Current ESG and product compliance – New regulatory requirements due to the EU Green Deal

published on 28 August 2024 | reading time approx. 8 minutes

The reelection of the President of the European Commission in July 2024 underlines that the implementation of the European Green Deal is likely to continue consistently. Below you will find an update on ESG compliance regulations already presented as well as explanations of other current regulations, directives and initiatives as part of the Green Deal (e.g. Supply Chain Act, Deforestation Regulation, Carbon Border Adjustment Levy, Ecodesign Regulation, Right to Repair Directive, Battery Regulation, Green Claims / ECGT Directives, Sustainable Textiles Initiative). In connection with the ESG-relevant Ecodesign Regulation, the innovations in general product compliance (Product Safety Regulation, Product Liability Directive) are also briefly examined. It remains important for companies to keep track of the latest developments in ESG and product compliance legislation and the associated new regulatory requirements and obligations.

EUDR - Deforestation-free supply chains »

CBAM - Carbon border adjusTment mechanism »

ESPR - ecodesign for sustainable products »

Right to repair »

New product safety regulation at EU level »

New product liability directive expected »

Sustainability advertising - green claims and ECGT guidelines »

Batteries and waste batteries »

Sustainable and recyclable textiles »

Conclusion »

EUDR – Deforestation-free supply chains

In addition to wood, the EUDR (EU Deforestation Regulation (EU) 2023/1115) now also covers raw materials whose consumption is a major cause of deforestation and forest degradation - cattle, cocoa, coffee, oil palm and soya. The EUDR prohibits the import, trade and export of these raw materials and certain products made from them, such as chocolate, soya oil or pneumatic tyres made from rubber, unless they fulfil the following conditions:

Origin from deforestation-free areas (cut-off date 31 December 2020),
Production in accordance with the relevant legislation of the country of origin,
Availability of a due diligence declaration.

So-called ‘operators’ and ‘traders’, i.e. companies or entrepreneurs who place these relevant raw materials or products on the market commercially in the EU (i.e. sell them for the first time) or make them available (i.e. resell them) or export them from the EU, are subject to the obligation. The EUDR will apply to large and medium-sized enterprises from 31 December 2024 and to small and micro-enterprises from 30 June 2025.

It is important to note that the ‘relevant legislation of the country of origin’ does not only include forest-related or forest protection regulations, but also explicitly includes legislation on land use rights, environmental protection, human rights including labor rights and the rights of indigenous peoples, as well as tax, anti-corruption, trade and customs regulations.

Sanctions for violations include fines of up to 4% of annual turnover, profit skimming, confiscation of manufactured products, import bans and exclusion from public procurement.

A possible expansion of the CO2-relevant protection and storage areas (e.g. grassland, peatlands and wetlands) as well as the relevant raw materials and products (e.g. maize, biofuels) will be examined by the Commission by mid-2025.

CBAM - Carbon border adjustment mechanism

The CBAM Regulation (Carbon Border Adjustment Mechanism (EU) 2023/956) creates a new CO2 emissions regulation and pricing system to achieve the EU climate protection targets (‘55% reduction by 2030’ - EU Climate Law 2021/1119). The CBAM concerns products / goods that are manufactured outside the EU and are therefore not covered by the internal EU emissions trading system (ETS Directive 2003/87/EC). The CBAM is intended to combat so-called ‘carbon leakage’, whereby companies relocate the production of energy-intensive or emission-intensive goods to countries with less stringent emissions regulations. This includes the import of iron, steel, cement, aluminum, electricity, fertilizers and hydrogen as well as some upstream and downstream (especially iron and steel) products.

After a transitional period (from 1 October 2023 to 31 December 2025), the CBAM obligations will finally be fully applied from 1 January 2026. During the transitional period, only registration (CBAM notifier/declarant) and reporting obligations (quarterly CBAM report) will apply, but no financial submission or certificate verification obligations. From 2027, only authorised CBAM declarants/declarants will be allowed to import CBAM-relevant goods. In the annual CBAM declaration, they must provide evidence of the quantity of goods, their CO2 emissions and their offsetting with corresponding CO2 certificates.

During the transitional period, the competent national authorities are already authorised to impose administrative sanctions in the event of breaches of the CBAM reporting obligation, following a request for correction.

