ESG: 5 Trends toWatch in 2023
January 2023

Said simply, it might feel like ESG is everywhere in 2023. More companies and investment funds are
adopting programs or policies that are keyed to various ESG measures as they look to drive profitability
and improve access to capital. Regulators across the globe are busy writing and implementing new
disclosure regimes. Investors are pushing for information as they develop and refine ESG-based investing
strategies. Meanwhile, ESG-related issues in the United States have given rise to divisive political views.
Heading into 2023, the pressure will continue to build as a broader set of stakeholders (including
shareholders, regulators, employees, customers and community members) expect companies acrossgeographies and industries to take action on a wide set of ESG-focused concerns. Navigating risk andopportunity will require calibrated solutions that balance these competing priorities, and which arealigned with long-term sustainability and profitability. It will demand targeted, measurable and trackableaction plans and—in some cases—tradeoffs.
If 2022 was the year that many ESG issues assumed a refined focus, then 2023 may be the year that
corporate ESG efforts are seriously tested. Below are five emerging trends to watch—and our views about
how to get (and stay) ahead of them.

1. The Regulatory Tsunami Looks to Hit Shore
The future ESG framework is coming into focus.
Regulators across the globe have driven a rapid
acceleration of complex, profoundly prescriptive ESGrelated legal obligations. These rules are intended to drive
disclosure, transparency and accountability relatinglargely to environmental concerns, but also covering
human capital and other ESG-related issues. In somecases, international rules regimes are derived from acommon standard, and so retain some similarities acrossSimpson Thacher & Bartlett LLP

countries. In other cases, the requirements relating tosimilar subject areas bear little common ground. As many
companies confront the fact that they will be subject toat least a handful of different regimes, their compliancechallenge grows.
To date, trends in ESG reporting and due diligencehave largely been steered by developments, including
reporting and compliance regulatory requirements, in the1EU and U.K. 2023 could be a watershed year for ESGfocused regulatory developments in the United States
as well. Rules proposed by the Securities and Exchange
Commission (“SEC”) last year detailing new climaterelated disclosure requirements (see chart in appendix)
made quite a splash, garnering a staggering 14,000+
comment letters to the SEC. Given the level of attention
and concern surrounding the rules, upon finalization, we
would expect legal challenges to begin almost immediately,
likely culminating in a review by the Supreme Court. To
date, in the absence of finalized rules, the SEC taskforce
established within the Division of Enforcement toaddress climate and ESG disclosures has pursued limited
enforcement actions.
Other rules proposed by the SEC last year would enhanceand standardize disclosures from registered funds
and advisers with respect to ESG strategies. The SEC

also adopted rules that require funds to disclose more
information about their votes on ESG issues, executive
compensation and other proposals at annual meetings. But
the ESG-related SEC rulemaking didn’t stop there. The
agency has also proposed rules to address cybersecurity
risk management, strategy, governance and incident
disclosure by issuers, and finalized long-shelved executive
compensation rules addressing clawbacks of erroneously
awarded incentive-based compensation and pay versus
performance, reflecting the relationship between executive
compensation actually paid by a public company and thecompany’s financial performance. Finally, based on the
SEC’s 2022 ESG agenda, there is wide speculation that
the SEC plans to issue a new, expanded version of the2020 rule on human capital management and recommend
amendments to proxy rules to enhance corporate
disclosures about the diversity of boards and nominees.

Key Takeaway
Companies will need to monitor regulations—those in force, impending and under consideration—closely to ensurethat they are prepared for a new compliance regime. Synthesizing and harmonizing comprehensive global solutions
will be appropriate in some cases and insufficient in others. Companies will need to implement action plans to address complex and, in some cases, conflicting sets of legal and disclosure requirements, and also identify risk areas,
mitigants and areas of ESG best practice.

