Fashioning Accountability and Building Real Institutional Change(FABRIC)Act The FABRIC Act was introduced in the Se

167、nate on 12 May 2022.As the first federal fashion bill,it seeks to improve conditions for US garment workers by,among others,eliminating piece-rate pay,holding brands accountable for wages in their supply chain,and encouraging brands to re-shore manufacturing.The bill was reintroduced in the Senate o

168、n 14 September 2023 and is still pending committee review.US State legislation relevant to the Luxury sector includes:California Transparency in Supply Chains Act 2010 This Act is now well established and imposes reporting obligations on companies around forced labour.California The Garment Worker P

169、rotection Act Senate Bill 62,also known as the Garment Worker Protection Act,came into effect in 2022.The law addresses the proper payment of garment industry employees in California and the responsibility of contracting parties for garment operations performed on their behalf.These new accountabili

170、ty precedents include clarification that manufacturers,brands,and contractors that have their garments manufactured may be liable as guarantors for the unpaid wages and overtime of the workers,even if they are not the employer.For further information,click here.ESG POLICY GUIDE23Highly relevant to t

171、he luxury and fashion sector are three proposed pieces of legislation in New York:The Fashion Workers Act-which is a groundbreaking piece of legislation designed to protect creatives in the fashion industry,including make-up artists,stylists,models,and photographers.The Act is designed to improve la

172、bour protections,improve health and safety,and prevent exploitation.The Retailer Worker Safety Act designed to enhance the safety of retail workers and mitigate violence against retail workers.The Fashion Sustainability and Accountability Act covers a wide range of sustainability obligations and con

173、tains provisions against labour exploitation.See above at(page 14)for a discussion around a number of Sustainability and Accountability Acts in the US.Other relevant legislation There are also similar reporting obligations in Australia under the Modern Slavery Act 2018 and Canadas Fighting Against F

174、orced Labour and Child Labour in Supply Chains Act.Further information:Australias Modern Slavery Act-legislative shackles to be broken?Canada:Revised guidance on supply chain reporting due May 2024POSITIVE LUXURY 2024SUPPLY CHAIN AUDITS FOR FORCED LABOUR COMPLIANCE For many brands,the greatest risk

175、of forced labour violations comes from their supply chain.Knowing your supply chain is vital to ensuring compliance:Map your supply chain Map who supplies every material and component to your product including suppliers and sub-suppliers.Know that if any of your materials are from a Conflict-Affecte

176、d and High-Risk Area,your risk is higher.Conduct due diligence Conduct due diligence to identify,prevent and mitigate any labour violations.Review supplier practices through self-assessments or site audits and understand labour conditions at the location.Engage with your suppliers Clearly share your

177、 ambitions,strategy and expectations with your suppliers and include supplier obligations in contracts where necessary.Implement technology solutions Use technology to enhance the traceability and transparency of your supply chain.Monitor and audit Regularly monitor and audit suppliers.Consider repu

178、table third-party auditing.Stay informed Stay up to date on developments and update communications with suppliers as necessary.ESG POLICY GUIDE24POSITIVE LUXURY 2024“INCREASED ENFORCEMENT AND THE WAVE OFNEW LEGISLATION IN THE FORCED LABOUR SPACE REINFORCE THE NEED FOR A BRAND TO HAVE FULL TRANSPAREN

179、CY AND EVIDENCE OVER THEIR SUPPLY CHAIN,GOING BACK TO THE ORIGINS OF RAW AND COMPONENT MATERIALS.”Christine Streatfeild Partner,Baker McKenzie Washington,DCFURTHER READING:Australias Modern Slavery Act-legislative shackles to be broken?Canada:Revised guidance on supply chain reporting due May 2024De

180、livering on Labor and Human Rights CommitmentsWorkforce Redesign in the Age of TransparencyPOSITIVE LUXURY 2024ESG POLICY GUIDE25Following the general trend of an increase in activism around such issues,in 2023 there was a 400%increase in Specific Instances,with the same increase continuing into 202

181、4.International institutions,such as the OECD and the ILO in the labour field,have been advocating for the use of international tools and actions to control non-compliance by international companies.Access the database of Specific Instances.The Organisation for Economic Co-operation and Development(

182、OECD)has established a complaint procedure for breaches of the Multinational Entities(MNE)Guidelines,which are recommendations from governments to multinational companies covering all business areas and sectors,including consumer goods and retail,and luxury.The MNE Guidelines cover a wide range of b

183、usiness responsibilities,including human rights,labour rights,environmental protection and consumer interests.These complaints,known as Specific Instances,can be filed against both multinationals and the private equity entities that own them,carrying significant reputational and legal consequences.S

