Spain Sustainability Newsletter November
Top news of the month
Urgent processing of the Corporate Sustainability Reporting Bill
At the end of October, the Corporate Sustainability Reporting Bill (only available in Spanish through this link) which transposes the CSRD Directive (Directive (EU) 2022/2464) reached Spanish Parliament. The Bill represents a major change in the transparency and accountability obligations of companies regarding their contribution to the transition to a sustainable economy.
According to the Corporate Sustainability Reporting Bill, large companies and holding companies of large groups (as these two terms are defined therein) that (i) are public interest entities and (ii) exceed the average number of five hundred (500) employees, must take into account these new rules for financial years beginning on or after 1 January 2024. For all other companies, a timetable is established for the progressive application of the new obligations according to the type and size of the enterprise, with some exceptions and possibilities for SMEs and certain financial institutions.
The bill foresees amendments to the Spanish Commercial Code, the Spanish Companies Act and the Spanish Audit Act to include all these changes. In any case, these regulations are still being processed and their content could be modified in the coming weeks.
More information about the Sustainability Information Bill is available through this link.
Other news
Environment
1. The OJEU publishes the Air Quality Directive
Directive (EU) 2024/2881 on ambient air quality and cleaner air for Europe, which recasts Directive 2004/107/EC and Directive 2008/50/EC, was published in the OJEU on 20 November. The full text of the directive is available through this link.
The new Directive sets out provisions on air quality with the aim of achieving a zero-pollution objective, so that air quality in the EU progressively improves to levels that are no longer considered harmful to human health, natural ecosystems, and biodiversity. To this end, it introduces a set of pollution limit values, a number of pollution reduction obligations and certain long-term objectives common to all EU Member States.
The new limit values for the protection of human health must be met by 1 January 2030 at the latest, although exceptions are foreseen for limit values of particulate matter (PM10 and PM2.5), nitrogen dioxide or benzene until 1 January 2040. In any case, companies will have to comply with the obligations to measure and assess air quality, using reference methods and modelling applications, by 11 June 2026 at the latest.
2. EU Council greenlights the first certification framework for carbon sequestration
On 19 November, the EU Council gave its final approval to the Regulation establishing the first certification framework at EU level for permanent carbon removals, carbon farming and carbon storage in products. The approved text is available through this link.
This regulation represents the first step towards introducing a comprehensive certification framework for carbon removals and soil emission reductions into EU legislation.
Carbon removal activities carried out by operators (whether natural or legal persons) will have to meet four general criteria in order to be certified: (i) providing a net carbon removal benefit or a net soil emission reduction benefit; (ii) going beyond legal requirements at the level of the individual operator and having an incentive effect for the certification being financially viable; (iii) ensuring long-term carbon storage and minimising the risk of carbon release; and (iv) not causing significant harm to the environment and being able to result in a co-benefit on sustainability objectives.
The Regulation is still awaiting publication in the OJEU.
3. The European institutions agree that the entry into force of the Regulation on Deforestation should be delayed until the end of 2025
On 14 November, the European Parliament voted in favour of postponing the obligations under the Regulation on Deforestation by one year. As a result, large operators will have to comply with the obligations arising from this Regulation from 30 December 2025, while small and micro enterprises will have until 30 June 2026.
In addition, the European Parliament agreed to create a new category of ‘no risk’ countries for deforestation that would face less stringent requirements. The press release published by the European Parliament is available through this link.
A few days later, on 20 November, the EU Council also confirmed its agreement with the proposal that the Commission had previously sent to the European Parliament to postpone the date of application of the Regulation, as published in a press release which is available through this link.
Finally, on 2 December, it was approved at first reading the European Parliament's position on the proposal for a Regulation amending the Regulation on Deforestation as regards its date of application (is available through this link). The new regulation is still awaiting publication in the OJEU.
4. The Hague Court of Appeal upholds Shell's appeal and overturns the ruling requiring it to reduce its emissions by 45% by 2030
On 12 November, The Hague Court of Appeal upheld Shell Plc's (‘Shell’) appeal against the District Court's ruling that ordered Shell Group's parent company to reduce its global greenhouse gas emissions by 45% from 2019 levels by 2030. The appealed ruling is available through this link.
The ruling under appeal interpreted the duty of care provided in the Dutch law (Article 6:162 of the Dutch Civil Code) in line with the European Convention on Human Rights and the International Covenant on Civil and Political Rights and considered that Shell owed a duty of care in relation to the harmful effects of its activities on the environment. In order to comply with this duty, it estimated that Shell, directly or through its group entities, had to reduce its global greenhouse gas emissions by 45%.
However, the Court of Appeal declared that Shell and its group does not have an absolute reduction obligation of 45% (or by any other percentage) under EU law and will not have such an obligation for the near future. Moreover, it also stresses that, although the European Union incentivises large companies, such as Shell, to reduce emissions through price incentives, these companies are free to choose their own approach to reduce their emissions in its - mandatory - climate transition plan as long as it is consistent with the climate objectives of the Paris Agreement.
Transparency
1. The CNMV and the ICAC publish a statement advising companies to start disclosing sustainability information in accordance with the CSDR Directive
On 27 November 2024, the Spanish Securities Markets Commission (CNMV) and the Spanish Accounting and Auditing Institute (ICAC) published a joint press release recommending companies obliged by the CSDR Directive to start disclosing their sustainability information in accordance with the Directive (even though such directive may not be transposed in Spain before 31 December 2024). The full text of the press release is available in Spanish through this link.
