Multiple new regulatory proposals are making rapid progress in the European Union, leading the way in addressing climate change and stimulating the social and economic benefits that can come from doing so. According to Deloitte’s EMEA Sustainability Regulation Hub, implementation of the new EU regulations will drive forward the net zero transition in Europe and play an important role in determining the shape of the new sustainable economy.

“If business leaders proactively consider and respond to the evolving landscape of new regulations, they will be better equipped to turn the challenges they face into catalysts to unlock opportunities and drive business value,” Simon Brennan, Magda Puzniak-Holford, Ramon Bravo Gonzalez and Ruth Kilsby stated. 

“In particular, an understanding of emerging sustainability regulation that extends beyond mere compliance will help business leaders steer their companies through the complex technological, economic and social changes required,” they added.

The experts highlight five key themes within which the EU is driving a number of sustainability-focused regulatory initiatives:

Decarbonization: “EU policymakers are prioritizing regulatory measures that target decarbonization across transportation, raw materials and energy. The recent approval of changes to the EU Emissions Trading Scheme (ETS) and Carbon Border Adjustment Mechanism (CBAM) will affect the costs and incentives for companies in these areas–both upstream and downstream in their value chains.”

Greenwashing: “As companies make a broader range of increasingly ambitious claims about the sustainability of their business strategies, products and services, the risk of statements that mislead consumers or investors – whether deliberately or inadvertently – has also risen. Greenwashing has therefore become a key concern for policymakers and regulatory developments are rapidly expanding across industries.”

Transition planning: “Transition planning is a key component of the climate strategy of every company. EU policymakers are finalizing new rules and standards that will require companies to design and disclose credible transition plans aligned with limiting global warming to 1.5 degrees Celsius. By designing, implementing and disclosing credible transition plans, companies can also reduce the risk of greenwashing and improve their access to sources of green finance.”

Supply chains and circularity: “EU policy and changing consumer sentiment towards sustainability will oblige companies to take action to transition from linear to circular economy models. This transition is an immense undertaking and clear direction and support from business leaders is essential. If executed well it has the potential to unlock new revenue streams and reduce companies’ long-term costs.” 

Sustainable finance: “The changing regulatory landscape for financial services (FS) firms will have a significant impact on the cost and availability of financing for companies, whether they rely on banks or capital markets for financing. It will be critical for companies to be able to provide clarity on their transition strategies and evidence of progress made, which will take time to achieve.”

“We believe these thematic areas will significantly affect companies’ business strategies, operating models and financing plans, and will force business leaders to act in 2023 and beyond,” the authors conclude.

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Source: Deloitte Insights