Key news in this edition:
- Ongoing forced labour concerns in global clean tech supply chain.
- Canadian government proposes new supply chain due diligence measures to combat forced labour.
- Nasdaq’s board diversity rule struck down by a US appeals court.
Editorial
As we move into this new year, recent ESG developments signal that businesses must strengthen governance frameworks, adopt proactive risk management, and approach sustainability in a way that integrates both social and environmental impacts. The clean tech sector, crucial to the global energy transition, faces growing scrutiny over forced labour in its supply chains. Reports have highlighted links between EV and solar manufacturers and forced labour in China’s Xinjiang province and in Brazil. Whilst not surprising, the growing focus on the issue raises critical concerns for ESG investors, emphasising the need for rigorous due diligence to ensure human rights are upheld alongside environmental progress. Governments are also stepping up their efforts to address these issues. Canada’s proposed Due Diligence Act, aimed at combating forced labour, will require businesses to implement proactive supply chain risk management strategies. This move aligns with international standards and signals a shift towards stricter supply chain regulations, urging companies to be transparent in their operations. In the UK, Scotland’s proposed Ecocide Prevention Bill will introduce legal accountability at the corporate executive level for environmental destruction. This bill, alongside similar efforts in Belgium, underscores the growing momentum for policies that deter mass pollution and hold decision-makers accountable. Continuing the theme of corporate governance, a US appeals court struck down Nasdaq’s proposed board diversity rules, marking a setback in efforts to increase transparency on diversity, equity, and inclusion. While the ruling may reduce mandatory disclosure, investor and consumer expectations will continue to drive companies to voluntarily disclose diversity data.
Ongoing forced labour concerns in global clean tech supply chain
As well as facilitating the global energy transition, the manufacturing of clean technology, such as solar panels and electric vehicles (‘EVs’), presents an immense opportunity for industrial growth and the expansion of manufacturing industries, particularly in developing countries. However, the environmental gains of producing clean technology products are often offset by social losses, with the new industries vulnerable to typical social supply chain risks, such as forced labour and inhumane working conditions. In the last month alone, international media has reported on two issues, which highlight the labour-related risks to be considered when investing in clean technology manufacturing.
According to an analysis produced by Ignites Asia, a publication of the Financial Times, ESG funds run by global investment management houses such as BlackRock Inc. and Ninety One Limited have at least USD 1.4 billion invested in 14 EV and solar manufacturing companies that are linked to the use of forced labour in the Xinjiang province of the People’s Republic of China. Most of this investment is in Contemporary Amperex Technology Co. Limited (‘CATL’), a Chinese EV and battery manufacturer, which was linked to human rights abuses in Xinjiang in two reports produced in 2022 and 2024 by UK and US research centres. CATL has denied any involvement in any such abuses.
Another Chinese EV and battery manufacturer, BYD Company Limited (‘BYD’), has also recently been exposed to allegations of human rights abuses, levelled by Brazilian labour authorities against one of its construction subcontractor companies, Jinjiang Construction Group Co. Ltd (‘Jinjiang’). Brazilian authorities shut down construction of a new BYD EV factory in Camaçari, Brazil, and claimed to have “rescued” 163 Chinese labourers from “slavery”-like conditions at the construction site, including workers’ passports reportedly being confiscated and overcrowding in on-site dormitories. BYD and Jinjiang have rejected the allegations, and will reportedly meet with Brazilian prosecutors in early January to discuss settlement of the issue.
So what?
Investments in clean technology have gained significant momentum in recent years and continue to present a lucrative opportunity for financial returns and positive environmental impact. However, these examples illustrate the growing scrutiny on manufacturing supply chains, and highlight the need for detailed and continuous supply chain due diligence of potential investments and third-party contractors.
[Contributor: Emma Shewell]
Canadian government proposes new supply chain due diligence measures to combat forced labour
On 16 December, the Canadian Government announced its intent to introduce a new supply chain due diligence regime (‘the Due Diligence Act’) to eradicate forced labour. According to the Department of Finance’s 2024 Fall Economic Statement, the legislation will require governments and businesses to “scrutinize their international supply chains for risks to fundamental labour rights”, as well as to adopt strategies to mitigate these risks.
Canada currently has an import ban on goods linked to forced and child labour and requires businesses and government entities to report on steps they are taking to prevent and reduce the risk of human rights violations in their supply chains as established by the Fighting Against Forced Labour and Child Labour in Supply Chains Act (2023) (‘the Supply Chains Act’). The proposed Due Diligence Act further builds on the Supply Chains Act and requires companies to implement clear due diligence measures to combat forced labour, rather than merely reporting on the results of existing measures. In addition, the Due Diligence Act would establish a new oversight agency to ensure effective compliance. The Fall Economic Statement proposes to invest CAD 25.1 million over the course of two years, beginning in 2025-26, to support the implementation of the act. The Canadian government also stated that it intends to introduce legislative amendments to the Business Corporations Act to create a regulatory authority that provides for climate-related financial disclosures by federally incorporated private corporations.
Although no formal draft has yet been released, the Due Diligence Act is expected to mirror existing global supply chain due diligence measures such as those established in the European Union, France and Germany, as well as ensuring that Canada is in alignment with the objectives of the Global Slavery Index which estimates up to CAD 468 million worth of goods are linked to modern slavery in global supply chains.
So what?
The proposed Due Diligence Act highlights the growing focus being placed on identifying and addressing forced labour risks in supply chains, and the need for businesses to adopt comprehensive and proactive due diligence practices. This development reflects a broader trend toward mandatory ESG compliance in most developed economies, with the higher standards being implemented in the EU raising the bar for other governments globally. For companies, it signals a shift in expectations, requiring a deeper focus on supplier accountability and risk mitigation strategies.