2. U.S. Politics Heat Up
Changes in disclosure practices around ESG reallykicked off in the U.S. in response to investor demand.
As money began to flow in a real way into ESG-focused
funds, investors have pushed companies to be much moretransparent about their activity and commitments in thoseareas, and to provide comparable and comprehensive
information. Many large institutional investors inparticular have used their powerful positions to advancethe agenda in this area. They have collectively emphasized
the need for companies to consider seriously their longterm growth and path toward sustainability by addressing
issues that fall under the broad ESG rubric. While theseideas have not gained unanimous agreement among
American investors and business leaders, they havecertainly gained traction, though recently the tone among

investors expanding into ESG strategies has shifted in
response to political events.
What has been described as an anti-ESG sentiment thatseeks to challenge the field of ESG investing began in
2022 and continues to ramp up in 2023. Certain U.S.
states and lawmakers are making their views known
through the formulation of anti-ESG bills and by divestingfrom funds, with impacts felt by both U.S. and non-U.S.
companies. Over the course of 2021 and 2022, 18 U.S.
states passed legislation to limit ESG investing or prohibit
state governments from doing business with financial
institutions that adopt certain ESG policies. Among themore dramatic examples is Florida, which last August
adopted a proposal preventing the state’s pension fund2and its investment management partners from making
decisions based on ESG factors. In December, the state
announced that it would pull $2 billion of the state’s
pension funds over ESG concerns in the largest anti-ESG
withdrawal announced by a state, although a “truce”
reported this month will apparently allow the asset
manager to continue overseeing those funds provided thatit stops applying ESG investing strategies with respect
to the funds. Guidelines issued in Florida this monthwill exert further pressure by prohibiting state-run fundmanagers from considering ESG issues when making
investments.
Other states are pursuing similar measures. Last January,
the West Virginia State Treasurer announced that thestate would pull assets from an investment fund, citing
concerns over its ESG investing focus. West Virginia
and Texas have both issued laws blacklisting financial
institutions that “boycott” fossil fuel and, in the case of
Texas, firearms companies.¹ More recently, a multistatecoalition led by Texas sued the U.S. Department of Labor
seeking to freeze a new rule that would allow retirement
plan fiduciaries to consider ESG factors when making
pension investment decisions, and to block regulators fromenforcing it. The outcome of the case, which was broughtin the U.S. district court for the Northern District ofTexas—a jurisdiction historically associated with striking
down significant employee benefit regulations—will beconsequential given the state-led efforts described above

and the Biden-Harris administration’s longtime policy
priority to remove barriers to considering ESG factors inretirement investing.
We expect further repercussions as the 2024 presidential
election nears. And, given this political environment,
many observers believe the Supreme Court would be eager
to be take up a challenge to the climate disclosure rule.
So in addition to “greenwashing”—where companies
may describe their strategy and programs in a way thatmakes them seem more environmentally or socially
protective than they actually are—we are also now seeing
the opposing phenomenon of “greenhushing.” As ESGrelated commitments, pronouncements and programs
have started to garner negative attention from a portion of
investors and lawmakers, some companies are choosing
to downplay those statements to avoid this negative
attention. A recent global study even showed that while
many “sustainability-minded” companies are making net
zero targets, with more science-based targets and more
ambitious timelines, as many as one in four companies
does not plan to talk about its science-aligned climate
targets.
1. The Texas laws, which took effect in 2021, prohibit most state and local
government agencies from contracting with financial institutions that restrict
funding to the oil and natural gas and/or firearm and ammunition industries.
The West Virginia law, which took effect last June, authorized the state treasurer
to investigate and deny access to state contracts with financial institutions thatare shifting away from fossil fuel investments.

Key Takeaway
The current political climate is creating minefields for investors and corporate leaders alike. Navigating conflicts andstakeholder sensitivities (including anti-ESG activist investors and shareholders) will require a renewed focus on
and a commitment to corporate purpose, mission and values. Maintaining perspective on the ESG drivers that apply
to a company now and in the future, and the rationales for developing and maintaining an ESG strategy, will be
important. Companies should also maintain open lines of communication with stakeholders, and where a company
decides to adopt an external position, ensure that communications are aligned with corporate purpose.