184、pecific Instances can be brought by a variety of stakeholders,including:Individuals or communities affected by the activities of a multinational enterprise Non-governmental organisations(NGOs)advocating for responsible business conduct Trade unions representing workers rights Businesses or industry

185、associations concerned with fair competition and ethical practices Specific Instances typically involve mediation or good office procedures before the National Contact Points(NCPs),which are usually governmental bodies in OECD countries.There have been cases where a multinational had to defend itsel

186、f against alleged breaches in up to 10 countries.“FOLLOWING THE GENERAL TRENDOF AN INCREASE IN ACTIVISM AROUND SUCH ISSUES,IN 2023 THERE WAS A 400%INCREASE IN SPECIFIC INSTANCES”Jose PrietoPartner,Baker McKenzie,MadridSPOTLIGHT ON:RISE IN OECD ESG-RELATED COMPLAINTSPOSITIVE LUXURY 2024ESG POLICY GUI

187、DE26G IS FOR GOVERNANCEPART THREE:POSITIVE LUXURY 2024The recognition of the impact of business on society and the environment has led to increased demand for sustainability reporting and disclosures to support the transition to net zero.Banks and larger companies have been encouraged for a number o

188、f years to make climate-related financial disclosures on a voluntary basis.In more recent times,these disclosures have become mandatory as governments and regulatory bodies in the UK,US,EU and elsewhere have imposed their own sustainability reporting frameworks.STRATEGY FOR FINANCING THE TRANSITION

189、TO A SUSTAINABLE ECONOMYThe Paris Agreement introduced the concept of Transition Finance(TF),which is defined by the OECD as the dynamic process of becoming sustainable or reaching net-zero,rather than for already sustainable or net-zero activities based on a point in time assessment.The concept has

190、 now firmly established itself in the lexicon of financial market participants;however,there continue to be differing perspectives around the scope of the terms definition.Some consider TF to encompass climate transition across all sectors of the economy,whilst others take the narrower view that it

191、should primarily concern financing aimed at assisting higher emitting organisations,such as those involved in energy production,transportation,mining,and cement,on their transition towards decarbonization.Alongside the financial markets that have been shaping the products and services needed to impl

192、ement TF,governments and regulatory bodies have been striving to engage with and support transition through conducting market reviews,developing standards and implementing disclosure requirements.ESG POLICY GUIDE27POSITIVE LUXURY 2024“LUXURY AND FASHION COMPANIES BASED OR ACTIVE IN THEEU WILL THEREF

193、ORE BE REQUIRED OR,EVEN IF THEY ARE NOT CAUGHT BY THE LEGAL OBLIGATIONS,WILL COME UNDER INCREASED PRESSURE FROM INVESTORS AND LENDERS TO REPORT DETAILED ESG INFORMATION ON THEIR BUSINESS AND ON THE SUSTAINABILITY OF THEIR ECONOMIC ACTIVITIES,OFTEN IN RESPECT OF THEIR VALUE CHAIN AND NOT ONLY THEIR O

194、WN ORGANISATION.”Jo HewittPartner,Baker McKenzieLondonPOSITIVE LUXURY 2024ESG DISCLOSURESGreater consistency and transparency in TF products is expected to develop on a foundation of consistent comparative data resulting from improved reporting standards.The International Sustainability Standards Bo

195、ard(ISSB)standards,published in June 2023,are anticipated to act as a global baseline that many jurisdictions are likely to adopt.The ISSB project is an illustration of the potential for international co-operation in this area.Existing sustainability disclosure requirements in the EU and UK already

196、provide a repository of data to feed into the development of TF products,with further harmonisation with ISSB standards expected.Borrower-level disclosures,for example those required by the CSRD and CSDDD,should help lenders to work together with borrowers,including those in the luxury and fashion s

197、ector,to establish appropriate KPIs and monitor compliance with them more effectively.Corporate reporting rules are increasingly requiring the disclosure of transition-related metrics:for example,the CSRD requires disclosure of sustainability-related targets,including whether the target is absolute

198、or relative,scope of the target and applicable methodologies and assumptions.The ISSB standards will mandate disclosure of quantitative and qualitative sustainability-related targets set to monitor progress towards achieving strategic goals,along with any targets the disclosing entity is required to

199、 meet by law or regulation.Further,the taxonomies underlying disclosure requirements such as the EU Taxonomy can also be used as transition tools themselves,to define transition targets,compare current with planned performance,and identify transition finance needs.EULuxury and fashion companies base

200、d or active in the EU will therefore be required or,even if they are not caught by the legal obligations,will come under increased pressure from investors and lenders to report detailed ESG information on their business and on the sustainability of their economic activities,often in respect of their