[Contributor: Boitumelo Mogale]
Nasdaq’s board diversity rule struck down by a US appeals court
In December 2024, the US Court of Appeals for the Fifth Circuit, in a review of its former decision, rejected the approval by the Securities and Exchange Commission (SEC) of the diversity rules proposed by Nasdaq for public companies’ board compositions. Nasdaq’s proposed rules would have compelled companies listed on its exchange to disclose information about the racial, gender, and sexual characteristics of their directors, and to have at least two directors who meet Nasdaq’s definition of ‘diverse,’ or explain the reasons for not meeting the diversity criteria.
Following the SEC’s initial approval of Nasdaq’s proposed diversity rules in 2021, several legal challenges ensued and the Court of Appeals found that the SEC’s approval was not within the scope of its authority granted by the Exchange Act of 1934. In its reasoning, the court stated that the Exchange Act’s primary purpose is to protect investors from speculative, manipulative, and fraudulent practices, and “disclosure of any and all information about listed companies” is not among its purposes. It held that disclosure about diversity is not relevant to the purposes of the Act, though companies can disclose information on diversity if they choose to do so.
So what?
The ruling has been interpreted by some as part of a wider backlash against corporate diversity, equity, and inclusion policies, given Nasdaq-listed companies are now not required to comply with board diversity rules. However, the ruling was made on an interpretation of a legal act, rather than with regard to the nature of the disclosures. Many listed and non-listed companies already voluntarily choose to disclose information on diversity and although the ruling may enable a few companies to avoid this, in reality it will be investor expectations and consumer pressure that will end up playing a decisive role in diversity disclosures, rather than the regulators. The most significant consequence of the ruling may actually be that those companies which do disclose diversity data will do so in a less standardised manner, making it harder to accurately compare the performances of different firms.
[Contributor: Elif Korca]
MSPs present a draft of new Ecocide Prevention Bill
In Scotland, a proposed Ecocide Prevention Bill garnered enough cross-party support to be brought forward, with the potential to be formally introduced into the Scottish Parliament in 2025. This landmark bill aims to hold individuals accountable for ecocide, understood as severe harm of nature and destruction of natural ecosystems, by defining it as a formal crime. If passed, it would impose significant penalties, including jail time, on those responsible for mass pollution. Notably, the bill is designed to target high-level decision-makers, such as corporate executives, rather than middle management or individual employees, ensuring accountability at the leadership level of polluting entities.
The bill was proposed with the hope it would halt mass polluters by introducing a law that makes ecocide a formal crime, with punishments including jail time for those who are held accountable. The bill was proposed by parliament member Monica Lennon, who emphasised that the proposed legislation is not only about punishment, but also about deterrence, aiming to halt large-scale environmental harm by creating serious consequences for those who prioritise profit over ecological integrity.
Scotland is not alone in attempting to address ecocide through legislation. In February 2024, Belgium took a bold step by introducing a law criminalising ecocide, joining a small but growing list of countries taking legislative action against environmental crimes. This aligns with broader international efforts, including discussions within the European Union and initiatives by advocacy groups to recognise ecocide as an international crime under the jurisdiction of the International Criminal Court.
So what?
The Ecocide Prevention Bill and its cross-party support signal a growing readiness among policymakers to impose stricter penalties for environmental harm. By specifically targeting executives of influential and high-profile corporations, the proposed legislation sends a clear message condemning environmental destruction. It also tests the premise that enhanced accountability at the leadership level can deter decision-makers from engaging in or enabling practices that severely damage ecosystems.
[Contributor: Haddie Hamal]
IPBES report on biodiversity policy
The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), an independent intergovernmental body comprising almost 150 member governments, has released its Assessment Report on the Interlinkages Among Biodiversity, Water, Food and Health – also known as the Nexus Report. The report represents a rare global consensus, with experts from 57 countries and nearly 150 governments uniting to address the intertwined crises of biodiversity loss, climate change, and resource insecurity.
The report tackles the intertwined global crises of biodiversity loss, water and food insecurity, health risks and climate change, highlighting the concern that by focusing on addressing the challenges in just one sector – such as food, biodiversity or climate change – in isolation seriously limits the chances of meeting other goals.
The report reveals that the unaccounted costs of current economic activity are estimated to range between USD 10 trillion and USD 25 trillion annually — equivalent to roughly a quarter of global GDP. According to the authors, acting swiftly on biodiversity could unlock significant business and innovation opportunities, generating over USD 10 trillion in business value and supporting 395 million jobs globally by 2030. The report also highlights the substantial cost of inaction, estimating that each year of further delay in addressing climate change will result in a minimum additional annual expenditure of 500 billion dollars to meet the necessary adaptation and mitigation goals.
Despite the magnitude of the challenge, the report emphasises that proven solutions already exist. The authors present over 70 response options evaluated for their potential to deliver maximum co-benefits across interconnected or compounding challenges. These include restoring carbon-rich ecosystems, managing biodiversity to reduce risk of diseases spreading from animals to humans, improving integrated landscape and seascape management, urban nature- based solutions, and sustainable healthy diets.
So what?
For businesses, the report underscores both the risks of inaction and the vast potential for positive impact through decisive action on biodiversity. It highlights the enormous economic and reputational benefits of integrating biodiversity into business strategies, with over USD 10 trillion in potential business value. Companies can align with these opportunities by investing in nature-based solutions, sustainable resource management, and biodiversity preservation, simultaneously mitigating risks and driving long-term value for stakeholders.
[Contributor: Federico Ingretolli]