3. ESG Data Evolves
Investors are flocking to investments and transactions
that are graded against ESG criteria—in part because
comparable, or in some cases, higher investment returns
globally, continue to advance the business case for ESG

investing.² But in order to deploy that capital, investors
need to be able to assess the connection between difficultto-value ESG elements and enterprise value. This is, inturn, driving a push for new types of information and3data on these elements. It’s also motivating new ways ofmeasuring corporate performance, including through ESGfocused indexes, ratings and industry-focused disclosure
frameworks and standards,³ and by reviewing corporate
documentation.
The new slew of regulations (noted above and describedin more detail in the chart below) underscores investors’
need for comprehensive, comparable and reliable data
related to ESG—and regulators’ goal to help them get that
information. In this way, the market, and the standardsetters, are trying to help guide investors to evaluate moreclosely how companies align their business purpose andstrategic goals with the preservation of environmental andhuman capital—if at all.

The demand from regulators and stakeholders for reliable
information is also manifesting in the transaction context
with requests for enhanced diligence, where increasingly
it is no longer enough to understand what litigation acompany faces. Companies must increasingly describe
how they manage their consolidated corporate groups,
including with respect to ESG issues, and in some contexts
and depending on the transaction, undergo assessment andevaluation by technical experts focused on ESG risk andvalue creation.
2. According to a PwC report from October 2022, ESG-focused institutional
investment will rise 84% to U.S. $33.9 trillion in 2026, making up 21.5% of assets
under management. See also Barrons, “Future Returns: ESG-Related Ventures
Are a ‘Bright Spot’ in Private Markets” (Jan. 17, 2023); and Morningstar, “ESG
Investing Keeps Pace With Conventional Investing in 2022,” (Jan. 12, 2023).
3. This includes but is not limited to the following ESG data and ratings providers
and/or index providers: Bloomberg, Morningstar, MSCI, S&P and Sustainalytics.

Key Takeaway
In this environment, companies need to start evaluating their ESG-related reporting with a rigor akin to that applied
to their financial reporting processes. This includes monitoring consistency across publications. To the extent thata company’s ESG data originated in a corporate social responsibility (“CSR”) or a sustainability report, and is now
being leveraged in an offering document or regulatory filing, companies should evaluate seriously the internal
systems and tools that are being used to collect, scrub, analyze, verify and report that data. Where appropriate,
companies should consider enhancing the reliability of information (e.g., greenhouse gas (“GHG”) emissions dataand other metrics and statistics) through external auditing or assurance.

4. Growing ESG-Related Allegations and Claims
ESG litigation of greater scale, scope and complexity ispoised for launch. New SEC rulemaking requiring climaterelated disclosures, disclosures by investment advisers,
and disclosures related to greenwashing and cybersecurity,
once finalized, will doubtless open the door to shareholder
rights of action and fuel enforcement activity. Some major
financial institutions reached settlements with the SEC
during 2022 over their statements about ESG investment
opportunities and alleged failures to follow policies andprocedures that were established to ring-fence thoseinvestments.
Environmental and climate change litigation has
historically accounted for the majority of ESG-related
litigation.⁴ Now, new subsets of climate litigation are
emerging as countries work toward net-zero targets andcompanies pursue carbon-neutral or carbon-negativepledges. Securities litigation over climate change
disclosures is also becoming more common, and claimants
are ramping up tort and consumer protection lawsuits
targeting fossil fuel companies.
Claims targeting social issues are also mounting.⁵
Consumer-oriented lawsuits and court findings haveexamined companies’ statements relating to their sourcingof materials and claims about the sustainability of theirproducts. Litigants have also targeted corporations,individual directors and officers for their alleged direct orindirect involvement in the abuse of human or labor rights
in the entity’s supply chain, or at the community level.

