Key news in this edition:
- South African advertising regulator makes first ‘greenwashing ruling’.
- UK announces plans for new regulations on ESG rating agencies.
- Luxury fashion brands targeted by Italian regulators for labour exploitation in their supply chains.
editorial
In both the UK and Africa the ESG regulatory environment is continuing to develop. The UK is progressing plans for regulating ESG ratings agencies, a long overdue move that will bring the UK in line with European standards and start to bring some needed consistency and transparency to ESG ratings. Although the African ESG regulatory landscape is less developed, a new greenwashing ruling by the South African Advertising Regulatory Board shows how ESG accountability can be administered in creative ways. As expected, supply chains are also coming under greater scrutiny ahead of the CSDDD. In Italy we are seeing an investigative and judicial focus on ensuring that domestic firms are holding their suppliers to account for labour practices in the supply chain.
South African advertising regulator makes first ‘greenwashing’ ruling
On 14 August 2024, the South African Advertising Regulatory Board (‘SAARB’) made a landmark ruling on its first ‘greenwashing’ complaint, filed by Fossil Free South Africa (‘FFSA’), a local non-profit campaigning for divestment from fossil fuels, against TotalEnergies Marketing South Africa (Pty) Ltd (‘TotalEnergies’), a South African subsidiary of the global energy company. FFSA took issue with a statement made by TotalEnergies as part of a marketing campaign in partnership with South African National Parks (‘SANParks’), in which TotalEnergies stated “We’re committed to sustainable development and environmental protection”. FFSA argued that this claim constitutes greenwashing, on the basis that TotalEnergies is one of the world’s biggest emitters of greenhouse gases, and continues to invest in new fossil fuel projects.
The SAARB ruled that TotalEnergies’ long-standing support of SANParks could reasonably be seen as a commitment to environmental protection, given SANParks’ mandate for environmental conservation. However, SAARB also ruled that the core business of TotalEnergies, being investment in fossil fuels, is “directly opposed to the issue of sustainable development”. TotalEnergies is not a member of the SAARB, which does not have jurisdiction over non-members, and therefore was unable to place any restrictions on the energy company. However, SAARB instructed its members not to accept any advertising from TotalEnergies with the wording “committed to sustainable development”, relating to its support of SANParks.
So what?
The African ESG regulatory landscape remains under-developed, as few countries have legislated mandatory reporting requirements or restrictive ESG protections. However, the SAARB ruling serves as an indicator that an ESG lens can be applied to existing regulation, and a reminder that ESG accountability can be administered in creative ways, even in the absence of formal legislation.
[Contributor: Emma Shewell]
Californian court upholds Uber and Lyft ruling
On 25 July the California Supreme Court ruled unanimously that drivers for the ride hailing app companies Uber and Lyft are independent contractors and not employees of the companies. This ruling upholds a 2020 law which defines the status of drivers. As a result, drivers are not entitled to benefits including overtime pay, sick leave, unemployment insurance and the right to form a union. The ruling comes as the definitive end to a long-standing legal dispute between labour unions and tech companies.
So what?
This is a significant ruling on how workers in the gig economy are classified and treated. The ruling has been called a major victory for both companies, who threatened to limit or even end their service in California if the 2020 law had not of been upheld. This ruling is particularly noteworthy given it comes in one of the most regulated and liberal of American states, and it sets a precedent for the continuing growth of employment in the gig economy, and how workers in other gig economy roles will be treated and classified. In the wake of the ruling, labor rights groups across the US are expected to advocate for more job protection measures, higher pay and more benefits.
[Contributor: Nickolas Bruetsch]
UK announces plans of new regulations on ESG rating agencies
On 8 August, Rachel Reeves, the UK Chancellor of the Exchequer, announced further progress on introducing regulations on companies providing ESG performance ratings.
It is anticipated the new legislation will reflect recommendations made by the International Organisation for Securities Commissions in its 2022 report which outlines how the ESG rating sector should be regulated. In the UK, the industry is expected to be supervised by the Financial Conduct Authority (FCA), which also regulates the financial sector. Work on the new regulatory framework had already started earlier this year under the previous government, including an initial public consultation. The current government has announced industry consultation and plans to bring the legislation to Parliament in early 2025.
Providers of ESG ratings are currently not bound by any regulatory standards and may simply choose to comply with a voluntary code of conduct which was introduced in December 2023 by the FCA and the International Capital Market Association.
The new framework is expected to put the UK in line with similar measures introduced in the EU, such as the Regulation on the Transparency and Integrity of ESG Rating Activities, which is expected to come into force in the first half of 2026.
so what?
ESG rating agencies hold significant sway in the financial sector, as many asset managers and pension funds rely on these independent ratings when making stock selection decisions. However, the lack of regulation has contributed to wildly varying methodologies and inconsistent ratings. The planned framework may make the ESG rating process more transparent and consistent among different providers, and create more of a balance between the ‘environmental’, ‘social’, or ‘governance’ elements of an overall ESG score.
[Contributor: Dominik Wilk]
FCA announces new listing rules
In July 2024, the Financial Conduct Authority (‘FCA’), the UK's financial regulatory body, published new rules that ultimately make it more straightforward for businesses to list shares in the UK. The FCA says that this move better aligns the UK’s regulatory rules with international standards. The new practices remove the need to vote on significant or related-party transactions, and generally offer further flexibility around enhanced voting rights. The FCA has made it clear that while these changes involve greater risk, the organisation believes the new rules more accurately reflect the current risk environment, and are key to ultimately reinvigorating capital markets. The new rules took effect on 29 July 2024, and represent the most significant change to the FCA and UK’s listing regime in the last 30 years.
so what?
These new rules indicate a significant change in the FCA’s listing regime, and reflect changing attitudes towards risk, both in the market itself and for the FCA. There are concerns that the new listing rules could weaken the UK’s corporate governance standards and they come at a time when the ESG standards of UK listed firms are already under greater scrutiny amid the potential Shein IPO. The FCA will be paying very close attention to how businesses respond to these changes.
[Contributor: Haddie Hamal]
Luxury fashion brands targeted by Italian regulators for labour exploitation in their supply chains
Two subsidiaries of Georgio Armani and LVMH’s Christian Dior have been placed under judicial administration for failure to audit their supply chain.
This comes after Italian police launched an investigation earlier this year into four handbag suppliers contracted by Christian Dior. The investigation found that workers were systematically abused, being forced to sleep in the workplace to ensure labour was available 24 hours a day and safety devices were removed from machinery to boost output. The prosecutors alleged that Dior failed to carry out periodic audits of its suppliers. The Milan court subsequently placed the subsidiary under judicial administration in June. Dior itself has not been subject to any criminal probe.
The Georgio Armani investigation found labour exploitation issues within four Chinese companies in its supply chain, who have workshops based in Milan. The companies allegedly employed Chinese and Pakistani migrants without legal documents or proper contracts, the workers lived in workshops and were exposed to potentially dangerous chemical substances.
Both the Dior and Armani subsidiaries will continue to operate for the one year they are under judicial administration.
so what?
Such investigations are shining a light on the labour practices used by companies within Europe, and particularly Italy, where small international manufacturers seek to claim ‘Made in Italy’ labels, but use poor labour practices to produce at very low cost. We expect to see more of these investigations, particularly focused on luxury goods which rely on marketing themselves as produced in Europe.
Supply chain practices and audits are beginning to be taken more seriously by large international firms as they consider CSDDD requirements over the coming years, but judicial investigations and reputational concerns may see them prioritised even quicker.
[Contributor: Esther Yu]