By 2030, all economic sectors of the EU Emissions Trading System (ETS) will also be covered by the CBAM border adjustment system, e.g. also non-ferrous metals (incl. alloys, cast products), lime and gypsum (incl. plasterboard), pulp and paper/cardboard, mineral wool insulation material as well as glass and glass fibres.

ESPR – ecodesign for sustainable products

On 18 July 2024, the new Eco-design Regulation (ESPR - Eco-design for Sustainable Products Regulation (EU) 2024/1781) came into force as the successor to the Eco-design Directive 2009/125/EC. The ESPR now aims to comprehensively improve the sustainability of products. It considers aspects such as functional durability, reliability, reusability, retrofit ability, reparability, the possibility of maintenance and repair, consumption and efficiency in terms of energy, water and other resources, recycled content, the possibility of remanufacturing, recycling and material recovery and finally the environmental impact, including the CO2 footprint and the environmental footprint.

The ESPR only does not apply, for example, to food and animal feed, pharmaceuticals and living organisms. Motor vehicles are excluded insofar as the EU has otherwise regulated vehicle-specific product requirements.

The EU Commission will specify the concrete requirements for certain product groups in further ‘delegated acts’. By April 2025, the focus will initially be on products from the following areas Iron and steel, aluminum, textiles (especially clothing and footwear), furniture (including mattresses), tyres, detergents, paints, lubricants, chemicals, certain energy-related products, information and communication technology products and other electronic devices. Following the introduction of the product-related delegated acts, companies will have a transitional period of at least 18 months to switch over.

However, the ESPR itself already regulates the mandatory introduction of a ‘digital product passport’ and establishes a general principle to prevent the destruction of unsold goods. An explicit ban on destruction will apply to clothing and shoes from summer 2026.

In addition to possible sanctions, in the event of violations, the manufacturer, importer or possibly even the fulfilment service provider may now be liable for damages to consumers in the event of ‘non-compliance of a product with the eco-design requirements’. These liability claims can now also be enforced collectively within the framework of an association action.

Right to repair

As a supplement to the Eco-design Regulation, Directive (EU) 2024/1799 on the promotion of the repair of goods (‘Right to Repair Directive’) came into force in July 2024.

While the Eco-design Regulation starts at the product design level, the Right to Repair Directive is intended to promote the actual implementation of such repairs by granting consumers a corresponding right (see also The new right to repair: sustainably innovative or in need of repair?)

The Right to Repair Directive covers household washing machines, dryers and dishwashers, refrigerators, electronic displays, welding equipment, hoovers, servers and data storage products, mobile phones, cordless phones and slate tablets as well as products containing batteries for light means of transport (e.g. e-bikes or e-scooters).

The EU member states must implement and apply the Right to Repair Directive by 31 July 2026 at the latest.

New product safety regulation at EU level

From 13 December 2024, the new version of the General Product Safety Regulation (EU) 2023/988 will come into force, which significantly expands the obligations of manufacturers, importers and online retailers. The current regulation dates to 2001 and sets out a certain ‘basic safety net’ that all products of any kind must fulfil. Due to the increasing digitalization and networking of products as well as the rapid development of new technologies, the scope of this ‘basic safety net’ is to be updated.

According to the new regulation, risks that could only arise from the networking of a product with another product, for example, will also be relevant for the assessment of safety in future.

Furthermore, it must now also be ensured that an initially safe product does not subsequently become unsafe. Software environments are subject to an ongoing process of customization through updates. Until now, product safety law has always focused on the time at which the product was placed on the market. Subsequent changes were only covered if they were so serious that a new product had to be assumed.

When assessing the safety of a product, the ‘necessary cybersecurity features to protect it from external influences, including malicious third parties, should also be considered in future.

Online marketplaces are also to be held more responsible for unsafe products in future. Finally, Article 14 stipulates that all economic operators must ensure that they have internal procedures in place to ensure product safety that enable them to fulfil the relevant requirements of this regulation. This means that companies will have to set up and maintain a product compliance management system.

New product liability directive expected

In parallel, on 12 March 2024, the European Parliament adopted its legislative resolution on the proposal for a new EU Product Liability Directive, which is intended to ‘update’ liability for defective products in the age of digitalization and the circular economy. In particular, it will also cover digital products such as software and artificial intelligence and extend to new players in globalized supply chains, especially fulfilment service providers and online platforms.