4

Claims and settlements surrounding negative workplaceculture (e.g. sexual harassment, discrimination) also
continue to make headlines. Just last week, in its denialof a motion to dismiss a derivative lawsuit alleging thatthe former head of human resources for global fast foodcompany McDonald’s breached his fiduciary duties, theDelaware Court of Chancery made waves by stating thata duty of oversight extends to corporate officers, not justdirectors (described here). The case centered on claims
that the defendant consciously ignored red flags regarding
sexual harassment and misconduct at the company, while
also personally engaging in that behavior. The decision is
being described as a wake-up call for corporate executives.
Delaware, as the leading state for the incorporationof publicly traded corporations listed on U.S. stock
exchanges, is also considered the leading jurisdiction in
U.S. corporate law, and the decision potentially opens thefloodgates to these types of shareholder claims against
officers for ESG failures.
The upshot is clear: emerging forms of ESG litigation
risk and standards relating to board oversight of ESG
issues and management’s roles and responsibilities,
and ESG governance more broadly, should shape theway that companies design, implement and report on
the structural management and oversight of their ESG
compliance programs. Officers with oversight of ESG
implementation should take a critical look at the scopeof their responsibility to monitor and oversee corporate
ESG risk, scrutinize existing procedures, resources
and reporting lines, and take steps to ensure effective
operationalization and the fulfillment of their mandates.
For companies, there could be implications related to
how officers’ employment, indemnifications and D&O
insurance coverage are structured.
It finally bears noting that, when it comes to ESG, evenfor claims that are not ultimately successful, or that result
in relatively minor financial penalties, the reputational
penalty associated with a suit can have an outsized impact
on a company.
4. This includes claims to enforce climate-related laws, policies and mitigation
targets, meet the cost of climate-related damage, halt cross-border GHG
emissions, projects or investment in fossil fuels, or in respect of environmental
licensing and permitting, as well as environmental and climate change
disclosure-based claims.
5. This includes claims brought under general principles of tortious liability,
provisions of new legislation requiring companies to exercise due diligenceon and to address business-related human rights and environmental risks,international human rights proceedings, and quasi-litigation before mechanisms
such as OECD National Contact Points.

Key Takeaway
As the legal risk to taking certain ESG-related positions comes into focus, companies would be wise to drill down on
governance—the “G” in ESG. Appropriate solutions and strategies when it comes to ESG (whether that’s expressed
through disclosure, policy implementation, lobbying activities or other expressions of a company’s ESG strategy)
cannot be crafted without oversight. Public statements need to be ticked and tied. Practices need to be funneledthrough compliance or audit functions. And most of all, companies’ boards of directors need full, complete reportingand comprehensive oversight on corporate activity.

5. Proxy Season Brings Issues Into Focus
For shareholders in the public equity markets, proxyseason is prime time. While lines of communication
between investors and companies have morphed fromquarterly earnings calls into year-round engagement on
top investors’ priorities, proxy voting continues to be theprimary forum where shareholders exert real influence.
And many of the topics driving investors’ votes fall directly
under the broad ESG umbrella.

In the wake of the SEC staff’s 2021 change in approach toissuers’ ability to exclude shareholder proposals (which
the SEC continues to refine), as expected, we saw a spikein the overall number of proposals going to a vote lastyear. In particular, environmentally-focused proposals
have increased almost 50% over 2021 numbers. Sociallyfocused proposals were voted on 231 times, with those5submissions focused on racial equity audits and reports
being most likely to pass.
Within the environmental and social proposals, weobserved a clear trend. While the number of proposals
going to a vote was up, and while most of the largest
institutional investors (who are also the holders most
likely to exercise their vote at annual meetings) generally
advocated for companies’ need to think about theirenvironmental and societal impacts and future-looking
commitments as a part of a sustainable business model,
the percentage of environmental and social proposals
passing was down significantly. In part, this is due to thefact that proponents have been refining their approach,and offering more targeted resolutions and, according
to investors, overly prescriptive proposals that may notsupport long-term shareholder value.

