Regulation is often viewed as a hindrance to business, a requirement to meet or a report to submit. But the EU’s pending sustainability regulatory framework is so much more, providing businesses with the certainty they need to make decisions, invest in the future, and create competitive advantages by leading the world on planet-positive action.
Powered by data technology, new corporate responsibilities towards the climate, biodiversity, human welfare, and workplace rights will transform value chains, making them faster, smarter, safer, and shareable. Critically, these directives are reflective of society’s demands for greater transparency and action, making the right environmental and societal decision also the right business decision.
Leading corporations that recognise this intent and go beyond the regulatory minimum by setting a global standard will benefit reputationally and financially by unlocking new ways of doing business through data-driven insights.
New requirements will separate the policy from the PR
A formidable trio of corporate sustainability regulations that mandate higher visibility standards across value chains are now either in effect, or shortly will be, including:
- The Sustainable Finance Disclosure Regulation (SFDR), which entered into force in March 2021, targets ending greenwashing by setting a common disclosure framework for financial market participants reporting on sustainability-related risks and achievements
- The Corporate Sustainability Reporting Directive (CSRD), which entered into force in January 2023, extends the reach of prior directives to include many more types of enterprise and establishes annual reporting standards on sustainability activities across value chains
- The Corporate Sustainability Due Diligence Directive (CSDDD), which is expected to come into force midway through 2024, will establish a due diligence duty for companies to identify, account for, mitigate, and prevent adverse environmental and human rights impacts in their own operations and across value chains
This new regulatory paradigm will evolve over the next three years as the directives successively apply to a greater number of European companies. While these regulations doubtlessly increase reporting requirements, businesses should welcome the massive opportunity presented by better understanding their own value chains.
With the overwhelming majority of emissions being produced outside of a company’s own operations, other markets - which are currently operating across a patchwork of regulatory requirements - will likely have to undergo the same investments into data and tools over time as the focus shifts to scope 3 emissions, giving Europe’s multinationals a head-start in adapting to the world’s most extensive set of ESG regulations. An example of this effect can be seen in the implementation of General Data Protection Regulation (GDPR), an EU regulatory framework which has been widely adopted by international corporations.
Incoming directives will also mandate corporate disclosures that cover activities and risks relating to human and worker rights across value chains. As is the case with emissions, companies can make faster, more informed decisions when they are empowered with more information, increasing trust with workers, consumers, labour advocates, and investors.
Our latest insight report, From Compliance to Opportunity, looks at how data-powered supply chain transparency will enable European companies to become corporate sustainability leaders.
What’s next for planet-positive regulation?
That is not to say that these policies have been met with unequivocal support. This summer, as heatwaves across Europe threaten new record temperatures, emerging sustainability regulations have some business and political leaders sweating. The landmark Nature Restoration Law, which enshrines legally-binding targets to reverse biodiversity loss by committing the continent to undertake natural restoration measures on at least 20% of the EU’s land and seas by 2030, passed in EU Parliament on July 12th despite opposition from the Parliament’s largest political organisation and French President Emmanuel Macron, who called for ‘a European regulatory break’.
Drastic action is required to reach the Paris agreement’s target of keeping warming below 1.5 °C, and increasing visibility across value chains is critical in understanding where this action needs to be targeted. Europe’s largest companies are in a unique position to capitalise on a decade of experience in navigating existing sustainability regulations. By proactively investing in – and pioneering - data tools to close the information gap, they can establish a global leadership role in value chain transparency, attracting short-term reputational gains and long-term best-practice policies to lessen their exposure to climate, biodiversity, human welfare, and workplace rights risks.
Our work at Xynteo shows that deep collaboration across industries and sectors is essential to drive growth that works for people and the planet. Shareable data has the potential to transform the types of vertical and horizontal partnerships possible, galvanising new possibilities.
For further insights into data-powered value chain transparency, our report, From Compliance to Opportunity, is available below.
Or contact us to find out how we can help your leaders and organisation create planet-positive and inclusive growth.