Overview of legislation
Welcome to the Environmental and Sustainability Legislation page. It is designed to provide a comprehensive overview of key legislative frameworks, initiatives, and regulations that drive sustainability and corporate responsibility. Our goal is to inform you about the various laws and policies that govern environmental and social protection and promote sustainable practices. By understanding these legislative requirements, organisations and individuals can better navigate compliance, contribute to environmental stewardship, and integrate sustainable practices into their operations.
CSRD - Corporate Sustainability Reporting Directive
Large companies: Any company in the EU that has more than 250 employees, a net turnover of more than €50 million, or a balance sheet over €25 million (two out of three). Applies step-by-step:
Reporting year 2024 - companies that are public interest entities with more than 500 employees
Reporting year 2025 - other large companies
Reporting year 2026 -listed SMEs will start, but they can delay until 2028 if needed.
Listed SMEs: Small and Medium-Sized Enterprises (SMEs) that are listed on stock markets also need to report but have simpler requirements.
The report needs to be prepared according to European Sustainability Reporting Standards (ESRS), a set of rules on what information needs to be disclosed. The report has to cover material sustainability matters taking account both organisation and its significant stakeholder views.
Double Materiality assessment (DMA) is the cornerstone of the reporting. It requires to look at two angles:
How does their business impact people and the planet (impact materiality)?
How external sustainability issues affect their business (financial materiality)?
To ensure the reports are accurate, companies must have their sustainability reports verified by an independent third party (an auditor)
Reports must be submitted in a machine-readable digital format (xhtml)
Majority of SMEs do not have reporting requirement but as they are often part of bigger companies' value chains, they are affected by data requests
Listed SMEs have until 2028 to fully comply, giving them time to adjust.
Who is affected
What needs to be done
How this affects SMEs
Why CSRD is Important
Transparency
It helps the public, investors, and other stakeholders to understand how companies are contributing to sustainability transformation
Better Decision-Making
With clearer information and measurable data, companies themselves but also investors can make better choices about where to invest their money
Improved Risk Management
Companies that do sustainability risk assessments (DMA) and report on sustainability are better prepared for risks related to environmental and social issues
Taxonomy
Who is affected
Large companies: If you have sustainability reporting obligation, you also need to report on EU taxonomy.
How this affects SMEs
SME do not have taxonomy reporting requirement, but can use it to:
Attract Investment: Aligning with the EU Taxonomy can help SMEs access green finance by proving their activities are sustainable.
Prepare for the Future: Meeting these criteria positions SMEs to be competitive in a growing, sustainable economy.
What needs to be done
Mapping of environmentally sustainable activities and planning for investments that are environmentally sustainable. For an organisation's activity and investment to be considered environmentally sustainable, it must meet two key criterias:Climate Change Mitigation: Reducing greenhouse gas emissions (e.g., renewable energy projects like solar or wind).
Climate Change Adaptation: Making business operations more resilient to climate impacts (e.g., flood protection measures).
Transition to circular economy: Aiming to create a system that extends the life cycle of products (e.g., recycling, repairing, refurbishing, and sharing existing materials).
Pollution Prevention and Control: Addressing the need to eliminate pollution in air, soil, water, living organisms and food resources to reduce harmful impacts on human health (e.g., cleaner technologies).
Sustainable use and protection of water and marine resources: Addressing the negative impacts of urban and industrial wastewater discharges (e.g. drip irrigation systems)
Protection and restoration of biodiversity and ecosystems: Addressing the importance of preserving or restoring healthy ecosystems and biodiversity (e.g. removing dams for river connectivity)
1. Contribution to Environmental Objectives
The activity must help achieve at least one of the following environmental goals:
2. Do No Significant Harm (DNSH)
The activity must not significantly harm other environmental goals. For example, a project reducing carbon emissions should not cause water pollution or damage the ecosystem.
Why is EU taxonomy important?
The EU Taxonomy aims to
1
Provide clarity for companies and investors on which activities are considered sustainable, thereby preventing greenwashing.
2
Help companies to plan and finance the transition to sustainability.
3
Support the EU's goal of achieving climate neutrality by 2050.
4
Enable the financial sector to align investments with broader sustainability goals, encouraging responsible investment practices.
Corporate Sustainability Due Diligence Directive (CSDDD)
build stronger relationships with customers, partners, and the public resulting in increased loyalty, brand reputation and innovation through cooperation
lead to higher customer satisfaction and employee engagement through commitment to ethical practises and a healthy work environment
reduce risks, such as legal liability or reputational damage
Who is affected
With gradual approach from 2027-2029:
Large EU limited liability companies & partnerships: > 1000 employees and > EUR 450 million turnover (net) worldwide.
Large non–EU companies: > EUR 450 million turnover (net) in the EU.