We predict that this bifurcation trend will grow in 2023.
Proposals are becoming more prescriptive and specific,
and perhaps less likely to garner widespread support.
Proponents are also taking a broader approach to thetypes of requests they make, including for example what
are termed “anti-ESG” proposals targeting racial justiceand corporate political activity. These types of proposals
doubled in 2022 over the prior year, and are also likely toincrease as the political climate continues to shift.
Beyond shareholder proposals, investors and proxyadvisors are updating proxy voting guidelines andimplementing policies to promote director accountability
for the perceived ineffective oversight of ESG issues,emphasizing the need for companies to assess carefully
the impact of these changes, and to engage with major
investors on their policy positions in the off-season.

Key Takeaway
Shareholder proposals focused on environmental and social issues this year will be subjected to even greater scrutiny
from investors, as many move both to reject overly prescriptive proposals, and also to evaluate proposals in moredetail against the steps the company may have already taken. This could lead to continued declines in support for
many ESG-related proposals. But ESG concerns will play out in other ways this proxy season, as proxy advisors andinvestors adopt stricter director voting policies to hold companies accountable for their action (or inaction) in ESGrelated areas.

Conclusion
Given the fluid landscape and scope of issues, the ESG mandate can seem overwhelming. But overlaying allis an emerging recognition that ESG extends well beyond normal issues of compliance or corporate social
responsibility—it is a core issue of business strategy that requires significant board and C-level engagement
and robust internal controls appropriately scaled to address known and unknown risks.
To navigate this area, and to do it well, requires that companies put the “G” first, and focus on thegovernance supporting it all. Numbers and statements relating to ESG measures or topics need to beviewed with the same rigor as any other statement upon which investment decisions might be made.
Decisions cannot be made in silos or by isolated ESG professionals—but should be made in concert withcompany leaders to ensure alignment with strategy, values and the long-term business plan.

ESG: 5 Trends to Watch in 2023

For further information regarding this Alert, please contact one of the following authors:
Leah Malone+1-212-455-3560
leah.malone@stblaw.com

Stephen P. Blake+1-650-251-5153
sblake@stblaw.com

Karen Hsu Kelley+1-212-455-2408
kkelley@stblaw.com

Matt Feehily

Emily B. Holland+1-202-636-5987
emily.holland@stblaw.com

Carolyn S. Houston+1-212-455-2790
chouston@stblaw.com+44-(0)20-7275-6500
matt.feehily@stblaw.com

SimpsonThacherWorldwide

The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who authored it are
rendering legal or other professional advice or opinions on specific facts or matters, nor does the distribution of this publication
to any person constitute the establishment of an attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability
in connection with the use of this publication. Please contact your relationship partner if we can be of assistance regarding theseimportant developments. The names and office locations of all of our partners, as well as our recent memoranda, can be obtained
from our website, www.simpsonthacher.com.

Appendix
Significant Newly-Enacted and Upcoming Regulation⁶
Regulation

Issuing Authority

Requirement

Subject Companies

Timing

SEC

Would require companies to provide certain
climate-related information and GHG
emissions insights (Scopes 1 and 2, andScope 3 if material or company has set atarget)⁷ in annual reports and registration
statements, including in the footnotes tofinancial statements (see here for additional
information)

Public companies(issuers), domestic andforeign

Proposed March 21, 2022;
expected to be finalized in first
four months of 2023

United States
Climate Risk
Disclosure Rule(link)

When finalized, phased
implementation based on SEC
filer status

ESG Disclosure
Requirements
for Funds andAdvisers (link)

SEC

Would require investment funds andinvestment advisors to provide more specificdisclosures on ESG strategies in fundprospectuses, annual reports and adviser
brochures