201、 value chain and not only their own organisation.For these companies,the CSRD and CSDDD requirements should be key areas of focus.These Directives cover climate-related disclosures,for example those relating to the production of fabrics.Importantly for the fashion and luxury industry,they also cover

202、 human rights disclosures in relation to supply chains,including child labour and forced labour practices.UKAlong with the existing disclosure requirements in the UK,there are specific regulations applying to banks and funds that will affect investor expectations in the luxury and fashion sector.Ove

203、r time,unsustainable companies that are not on a transition pathway may find it more difficult to access private finance.USThese pressures may also soon affect fashion and luxury companies required to file 10-K reports with the US SEC.In March 2024,the SEC adopted final rules regarding climate-relat

204、ed disclosures which will require companies to disclose in their Form 10-K,among other things,information about climate-related risks and risk management,mitigation or adaptation activities,and climate-related targets and goals.Large accelerated filers and accelerated filers would also be required t

205、o disclose information about direct(Scope 1)and indirect(Scope 3)GHG emissions.Notably,the final rules have been challenged in federal court and the SEC has stayed the rules pending the outcome of the litigation.California law will go even further once implementing regulations are made,requiring cov

206、ered companies to report on their Scope 1,Scope 2 and Scope 3 GHG emissions under the Climate Corporate Data Accountability Act,as well as their climate-related financial risks and measures taken to reduce and adapt to those risks(aligned to the TCFD recommendations)under the Climate-Related Financi

207、al Risk Act.Further,under the California Voluntary Carbon Market Disclosures Act covered companies making net zero claims will be required to make public disclosure obligations on the substance of those claims.ESG POLICY GUIDE28“OVER TIME,UNSUSTAINABLECOMPANIES THAT ARE NOT ON A TRANSITION PATHWAY M

208、AY FIND IT MORE DIFFICULT TO ACCESS PRIVATE FINANCE.”Caitlin McErlanePartner,Baker McKenzieLondonPOSITIVE LUXURY 2024TRANSITION PLANSCarefully considered,robust transition plans will also play a key role in the harmonisation of the TF market:the Network for Greening the Financial System has urged cl

209、oser engagement and coordination between financial and non-financial institutions to build credibility in the TF market and enhance investment opportunities.In the UK,the Transition Plan Taskforce(TPT),which aims to develop the gold standard for private sector climate transition plans,has indicated

210、that the TPT Disclosure Framework,published in October 2023,is also designed to align with and build on the ISSB reporting standards.Furthermore,in its recently published implementation update on Sustainability Disclosure Requirements(SDR),the UK Government announced that the Financial Conduct Autho

211、rity(FCA)will be consulting on strengthening its expectations for transition plan disclosures.Industry commentary indicated that this announcement had been welcomed by investors but that some were pushing for transition plans to be mandatory for UK companies and for the timetable for implementation

212、overall to be swift and pushed up the agenda.In the EU,transition plans are voluntary,but the European Commission considers them one of the key tools that businesses can use to set targets and anticipate financing needs.The CSRD requires organisations to disclose their transition plan if they alread

213、y have one at the time of their disclosures.Companies in-scope of the CSDDD will be required to adopt and put into effect climate transition plans,with those reporting a transition plan under the CSRD deemed to have complied.In the US,the SEC rules would require disclosure of an in-scope companys tr

214、ansition plan,if any(but would not mandate that a transition plan is in place).The key implication for luxury and fashion companies is that those with credible TF plans should increasingly be able to access products and services financing and investment tailored to low-carbon business models at lowe

215、r cost.In contrast,companies that do not have credible transition plans may face higher costs and/or restricted access to financial products and services depending on the underwriting process of their lender.It is also worth noting that regulatory approaches to sustainability-related product labelli

216、ng are likely to have an increasing impact on TF.In the UK,the FCA has specifically factored in transition funds to the SDR(through the Sustainability Improvers label),and asset managers launching such funds will be particularly focused on investee companies transition planning;this is particularly

217、relevant to luxury and fashion companies seeking to raise finance from such managers.In the EU,the European Supervisory Authorities have recently proposed a new retail-driven label for EU transitional funds.As regulators refine their approach to transitional investment strategies,investor expectatio

218、ns may change or become more rigorous over time.While only a limited number of businesses have developed and published credible transition plans that allow their alignment with the Paris Agreement to be assessed,there are a growing number of initiatives to support those that chose to do so,including

219、 disclosure frameworks and services such as validation,assessment,data collection and analysis to support the development and disclosure of plans.To be noted,in Asia,Japan is leading the way in the adoption of TF products and initiatives.ESG POLICY GUIDE29POSITIVE LUXURY 2024GREENWASHING AND TRANSIT

