O'Melveny Insights 2023

8 Practice What You Preach Mandatory ESG Supply-Chain Diligence is Coming (at Least in the EU). Along with minding their voluntary statements, companies that do business in the EU will soon have more required ESG disclosures. The EU has proposed a Corporate Sustainability Due Diligence Directive that will add requirements for larger EU companies and non-EU companies with €150 million of business in the EU (or less for certain sectors deemed high risk). Those companies will have to identify actual or potential adverse human rights and environmental impacts in their own operations and throughout their value chains, take steps to prevent or mitigate those impacts, and produce climate plans demonstrating that their business models are compatible with the transition to a sustainable economy and with limiting global warming to 1.5 degrees Celsius. This is one of several directives expected to be enacted that will significantly increase diligence and reporting burdens on companies located or operating in the EU, and follows similar laws already in place in member states France and Germany. Efforts to Harmonize Sustainability Reporting Standards are Increasing. Standards for voluntary statements will change too. Most of the largest public companies now voluntarily report ESGrelated information based on standards set by the Global Reporting Initiative. In 2022, the International Sustainability Standards Board (ISSB) released drafts of its own reporting standards for sustainability and climate-related disclosures. The ISSB aims to harmonize the various voluntary standards, a process that could shape the mandatory disclosure efforts underway in the EU, the UK, and the US. With US companies likely to become subject to EU reporting under the new supply-chain directive, harmonized standards should reduce reporting burdens. Investors, regulators, employees, and the public now closely scrutinize ESG-related statements, demand more disclosure, and, increasingly, take legal action if they don’t like what they see. 7 of O’Melveny’s offices worldwide are LEED-certified and our New York office uses 100% renewable wind energy.