Investment advisers andinvestment companies
that market themselves
as having an ESG focus

Proposed May 25, 2022

ESG Disclosures
and Naming
Rules (link)

SEC

Would require funds whose names suggest afocus on one or more ESG factors to invest atleast 80% of their assets in that factor(s)Registered investmentcompanies, businessdevelopment companies,
registered investment
advisers and certain
unregistered advisers

Proposed May 25, 2022

Mutual funds, exchangetraded funds, and certain
other registered funds;
institutional investment
managers

Adopted Nov. 2, 2022; effective
July 1, 2024, covering votes
occurring on or after July 1,
2023

Would prevent a fund that considers ESG
factors alongside but not more centrally thanother factors from using ESG in its nameEnhanced
Proxy Voting
Disclosure
Requirements
for Investment
Funds andRequired
Disclosureof “Say-onPay” Votes for
Institutional
Investment
Managers (link)

SEC

Requires enhanced reporting from registeredfunds concerning proxy votes (including
Say-on-Pay); funds will also be required tocategorize votes related to the environment
or climate, among others, to help investors
identify votes of interest and compare
different funds’ voting records

6 We note that additional, significant regulations have recently been passed or proposed in other countries. This includes, but is not limited to, the German Act on Due
Diligence in Supply Chains (entered into force on Jan. 1, 2023), the Uyghur Forced Labor Prevention Act (key provisions took effect on June 21, 2022), and the European
Commission proposal to ban goods made with forced labor (issued Sept. 14, 2022).
7 Scope 1 emissions consist of direct GHG emissions from operations owned or controlled by an issuer. Scope 2 emissions consist of indirect GHG emissions from thegeneration of purchased or acquired electricity, steam, heat or cooling that are being consumed by operations owned or controlled by an issuer. Scope 3 emissions consistof all other GHG emissions from the upstream and downstream activities of an issuer’s value chain, which includes sources as varied as suppliers, transport of goods,
employee travel and commuting, consumption of a product and investments of the issuer (a nonexclusive list of activities in the value chain is set forth at Item 1500(r) of
the proposed rule).
8Significant Newly-Enacted and Upcoming Regulation continued
Regulation

Issuing Authority

Requirement

Subject Companies

TimingCybersecurity
Disclosure Rules(link)

SEC

Would amend Form 8-K to require disclosureof “material” cybersecurity incidents withinfour business days, with trigger date keyed todate of the materiality determination

Public companies(issuers), domestic andforeign

Proposed March 9, 2022

U.S. registrants that file
proxy and information
statements requiring
executive compensation
disclosure under Item
402 of Regulation S-K for
fiscal years ending on orafter December 16, 2022

Adopted Aug. 25, 2022

Would impose new periodic reporting
requirements with respect to previously
reported material cybersecurity incidents, risk
management and strategy, governance, andboard of directors’ cybersecurity expertise, ifany, and oversight of cybersecurity incidents
Pay Versus
Performance
Disclosure Rules(link)

SEC

Requires registrants to disclose therelationship between executive compensation
actually paid compared to the financial
performance of the company
Requires additional, specified disclosures inannual proxy statements

Clawback Rules(link)

SEC

Directs U.S. stock exchanges and securities
Public companies
associations to adopt listing standards(issuers), domestic andrequiring listed companies to adopt andforeign, with limited
enforce policies for the recovery of erroneously exceptions
awarded incentive compensation received
by current or former executive officers in theevent of an accounting restatement (see here
for additional information)

Adopted Oct. 26, 2022

Pillar of EU
Sustainable
Finance agenda
introducedby European
Commission ascore part of its
2018 Sustainable
Finance Action
Plan⁸

Requires sustainability disclosures covering abroad range of ESG metrics at both the entityand product level

Entered into force March 10,2021; SFDR regulatory technicalstandards apply from Jan. 1,
2023

EU and U.K.
EU Sustainable
Finance
Disclosure
Regulation(“SFDR”) (link)