220、ION FINANCEAddressing the risk of greenwashing is a key concern as financial institutions expand their transition finance offerings and adapt the business models to meet sustainability challenges.Both the FCA and the European Banking Authority have raised concerns about greenwashing in the sustainab

221、ility-linked loans market,where a lack of prescriptive regulation and potentially weak targets and KPIs disconnected from transition plans raise the threat of greenwashing accusations.For example,firms may wish to be cautious about linking group-level transition policies to individual products and s

222、ervices to avoid the risk of misleading end-clients and investors.Greenwashing accusations also raise the risk of reputational damage,for example through vague,aspirational language in business plans,investment and lending misaligned to net zero targets,or weak targets using unscientific methodologi

223、es.Regulators are beginning to respond to these risks through prescriptive action:the FCAs anti-greenwashing rule,applying to all authorised firms(including banks and asset managers)requires firms to ensure that any reference to the sustainability characteristics of a product or service is indeed co

224、nsistent with the sustainability characteristics of the product or service,and is fair,clear and not misleading.Californias Voluntary Carbon Market Disclosures Act will also require companies making net zero claims to substantiate those claims in public disclosures,including information on how the c

225、laim was determined to be accurate or actually accomplished.ESG AND CREDIT RATINGSThe fashion and luxury sector should also take note of the increasing body of regulation affecting credit rating agencies,particularly around the manner in which they assess and incorporate ESG into rating processes.In

226、 June 2023,the European Commission proposed a Regulation on ESG rating activities,which would lay down transparency requirements related to ESG ratings,as well as rules on the organisation and conduct of ESG rating providers.According to the Commission,ESG ratings are increasingly used by investors

227、and benchmark administrators to take into account risks and/or impacts linked to ESG issues in their sustainable investment strategies.Given the fact that in some cases voluntary ESG reporting by undertakings is based on or inspired by ESG rating,the new proposal laying down rules to regulate ESG ra

228、ting activities could limit or at least affect voluntary reporting approaches by certain companies.Political agreement was reached on the proposed Regulation in February 2024,with the legislation expected to be finalised in late 2024 or early 2025.GREEN BONDSGreen bonds are committed to financing or

229、 re-financing investments,projects,expenditure or assets helping to address climate and environmental issues.Both governments and companies use them to finance the transition to a more sustainable ESG POLICY GUIDE30POSITIVE LUXURY 2024and low-carbon economy.Since the European Investment Bank(EIB)ina

230、ugurated the green bond market in 2007,the International Capital Markets Association(ICMA)has set the standard with its Green Bond Principles(GBPs),which allow market participants to determine whether a bond is green by examining:Use of proceeds(typically being to finance or refinance eligible green

231、 projects).Process for project evaluation and selection.Management of proceeds(e.g.ringfencing or tracking).Reporting(using third-party verifier or self-reporting,annually and publicly available if possible).The European Green Bond Standard(EUGBS)marks the first major competitor to the GBPs.It is an

232、other voluntary standard,based on the recommendations of the Technical Expert Group on Sustainable Finance,but it is aimed at scaling up and raising the environmental ambitions of the green bond market to create a gold standard.The EUGBS is,for example,more prescriptive than the standard set down by

233、 the GBPs.The EUGBS Regulation will apply from December 2024.It is unclear whether the EUGBS will displace the issuance of green bonds that are only ICMA GBP compliant,particularly for EU issuers.It is possible that the ICMA GBPs will remain in place as an easier hurdle for brands to clear however,b

234、rands should be prepared to comply with the reporting requirements set out by the EUGBS to ensure they meet the gold standard for green bonds.POSITIVE LUXURY 2024ESG POLICY GUIDE31There are of course significant risks here and the competition rules may differ from country to country so brands should

235、 always seek legal advice on specific projects.A first step in the right direction is to make sure that a companys sustainability function is linked up with its Legal department.Competition law safeguards should also be in place for any sustainability project with competitors and should also be rout

236、inely checked for scope-creep to manage the risks inherent in any form of cooperation with market players,including with regard to:(i)exchanging competitively sensitive information;and(ii)agreeing on common approaches that could restrict competition(e.g.,price-fixing,boycotting or blacklisting certa

237、in supply chain actors,wage-fixing,etc.).Luxury brands may list competition law as a reason why they are hesitant to undertake joint initiatives with competitors that might help to address climate change.However,legitimate collaboration on production processes,ESG standards,sustainable input materia