In this respect, the new EU Product Liability Directive stipulates that companies such as manufacturers are liable if they have modified a product outside the control of the original manufacturer in such a way that the modification is deemed to be substantial, and they subsequently place the product back on the market. The directive also introduces innovations in the presumption of fault in the absence of product monitoring and the burden of proof. In the area of compensation for damages, damage to mental health and the destruction or falsification of data that is not used for professional purposes can also trigger compensation claims in future. Following the political agreement in the trilogue in February 2024 on a final text of the directive, only the formal approval of the Council is still pending.

Sustainability advertising – green claims and ECGT guidelines

Advertising claims such as ‘climate-neutral’, ‘resource-friendly’, ‘ecological’, ‘climate-friendly’, ‘climate-neutral’, ‘environmentally friendly’, ‘pollutant-free’, ‘emission-free’, ‘CO2-neutral’, ‘reduced CO2 emissions’, ‘biodegradable’, ‘plastic-free’, ‘made from 100 per cent recycled material’, as well as ‘conscious’ and ‘responsible’ are currently almost omnipresent. The so-called ‘Green Claims Directive’ and the ‘Empowering Consumers for the Green Transition Directive’ (ECGT Directive EU 2024/825) aim to curb greenwashing and increase the transparency and credibility of environmental claims. In future, such claims will be subject to prior control by an authority yet to be established. The same applies to all forms of non-governmental environmental or quality labels. General environmental claims will be prohibited if a recognized outstanding environmental performance cannot be proven. In relation to climate claims, even more specifically, a claim based on offsetting greenhouse gas emissions and stating that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions is no longer permitted.

Until the new legal framework comes into force, the admissibility of such advertising measures will be judged purely on the basis of competition law provisions, whereby the courts currently apply an extremely strict standard, as our discussion of the recent ‘Katjes judgement’ of the Federal Court of Justice shows.

While the ECGT Directive has already entered into force and is due to be transposed into German law in spring 2025, the Green Claims Directive is currently still going through the EU legislative process (trialogue between the Commission, Council and EP).

Batteries and waste batteries

A new Regulation (EU) 2023/1542 on batteries and waste batteries has been in force in the EU since 18 February 2024. This is intended to promote the circular economy by regulating the entire life cycle of batteries. This includes collection targets and obligations to recycle certain raw materials. For example, collection targets of 63% by the end of 2027 and 73% by the end of 2030 have been set for waste portable batteries. For waste batteries from light transport vehicles, the targets are 51% by the end of 2028 and 61% by the end of 2031.

Binding recycling quotas have also been introduced for various materials. For example, 50% of lithium from waste batteries is to be recycled by the end of 2027 and 80% by the end of 2031. For industrial batteries, starter batteries and traction batteries, there are also minimum requirements for the proportion of recycled. These are 16% for cobalt, 85% for lead, 6% for lithium and 6% for nickel.

Finally, from 2027, end users must be able to remove and replace all batteries installed in appliances. These new regulations are intended to ensure that batteries are safe, sustainable and competitive while reducing the environmental impact.

Sustainable and recyclable textiles

Further tightening is also to be expected in the textile industry. Every year, around 5 million tonnes of clothing are thrown away in the EU. The so-called EU Textile Strategy of 2022 aims to make the textile industry more sustainable and environmentally friendly and to reduce fast fashion as much as possible. It aims to promote the production and consumption of textiles that are durable, repairable and recyclable. The aim is to increase the use of recycled fibers and avoid hazardous substances.

In addition, manufacturers are to be made responsible for the costs of managing textile waste. This is to be

achieved through binding regulations on extended producer responsibility (EPR).

The strategy is also in favour of reducing the overproduction and overconsumption of textiles and preventing the destruction of unsold or returned textiles.

Finally, the introduction of a digital product passport is also planned for textiles, which will provide clear information on the recyclability and other environmental aspects of textiles.

Conclusion

The increasing number and complexity of regulatory compliance requirements and the overall growing attention of market surveillance, but also of the competition, are forcing companies to increasingly deal with product compliance - from product design to disposal. With the Green Deal, the legislator has established a whole series of new obligations for companies that must be considered legally and economically. Failure to do so could result in fines, warnings and product recalls. Rödl & Partner will be happy to support you with these challenges.