Four ESG-focused laws to keep on your radar in 2025...

1 – The Economic Crime and Corporate Transparency Act 2023 & ‘Failure to prevent fraud’

The Economic Crime and Corporate Transparency Act (“ECCTA”) contains a new strict liability corporate criminal offence of ‘failure to prevent fraud’ (“FTPF”) by ‘associated persons’. An associated person is anyone who provides services for or on behalf of a company, including its employees. The offence comes into force on 1 September 2025.

The FTPF offence is modelled on the ‘failure to prevent bribery’ offence in the Bribery Act 2010 and provides a similar defence of ‘reasonable’ (rather than ‘adequate’) procedures. Like the Bribery Act, there are potentially unlimited fines for breaches.

Government guidance on ECCTA makes clear that ‘fraud’ for these purposes, includes a wide range of behaviours with a central element of dishonesty. From an ESG perspective, the guidance confirms that behaviour such as greenwashing or falsifying records relating to environmental performance are covered and may expose companies to the risk of prosecution.

What should in-house counsel be doing now?

FTPF is complex, has significant extraterritorial reach, and is intended to act as a catalyst to encourage businesses to conduct careful risk assessments and implement proportionate prevention procedures in response.

Make sure to allow sufficient time and resources to support this workstream in your 2025 planning and consider engaging with expert counsel early in the process. Above all, do not underestimate the complexity of this offence, or the work involved in designing and delivering an appropriately thoughtful response, if your business wants to be in a position to claim the benefit of the ‘reasonable’ procedures defence.

2 – The Digital Markets, Competition and Consumers Act 2023 (“DMCC”)

In the UK, concerns about greenwashing are generally dealt with under the framework of consumer protection law. The primary enforcer for these purposes is the Competition and Markets Authority (“CMA”).

From April 2025, the DMCC will grant the CMA significant new powers to enforce consumer protection law, including the power to directly sanction companies up to 10% of their global turnover for deemed breaches.  The CMA has made clear that greenwashing is a priority, and there is a broad expectation that the CMA will actively seek opportunities to use its new powers.

What should in-house counsel be doing now?

Look carefully at the governance your business has implemented to ensure that green claims are accurate, substantiated and not misleading. If you do not have proper governance in place to manage greenwashing risk or need training to support your understanding of this complex topic, now is the time to act!

3 – The Forest Risk Commodities (“FRC”) regime

The FRC regime is set out in Schedule 17 of the Environment Act 2021. It is not yet in force despite significant support from businesses, including supermarkets and the British Retail Consortium, for the Labour government to bring forward the required implementing legislation. Given the government’s ambitious climate-related targets, it seems likely that this will happen in 2025.

In December 2023, the previous Conservative government indicated that the FRC regime would apply to imports of non-dairy cattle products (beef and leather), cocoa, palm oil and soy (“regulated commodities”). It does not apply to timber which is regulated through a separate regime.

When enacted, the regime will require that in-scope businesses: (i) do not import regulated commodities where they are derived from illegal deforestation, (ii) establish due diligence systems to prevent imports of such commodities, and (iii) report annually on their due diligence systems.

The EU was due to implement its own, more wide-ranging deforestation regulations at the end of 2024, albeit these have been delayed by one year, in part because of the difficulty that businesses were having in preparing their response.

What should in-house counsel be doing now?

Given the likelihood that a version of the FRC regime will be finalised (if not implemented) during the course of 2025, in-scope businesses should begin identifying which ‘regulated’ commodities they are currently importing and start engaging early with key suppliers to ensure that appropriate certifications as to provenance can be provided.

More generally, given the range of legal and reputational risks associated with importing products derived from illegal deforestation, in-house counsel should already be taking steps to ensure robust governance around these issues, whether or not their business might technically be in-scope of the FRC regime. As and when the FRC does become operative, those businesses that have engaged early are likely to experience the least business interruption, as the market converges towards the more limited number of high-quality suppliers that can provide the required assurances.

4 – The UK Sustainability Reporting Standards

On 18 December 2024, the UK Sustainability Disclosure Technical Advisory Committee (“TAC”) endorsed the adoption of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) to support the creation of the UK Sustainability Reporting Standards (“UK SRS”). The TAC noted that adopting the reporting requirements would be “conducive to the long-term public good in the UK”.

IFRS S1 and S2 were created by the International Sustainability Standards Board (“ISSB”), whose objective is to create a global baseline for sustainability-related disclosures. It was reported that, by May 2024, jurisdictions representing more than half of global GDP had taken steps towards adopting ISSB standards.

The design of S1 and S2 has been informed by the design of the Taskforce on Climate-Related Financial Disclosures (better known as the “TCFD”), which is already familiar to certain large and listed entities in the UK. ISSB requires reporting across a range of topics, broadly structured under the themes of (i) governance; (ii) strategy; (iii) metrics and targets; and (iv) risk management, but the focus on sustainability (rather than just climate) means that the scope of required disclosures is significantly broader than the TCFD, potentially looking across a whole host of ESG factors.

The UK government has been a key supporter of the ISSB and is aiming to publish a draft of the UK SRSs in Q1 2025. Once the draft standards are endorsed, the Financial Conduct Authority will be in a position to introduce reporting requirements for UK-listed companies. The government is also then expected to consult on whether a wider category of economically significant companies should also be required to disclose information based on the UK SRS.

What should in-house counsel be doing now?

Given that the UK is some way behind the EU’s work in this space (reporting under the EU’s significantly wider Corporate Sustainability Reporting Directive (“CSRD”) begins in 2025) it seems likely that some version of the UK SRS will be adopted for listed entities and, at the least, larger UK-based businesses, during the course of 2025. It is possible that listed entities will be required to begin reporting as soon as 2026.

In-house counsel should take steps to familiarise themselves with S1 and S2 and ensure that sufficient resources are allocated to support this workstream in due course. Counsel should also consider whether any steps need to be taken quickly so that leadership and other key stakeholders are comfortable with the story being told, when the time to report inevitably arrives.

Proper management of sustainability-related risks and opportunities takes expertise, time, resources and commitment, and businesses will find their focus (or lack of focus) on these topics in sharp and very public view in relatively short order. Businesses that have presented an overly positive story to the market, consumers, regulators or other key stakeholders may be exposed to a range of legal, financial and reputational risks if their reporting under the UK SRS reveals a less sophisticated approach to these topics than has previously been indicated.

Get in touch!

Please do not hesitate to contact the author if you would like to discuss any of the topics raised in this article!

Joshua Domb

Founder, Gen-R Law

jdomb@genrlaw.com

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Please note that this article does not constitute legal advice, and may not be relied upon as such.