ESG (environmental, social and corporate governance) is the new approach of the European trade compliance policies and is a business framework for considering environmental issues and social issues in the context of corporate governance. This means that businesses must seek greater visibility of their suppliers’ operations and ensure certain environmental, human rights and governance safeguards, including driving ESG commitments into their supply contracts.
The key pieces of legislation introduced are:
- deforestation risks: EU Deforestation Regulation (EUDR) requires extensive due diligence obligations on the value chain for all operators and traders dealing with certain products derived from cattle, cocoa, coffee, oil palm, rubber, soya and wood. It is important to ensure (relevant) commodities placed on the EU market are “deforestation-free”, meaning they must not have been produced on land deforested or degraded after 31 December 2020 (regardless of whether the deforestation or degradation was legal under local laws);
- Corporate Sustainability Due Diligence approach is suitable to introduce risk management systems to identify risks of human rights violations and damage to the environment (as well as possibly governance);
Green Claims from which the carbon border adjustment mechanism (CBAM) is generated