RenewablesEnsuring compliance with minimum social standards in the production of solar modules

Various laws and regulations at European and national level (including the EU Disclosure Regulation¹, EU Taxonomy Regulation²) emphasise the need for companies to assume social and environmental responsibility beyond their purely economic interests. They also require market participants to monitor their impact on the environment and society, report transparently and implement targeted measures to promote sustainability.

The investment objective of klimaVest, which discloses in accordance with Article 9 of the EU Disclosure Regulation, is to make a positive, measurable³ contribution to achieving environmental objectives within the meaning of the EU Taxonomy Regulation, in particular climate protection ("climate change mitigation") and climate change adaptation. In addition to the assessment of the six environmental objectives of the EU Taxonomy Regulation as part of the so-called “impact and ESG due diligence” to determine the taxonomy alignment of investments, compliance with the minimum social and legal standards is a material topic within the scope of this assessment.

Excursion: What is the EU Taxonomy Regulation? 

The EU Taxonomy Regulation sets out criteria to determine the extent to which an economic activity is to be classified as environmentally sustainable. Its objective is to clearly define the level of environmental sustainability of an investment. Among other things, this regulation affects financial market participants who launch and distribute financial products - including the Commerz Real Group⁴ with the retail fund klimaVest.

The criteria for environmental sustainability focus mainly on the need to achieve certain environmental objectives. The EU Taxonomy Regulation defines a total of six environmental objectives:

In addition, the environmental objectives should not significantly harm each other (do no significant harm, “DNSH”) and minimum social and legal standards must be adhered to.

What are these minimum social and legal standards? 

Companies have a responsibility to ensure that their activities respect and protect human rights. This includes the implementation of a so-called minimum protection or minimum standard that ensures compliance with the OECD Guidelines for Multinational Enterprises⁵ and the United Nations Guiding Principles on Business and Human Rights⁶. This also includes the fundamental principles and rights from the eight core conventions of the International Labour Organisation⁷, as set out in the Declaration on Fundamental Principles and Rights at Work, and from the International Charter of Human Rights⁸.

The minimum protection also includes aspects of good corporate governance, including the fight against corruption, the promotion of fair competition and compliance with tax regulations.

Why is compliance with the minimum social and legal standards so relevant right now?

It was only recently discovered that large automotive corporations in China were involved in the forced labour of Uyghurs. A report by Human Rights Watch shows that these companies failed to minimise the risk of Uyghur forced labour in their aluminium supply chains. Particularly in their Chinese joint ventures, some automotive manufacturers apply weaker standards regarding human rights and responsible sourcing than in other global operations.⁹

However, the issue of forced labour does not only affect the automotive industry, but also the production of solar modules, which are the main component of every photovoltaic system. Almost half of the polysilicon processed in photovoltaics worldwide comes from four large plants in Xinjiang. China is suspected of subjecting the Uyghur minority living in this region to forced labour. The majority of solar projects in the current market have Chinese modules installed or will be installed.

klimaVest has committed to a minimum proportion of taxonomy-aligned assets. To classify an object as “taxonomy-aligned”, social and legal minimum standards must be complied with, among other things.

How does the Commerz Real Group react to this issue?

As part of the regular purchasing process, all direct business partners are checked using the Business Partner Due Diligence Tool. Due to the criticality of the solar module manufacturers, an audit of all component manufacturers must take place regardless of their registered office, even if this is not explicitly required by regulations, as there is no direct business relationship with them.

As a result, the so-called whitelist was introduced: This list provides an assessment of the most important manufacturers by the Commerz Real Group’s sustainability unit based on publicly available information and classifies them as “White Listed” if they meet the minimum standards or as “Black Listed” if they do not. The whitelist serves to ensure an efficient and uniform approach to the analysis of photovoltaic suppliers with regard to minimum social standards as part of the procurement process.