238、ls,research and development and so on can often yield better sustainability results to the benefit of the population at large than when businesses act on their own.Recognising this,regulators including the European Commission and the UKs Competition and Markets Authority have recently stepped up to

239、provide guidance on how existing competition law frameworks apply to agreements pursuing sustainability objectives.“COMPETITION LAW SAFEGUARDS SHOULD ALSO BE IN PLACE FOR ANY SUSTAINABILITY PROJECT WITH COMPETITORS AND SHOULD ALSO BE ROUTINELY CHECKED FOR SCOPE-CREEP TO MANAGE THE RISKS INHERENT IN

240、ANY FORM OF COOPERATION WITH MARKET PLAYERS.”Imogen Green Associate,Baker McKenzie LondonSPOTLIGHT ON:COMPETITION AND SUSTAINABILITYPOSITIVE LUXURY 2024ESG POLICY GUIDE32The rapid advancement of artificial intelligence(AI)in the luxury and fashion sector,as with other industries,presents a significa

241、nt tension between technological progress and sustainability.On one hand,AI has the potential to drive efficiency,innovation and solutions to complex global challenges,including climate change and supply chain transparency.However,the development and deployment of AI systems require substantial comp

242、utational power,leading to increased energy consumption and carbon emissions.Data centers are major contributors to this high energy consumption.This creates a tension where AI,a tool that could be an aid to achieving sustainability goals,at the same time exacerbates the problem.Therefore,balancing

243、the benefits of AI with its environmental impact necessitates a concerted effort to develop more energy-efficient technologies and to integrate renewable energy sources into AI infrastructure.“ON ONE HAND,AI HAS THEPOTENTIAL TO DRIVE EFFICIENCY,INNOVATION AND SOLUTIONS TO COMPLEX GLOBAL CHALLENGES,I

244、NCLUDING CLIMATE CHANGE AND SUPPLY CHAIN TRANSPARENCY.HOWEVER,THE DEVELOPMENT AND DEPLOYMENT OF AI SYSTEMS REQUIRE SUBSTANTIAL COMPUTATIONAL POWER”Julia Hemmings Partner,Baker McKenzie,LondonSPOTLIGHT ON:AI AND SUSTAINABILITYPOSITIVE LUXURY 2024ESG POLICY GUIDE33ACKNOWLEDGEMENTSPOSITIVE LUXURY 2024R

245、enata Amaral Partner,Trench Rossi Watanabe*,Sao Paulo Alyssa Auberger Chief Sustainability Officer,Baker McKenzie,Katia Boneva-DesmichtGlobal Chair,Consumer Good&Retail Group,Baker McKenzie,Pariskatia.boneva-Reagan DemasPartner,Baker McKenzie,Washington,D.CImogen GreenAssociate,Baker McKenzie,London

246、 Csenge GulybanSustainability Consultant,Positive Luxury Julia L.HemmingsPartner,Baker McKenzie,L Jo HewittPartner,Baker McKenzie,LWilliam-James Kettlewell Counsel,Baker McKenzie,Brusselswilliam-Rachel MacLeod Senior Associate,Baker McKenzie,LCaitlin McErlanePartner,Baker McKenzie,LMaria Piontkovska

247、 Associate,Baker McKenzie,Los AJose PrietoPartner,Baker McKenzie,MKaren RobertsKnowledge Lawyer,Baker McKenzie,LChristine Streatfeild Partner,Baker McKenzie,Washington,DCGraham Stuart Partner,Baker McKenzie,LJon Tuck Partner,Baker McKenzie,LJessica Wicha Counsel,Baker McKenzie,CESG POLICY GUIDE34*Tr

248、ench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting with foreign law.POSITIVE LUXURY 2024ABOUT POSITIVE LUXURYABOUT BAKER MCKENZIE Positive Luxury are the leading sustainability experts for the global luxury industry.From beauty,fashion and jewellery

249、 to premium drinks,interiors and travel,we help businesses meet higher standards for people and nature.We work with over 200 global brands,retailers and suppliers to shape a sustainable future.Contact our team to discuss how our comprehensive sustainability services can unlock value for you.Fast tra

250、ck sustainability Prepare for legislative shifts Communicate with credibility Future-proof your business Want to find out more?Contact us at Baker McKenzie brings insight and foresight to clients across more than 70 global offices.With a wealth of experience across all relevant areas of law,our lawy

251、ers help clients navigate through strategic and operational business challenges,working across borders to find simple,creative solutions in response to legal and commercial developments affecting their business.From luxury brands to high street fashion stores,from food and beverage companies to international hotel chains,we advise some of the largest consumer goods and retail companies worldwide helping them respond to any challenge they face at every stage of the business ESG POLICY GUIDE35