New climate laws European companies should look out for

New climate laws European companies should look out for

Over the years the disastrous effects of global warming have been more noticeable than ever before, with several extreme weather events all over the world. Climate action and initiatives therefore have a high urgency, yet climate change is a unique issue in that it requires collaborative and global initiative. For this reason, the EU has taken many important steps to tackle the urgent global warming problem with many different policies and laws. The EU has always been at the forefront of the fight against climate change with initiatives such as the Paris Agreement, the Green Deal, and the sustainable development goals. These were all created with the intent of reducing emissions and mitigating the harm that is being done to the environment as well promote sustainability and social equality. 

 Although these initiatives were an important step in the right direction, EU countries still failed to achieve the goals set out in the Green Deal. Therefore in 2021, the EU has gone even further and made the EU Green Deal legally binding by adopting the European Climate law in which EU countries are obliged to reach 2030 and 2050 climate goals. The law was implemented to progressively cut down emissions and ultimately reach climate neutrality by 2050. In addition to this important advancement, the EU is establishing policies that increase the accountability of companies when it comes to sustainability and ethical behaviour. This article will discuss these new sustainability initiatives and which new policies Companies operating in the EU can expect in 2024. 

The first and most game-changing new law that the EU adopted which will affect businesses immensely is the Corporate Sustainability Reporting Directive (CSRD). This directive has already been submitted by the European Commission at the beginning of 2022 and in June the EU reached an agreement on the proposal. Only now, on the fifth of January 2024, this directive went into force which is an extremely important advancement in sustainability for many reasons.  

What does this directive entail and what does it mean for companies? The new law requires large and listed SMEs operating in the EU to report on their potential risk to the climate and sustainability as well as publish regular reports. It is important to note that the EU already implemented a similar reporting directive which was named the ‘Non-financial Reporting Directive’. This directive, which was already adopted in 2014, also laid down several issues on which companies must report. The following issues are: environmental matters, social and employee issues, anti-bribery and anti-corruption issues, diversity, and respect for human rights.  

What is different about this new directive one may ask? The main difference is that the new directive will have substantially higher reporting requirements and will also increase the number of companies that are subject to the reporting requirements. Furthermore, the EU companies and non-EU companies (with a physical presence in the EU) to which the new directive will apply should meet at least two of these criteria: 250 employees or more, 40 million in net revenue, or 20 million in assets. Companies subject to the directive are obliged to report their impact on environmental factors but also on social factors so policymakers, investors, and customers can better evaluate their efforts.  

As a result, companies should use this directive to establish attainable goals, implement adequate risk management, and improve their supply chain management. Ultimately, this new and improved directive which, of course, also impacts finances, requires companies (in a holistic way) to seriously think about a business strategy with sustainability at its core. This will force companies to take their effect on the environment into serious consideration and work towards a more sustainable future. 

This year there have also been talks about other laws and treaties aimed at improving sustainability in business. The first one is the global plastic treaty that is promised to come into effect near the end of 2024 and is endorsed by 180 nations within the UN. The goal of the treaty will be that governments and businesses will have binding rules and new alternatives for the plastics lifecycle. The treaty should also allow companies to reduce their plastic usage in countries where governments might be reluctant to implement it. 

 Another new EU legislation is the deforestation law that will be implemented from December this year onwards. This new law will protect seven commodity products (soy, beef, palm oil, wood, cocoa, coffee and rubber) that will no longer be sold in the EU if they come from places that are affected by deforestation. Companies, using these products, are required to prove that their products are not sourced in an area where deforestation occurs.  

The last important new law for 2024 is the nature restoration law which was already proposed in 2022 and will be adopted in the coming months of this year. This biodiversity law will create a contribution from large companies by making them responsible for what happens to the environment down past the supply chain to the source of their product. Furthermore, the law should have nature restoration measures in at least 20% of land in the EU by 2030, and in 2050 all ecosystems will have these measures. It is said that products that allow the conservation of biodiversity and nature, have the potential to make 10 trillion per year, which could bring about a major shift in the global economy.

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