European Climate Law: How Businesses Can Navigate and Thrive Amid Climate Change Regulations
Photo by Carl Court
As the EU sets the global pace for sustainability legislation, businesses must adapt or risk being left behind in a rapidly evolving regulatory landscape.
The European Union (EU) is leading a significant shift toward sustainability, introducing regulations that are changing the way that companies manage their supply chains.
These regulations, including the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), the Carbon Border Adjustment Mechanism (CBAM), the EU Deforestation Regulation (EUDR), and the upcoming Corporate Sustainability Due Diligence Directive (CS3D), are pushing businesses toward an increased level of transparency and accountability.
At DitchCarbon, this topic is something we deal with firsthand.
Here is what you need to know to navigate this evolving landscape.
European Climate Law: Navigating an Ever-Changing Regulatory Environment
The EU regulatory space is constantly changing.
For example, in the past month, EUDR has been delayed to enter into force until 2026, with potential amendments on the way giving companies more time to prepare but also extending uncertainty.
There's also been a buzz surrounding a move by the EU, consolidating CSRD, CS3D, and the EU Taxonomy into a single regulation soon.
While these measures aim to simplify and standardize sustainability practices in the long run, they add nuances and confusion to the business.
As companies scramble to build protocols and capacity for compliance, many find themselves grappling with the complexities and uncertainties of these new requirements.
Climate Action: Key Implementation Dates for EU Regulations (2024-2050)
Before we go any further, knowing the timeline of EU sustainability regulations is crucial for strategic business planning.
Here's a comprehensive overview of key implementation dates:
š EU Sustainability Regulations Timeline
| Year | Regulation | What's coming |
|---|---|---|
| 2025 | CSRD/ESRS | Reporting begins for large listed companies (2024 FY). Gradual phase-in over next 4 years for other companies |
| 2026 | CBAM | Full implementation begins. Mandatory purchase of CBAM certificates for embedded emissions in products |
| 2026 | EUDR | Official enforcement starts. Required data points include GPS coordinates, shape files, and risk assessments for deforestation-linked products |
| 2027+ | CS3D | Initial application to large listed companies. Slowly expanding its scope year-over-year. Embedding comprehensive supply chain due diligence processes in relation to ESG |
As the implementation timeline is quite staggered, businesses should start preparing well in advance to ensure smooth compliance and avoid last-minute scrambling as each regulation comes into effect.
How These Regulations Impact Your Business
Even though each regulation has its specifics, they often overlap. This means you can sometimes address multiple requirements with the same actions.
The applicability of these regulations to your business depends on different factors, including your company size, industry sector, and operational locations.
It's highly likely that your organization falls within the scope of multiple regulatory frameworks, each influencing how you manage your supply chain and overall business operations.
š EU Sustainability Regulations: Scope and applicability for businesses
| Regulation | Scope |
|---|---|
| Corporate Sustainability Reporting Directive (CSRD) | EU-listed companies. Companies with >250 employees, >ā¬40m turnover, or >ā¬20m balance sheet. Non-EU companies with >ā¬150m EU turnover and at least one EU subsidiary |
| EU Taxonomy | Financial market participants offering financial products in the EU. Companies required to provide non-financial statement under NFRD |
| Sustainable Finance Disclosure Regulation (SFDR) | Financial market participants and financial advisors in the EU |
| Corporate Sustainability Due Diligence Directive (CSDDD) | EU companies with >ā¬150m worldwide turnover. Non-EU companies with significant EU operations |
| Carbon Border Adjustment Mechanism (CBAM) | Importers of certain carbon-intensive goods into the EU |
It's crucial to identify which of the rules and standards will apply to your business.
Identifying areas where regulations, such as CSRD and CBAM, that have similar overlapping requirements can make your compliance efforts more efficient.
With changes on the horizon, being able to adapt your strategies is key.
EU Climate: Essential Steps for Business Compliance
Photo by Drazen Zigic
To effectively comply with EU sustainability regulations, companies need to undertake these key actions:
- Build new competencies within the organization
- Train existing staff on sustainability principles and regulations
- Hire specialists in:
- Environmental management
- Sustainable supply chain management
- Procurement
- Data analytics
- Develop robust processes for data management processes
- Assess current data management tools
- Invest in necessary technology upgrades
- Set up systems for:
- Data gathering
- Processing
- Analysis
- Reporting
- Map your supply chain
- Identify compliance risks
- Assess data accessibility challenges
- Document product traceability (especially for EUDR and CS3D)
- Conduct early gap analysis
- Create timeline for addressing identified gaps
Remember to Focus on Impact
While meeting regulatory requirements is essential, it's important not to lose sight of the core goals these pieces of legislation aim to achieve.
The primary purpose of these regulations is to embed sustainability practices into their operations.
Compliance can become a costly and burdensome process if not approached thoughtfully. By focusing solely on meeting minimum requirements and moving on, companies might miss opportunities to create meaningful environmental and social impact.
Reporting and due diligence is a critical component for transparency and accountability, but it is only a starting point.
The real value lies in leveraging the data and insights gained from compliance efforts to make strategic decisions that benefit both the business and environment.
By analyzing this information, it is possible to identify areas for improvement, drive innovation, and implement changes that reduce costs, environmental footprints and enhance your company's social impact.
This proactive approach can lead to cost savings, improved efficiency, and a stronger market position, ultimately benefiting not just the bottom line but also contributing positively to society and the planet.