All financial market
participants and financial
advisers based in theEU, and investment
All financial products (including funds) must
managers or advisers
disclose their approach to the integration of
based outside of the EU
financially material “sustainability risks,” even
who market or intend to
if they do not have an outward ESG focus
market their products toFunds that promote ESG characteristics
clients in the EU(Article 8) or that have a sustainable
investment objective (Article 9) must
make detailed additional disclosures about
their approach and commitments to ESG
integration, and disclose the proportion of
their assets that qualify as environmentally
sustainable investments

Detailed pre-contractual
disclosures for products
promoting environmental orsocial characteristics or with asustainable investment objective
required from Jan. 1, 2023.
June 30, 2023: final date toreport for first time for financial
year 2022 on principle adverse
impacts of investment decisions;and detailed annual reporting of
non-financial performance for
ESG-focused funds

8 The 2018 Sustainable Finance Action Plan also includes the EU Taxonomy Regulation and the Low Carbon Benchmarks Regulation. The EU Taxonomy Regulation, whichbecame effective from January 2022, established specific environmental criteria related to economic activities for investment purposes and forms part of the enhanced
disclosure obligations required by the EU SFDR. A social taxonomy and extended environmental taxonomy are expected to follow.
9Significant Newly-enacted and Upcoming Regulation continued
Regulation

Issuing Authority

Requirement

Subject Companies

TimingU.K. climaterelated
disclosure
regime (link)and (link)

Financial Conduct
Authority (“FCA”)

Requires Task Force on Climate-Related
Financial Disclosures (“TCFD”)-aligned
disclosure by certain financial institutions,
including asset managers, as well as certain
U.K. listed companies

All FCA-authorized
investment managers in
relation to their TCFD inscope business, including
U.K. PE advisors

Asset managers with >£50
billion AUM, Jan. 1, 2022 with
first publication of reports due
by June 30, 2023

Corporate
Sustainability
ReportingDirective(“CSRD”) (link)

Formally adopted
by European
Parliamentand Council ofEuropean Union;
EU Member States
must transpose
into national law

Requires companies to report on governance,
policies and due diligence processes covering
environmental and human rights-relatedrisks from a “double materiality” perspective(similar to the Global Reporting Initiative),in line with detailed disclosure standards
developed by the European Financial
Reporting Advisory Group

Large EU undertakings
with two of the following:
EUR 40m+ turnover,EUR 20m+ balance sheet
and 250+ employeesEntered into force Jan. 5, 2023;
must be implemented into
national legislation; phased
implementation based on
category of company (20242028)

Commission
Proposal (link);
Council General
Approach (link)

Would require companies to integrate due
diligence into policies, conduct diligence toidentify and address actual and potential
adverse impacts on the environment andhuman rights, implement measures toprevent/mitigate impacts, adopt processes toevaluate the effectiveness of such measures,and issue disclosures; specific duties forcorporate directors of EU companies

EU companies with >500 employees and >EUR 150m worldwide
net turnover; or > 250
employees and > EUR
40m worldwide net
turnover with 50% ormore of their revenue
from high risk sectors

EU Corporate
Sustainability
Due Diligence
Directive(“CSDDD”)

EU levellegislation
pending; Final
Directive would be
subject to national
implementing
legislation

Simpson Thacher & Bartlett LLPAll companies withsecurities admitted to
trading on EU RegulatedMarkets (including SMEs
and non-EU companies)

Asset managers with >£5 billion
AUM but less than £50 billion
AUM, Jan. 1, 2023 with firstpublication of reports due byJune 30, 2024

Not close to finalization;
significant political issues willneed to be resolved
Predictions are that a final text
will not be agreed before the endof 2023

Non-EU companies
with > EUR 150m net
turnover in the EU; or >EUR 40m net turnoverin the EU and > 50%of their worldwide net
revenue from high risk
sectors10