In particular, in relation to the obligation to verify sustainability information, they reveal that the ICAC is preparing, together with the representative bodies of the account auditors and of the representatives of independent verifiers, a technical regulation for the verification of sustainability information, which will be approved once the Corporate Sustainability Reporting Bill has been approved.
In the meantime, both bodies recommend that, for the verification of sustainability information by an independent third party, account is taken of (i) the text of the bill (ii) the guidelines issued by the Committee of European Auditing Oversight Bodies (CEAOB) and (iii) the International Standard on Sustainability Assurance 5000 (ISSA 5000).
2. The European Commission publishes guidance on sustainability reporting by companies
On 29 November, the European Commission published a draft Notice in the form of an answer to frequently asked questions containing (i) technical clarifications on the criteria and activities covered by the delegated act on environmental taxonomy (Delegated Regulation (EU) 2023/2486), (ii) additional questions received in relation to the activities covered by the delegated act on climate taxonomy (Delegated Regulation (EU) 2021/2139), and (iii) additional questions on the disclosure obligations on non-climate environmental objectives set out in the amendments to the delegated act on disclosure (Delegated Regulation (EU) 2021/2178). The full text of the draft is available through this link.
This draft envisages that the Notice will complement previous European Commission Notices on the Taxonomy of the European Union and its delegated acts to facilitate their effective implementation.
A few days earlier, on 13 November, the OJEU published a Notice from the European Commission (C/2024/6792) in the form of answers to frequently asked questions (FAQs) which aims to clarify the interpretation of certain provisions on corporate sustainability reporting set out in the CSDR Directive and the Regulation (EU) 2019/2088 on Taxonomy. It also includes a number of clarifications regarding the legal interpretation of certain provisions of the first set of ESRS.
This Notice does not set out additional obligations nor is it binding, its aim is solely to facilitate compliance with the regulatory requirements by the interested parties. To this end, it includes specific instructions on individual and consolidated sustainability reporting, verification, and disclosure requirements. It also provides clarifications on exemptions and the phasing-in timetable.
On 8 November, the OJEU published another European Commission Notice (C/2024/6691), in this case focusing on reporting on key performance indicators under the delegated act on climate taxonomy (Delegated Regulation (EU) 2021/2139).
Among other things, the Notice explains how to calculate and present key performance indicators showing taxonomy-compliant activities in the companies' turnover, investments, and expenditure. It also clarifies how to assess the compliance with the taxonomy of exposures to different types of counterparties, such as financial, non-financial, public or third country firms, and how to consider minimum social safeguards and technical selection criteria.
3. EFRAG publishes the first draft of its Implementation Guidance on Transition Plan for Climate Change Mitigation
On 4 November, the European Financial Reporting Advisory Group (EFRAG) published the first draft of the Implementation Guidance on Transition Plan for Climate Change Mitigation. The full text of the draft is available through this link.
With this Guidance, EFRAG aims to answer questions and provide guidance to companies on the disclosure requirements related to climate change mitigation transition plans under the CSRD and the ESRS. EFRAG plans to approve the final draft before the end of the year and submit it for public consultation in early 2025.
Financial markets
1. The results of ‘Fit for 55’ reflect the financial stability of the EU
On 19 November, the European Supervisory Authorities (ESAs) together with the European Central Bank (ECB) published the results of the ‘Fit-For-55’ climate scenario analysis which aims to reduce greenhouse gas emissions by 55% by 2040. The report is available through this link.
The results show that the financial sector is resilient to the scenarios considered, although it could suffer significant losses if adverse climate and macroeconomic factors are combined. The report highlights the importance of integrating climate risks into risk management and green transition financing and points out the limitations and uncertainty of the methods and data used.
2. The European institutions approve the Regulation on ESG Ratings
After reaching an agreement with the Parliament, the EU Council finally approved on 18 November the Regulation on the transparency and integrity of environmental, social and governance (ESG) rating activities, which amends Regulation (EU) 2019/2088 and Regulation (EU) 2023/2859. It is expected to be published in the OJEU in the coming weeks. The adopted text is available through this link.
The objective of this Regulation is to make ESG rating activities more consistent, transparent, and comparable to increase investors' confidence in sustainable financial products. Thus, ESG rating providers shall have to be authorised and supervised by ESMA and shall have to comply with a number of transparency requirements, in particular regarding the methods and sources of information used.
In addition, it introduces the separation of activities as a principle to avoid conflicts of interest. With regard to ESG rating providers from third countries, the Regulation establishes the equivalence, validation and recognition regime, as well as all the conditions they must fulfil to operate in the European Union.
3. ICMA updates its Guidance Handbook on ESG Principles
On 4 November, the International Capital Markets Association (ICMA) published an updated version of its Guidance Handbook on ESG Principles. This update is available through this link.
The main updates are as follows:
(a) New section incorporating new issues in relation to the Green Bond Principles, the Social Bond Principles, the Sustainability Bond Guidelines, the Sustainability Bond Principles and the Climate Transition Finance Handbook.
(b) Three new issues on Sustainability-Linked Bonds (SLBs): (i) how to deal with SLBs in the context of disclosure and labelling regimes, (ii) their alignment with updated corporate-level sustainability strategy objectives and disclosures, and (iii) the pre-requisites for selecting key performance indicators.
