Climate change is increasingly destroying people, nature, and livelihoods, and to counter them, governments worldwide are taking action. Undoubtedly, the EU is leading the charge as it strives to be the first climate-neutral continent in the world. A good first step towards this goal is the European Green Deal.
Read on to know what this regulation is that aims to fight climate change and what it means for businesses.
The European Green Deal: A Quick Overview
The European Green Deal is an ambitious plan to address climate change, resource depletion, and environmental degradation. Its key goals include:
- Reduce emissions by 55% before 2030 compared to 1990 levels and reach carbon neutrality by 2050.
- Promote a circular economy and encourage industries to use resources more efficiently and reduce waste.
- Restore ecosystems, reduce pollution, and promote biodiversity.
- Invest in renewable energy sources like wind and solar to shift away from fossil fuels.
- Plant three billion additional trees by 2030.
- Create a healthy food system for people and the planet.
The European Green Deal also addresses social justice, with an emphasis on ensuring that the transition to a greener economy is fair and inclusive. This includes initiatives like the Just Transition Mechanism, which supports regions and industries most affected by the shift to sustainability.
Now that you know the key provisions, let’s move to how this Green Deal impacts corporate compliance.
How the European Green Deal Impacts Corporate Compliance
To comply with the Green Deal, companies must navigate more regulations, report sustainability initiatives, and create environmental accountability. The pressure to adhere to these new standards spans many areas of business operations, including the ones described below.
Sustainability Reporting and Disclosures
One of the most immediate effects of the European Green Deal is the increased reporting requirements for companies, particularly through the Corporate Sustainability Reporting Directive (CSRD). This directive, which replaces the Non-Financial Reporting Directive (NFRD), broadens the scope of companies required to report on their environmental and social impacts.
A part of this deal is that more companies, including small and medium-sized enterprises (SMEs), are now subject to sustainability reporting requirements. Moreover, the reports must adhere to the EU’s new sustainability reporting standards and framework, as this ensures consistency and comparability across industries. Lastly, the sustainability reports must be audited by an independent party.
These changes mean that businesses will need to invest in systems that track their environmental impact, greenhouse gas emissions, and resource consumption. Also, compliance teams will need to work closely with environmental specialists to ensure accurate and comprehensive reporting.
Energy and Carbon Management
The Green Deal’s focus increases the compliance burden for energy-intensive industries. The EU Emissions Trading System (ETS), a part of the Green Deal, caps the total level of emissions allowed and requires companies to purchase allowances for their emissions. This cap forces companies to adopt cleaner technologies to stay compliant. Also, as the price of carbon allowances rises, companies that fail to reduce their emissions will see their operating costs increase, providing a strong incentive for sustainable practices.
Additionally, businesses must monitor their carbon footprint closely and work actively to reduce them. In part, they must adopt strategies like energy efficiency improvements, transitioning to renewable energy, and purchasing carbon credits to remain compliant with the Green Deal’s emission standards.
Circular Economy and Waste Management
A major component of the Green Deal is the shift toward a circular economy, where resources are reused, recycled, or refurbished, to minimize waste and environmental impact. The EU Circular Economy Action Plan outlines strict regulations on product lifecycle management, encouraging businesses to adopt sustainable practices in their production and consumption models. These new regulations require companies to design products that are durable, repairable, and recyclable. Non-compliant products could be restricted from entering the EU market.
Under this Green Deal, companies are now responsible for the entire lifecycle of their products, from production to disposal. This includes collecting and recycling products at the end of their life. Moreover, compliance teams must ensure that product development, supply chains, and waste management practices align with these new regulations, which often requires collaboration across multiple departments and external stakeholders.
Supply Chain Compliance
The Green Deal also increases the pressure on companies to ensure that their supply chains are environmentally sustainable and compliant with EU regulations. This is particularly relevant in industries like manufacturing, agriculture, and energy, where supply chains have significant environmental footprints. Companies must conduct environmental due diligence on their suppliers, ensuring that raw materials and products are sourced responsibly and sustainably. Also, they must disclose information about the environmental impact of their supply chains, including emissions, resource use, and waste generation.
This expanded focus on supply chain compliance adds complexity to corporate compliance frameworks. Companies will need to develop systems for monitoring and reporting on the environmental impact of their suppliers, ensuring compliance with EU standards at every stage of the supply chain.
Fines and Legal Consequences for Non-Compliance
The penalties for non-compliance with the European Green Deal are severe. Companies that fail to meet the Green Deal’s standards face hefty fines, legal challenges, and reputational damage. For example, failure to comply with the EU ETS can result in penalties of €100 per ton of CO2 emitted above the company’s allowance. Besides financial penalties, non-compliance can result in restrictions on a company’s ability to operate in the EU market, damage to its reputation, and the loss of contracts with environmentally conscious customers and partners.
As you can see, the European Green Deal indirectly forces companies to take steps toward environmental sustainability, which in turn, can reduce climate change. To meet these requirements, companies must:
- Work closely with regulators, industry associations, and sustainability experts to stay informed about new regulations and best practices.
- Use digital tools and technologies to track and report on environmental impacts, carbon emissions, and resource usage.
- Train employees, especially those in compliance, legal, and environmental roles.
- Develop a sustainable strategy, and set measurable goals for reducing emissions, waste, and resource use.
- Work with your supply chain partners to ensure that they meet Green Deal’s environmental standards.
With such measures, you can comply with these regulations and eventually help the world become a better place.
Final Thoughts
The European Green Deal is a good step forward to combat the problem of climate change. However, it puts greater pressure on companies to adopt sustainable practices and measure and track their efforts. At the same time, it also presents a unique opportunity for businesses to position themselves as leaders in the transition to a greener economy. The Green Deal isn’t just about compliance—but rather a means for companies to innovate, improve efficiency, and contribute to a sustainable future.