How this affects SMEs
SMEs are not covered by the proposed rules. However, SMEs could be indirectly affected as business partners in value chains. SMEs will be expected to adopt similar sustainability values than its large clients.
What needs to be done
The regulation mandates that companies identify, prevent, and mitigate adverse impacts on both human rights and the environment across their operations, subsidiaries, and value chains, ensuring that their business activities are sustainable and responsible. This involves assessing risks, implementing preventive measures, and tracking effectiveness. Companies must ensure that their business practices do not contribute to human rights violations (e.g., forced labor) or environmental harm (e.g. pollution). Grievance mechanisms need to be established for affected stakeholders and companies need to be transparent in reporting their due diligence activities.
Large companies need to adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, that the business model and strategy of the company are compatible with the transition to a sustainable economy and with the limiting of global warming to 1,5° C in line with the Paris Agreement and the objective of achieving climate neutrality by 2050.
Why is corporate due diligence important?
Carrying out due diligence promotes responsible business conduct, fosters sustainable development, and contributes to the protection of human rights and the environment on a global scale by ensuring that companies operating in the EU adhere to high ethical standards throughout their supply chains. It can:
Sustainable Finance Disclosure Regulation (SFDR)
Who is affected
Large financial institutions and market participants (since March 2021)
How this affects SMEs
SMEs might be indirectly affected by data requests when financed or seeking investments from entities bound by SFDR (eg banks)
What needs to be done
Financial market participants and financial advisers need to be transparent in relation to sustainability risks, the consideration of adverse sustainability impacts in their investment processes and the provision of sustainability-related information with respect to financial products. Asset managers need to provide standardised disclosures on how ESG factors are integrated at both an entity and product level. Additional transparency is required on company websites, in prospectuses and in periodic reports.
Why are sustainable finance disclosures important?
The goal of SFDR is to improve transparency, comparability, and the quality of sustainable investing. It is about avoiding or mitigating risks posed by different sustainability matters that will improve risk-adjusted financial performance and allow information users to make informed decisions.
Alongside improving the performance of financial capital, the goal is also shifting capital allocation towards economies that meet global climate and nature targets.
The Green Deal
Main Goals of the European Green Deal
Climate Neutrality by 2050
The EU wants to reduce its net greenhouse gas emissions to zero by 2050, becoming the first continent to reach climate neutrality.
Sustainable Growth
The goal is to grow the economy without using up natural resources.
Fair and Inclusive Transition
The Green Deal ensures that the shift to a green economy is fair and leaves no one behind, especially communities that rely on high-polluting industries.
Key Components of the European Green Deal
1. Climate Action
Net Zero Emissions by 2050: The EU aims to reduce emissions by 55% by 2030 (compared to 1990 levels) and reach net zero by 2050.
Clean Energy: Transitioning to renewable energy sources and increasing energy efficiency across the EU.
2. Circular Economy
Recycling and Waste Reduction
The Green Deal promotes a circular economy where materials are reused and recycled as much as possible, reducing waste.
3. Biodiversity
Protecting Nature
The EU plans to protect and restore ecosystems by increasing protected areas and planting 3 billion trees by 2030.
4. Farm to Fork
Sustainable Food Systems
This strategy aims to make food production more sustainable and reduce the use of pesticides and antibiotics in farming.
5. Sustainable Mobility
Green Transportation
The EU promotes clean and smart transport systems, such as electric vehicles and expanded public transportation, to cut emissions from transport.
6. Zero Pollution Ambition
Toxic-Free Environment
The EU aims to reduce pollution in air, water, and soil to protect both human health and the environment.
7. Green Finance and Just Transition
Investing in Green Projects: The Green Deal emphasizes the need for public and private investments in sustainable projects.
Just Transition Mechanism: This provides financial support to regions and workers most affected by the shift to a green economy, like coal-dependent areas.
8. Research, Innovation, and Education
New Technologies: Investing in research and innovation to develop green technologies.
Education: Training programs to equip people with skills for green jobs.
Who is affected?
The European Green Deal impacts companies by introducing new sustainability related directives and regulations, including stricter environmental regulations, leading to potential compliance costs as they adapt to new standards. However, it also presents opportunities for growth, particularly in sustainable products and services, as well as access to sustainable financing. Companies can benefit from funding, technical assistance, and support for innovation, making them more competitive in a market increasingly driven by sustainability. On the downside, they may face challenges due to limited resources and expertise, but those that successfully adapt can enhance their long-term resilience and market position.How this affects SMEs?
While the Green Deal and new regulations do not set obligations on SME-s, as they are in the value chain of larger companies and other interested stakeholders, they are indirectly affected and also need to demonstrate how their activities and business model remain resilient in changing conditions.
Paris agreement
Main Goals of the Paris Agreement
1. Limit Global Warming
The agreement aims to keep the rise in global temperatures well below 2°C compared to pre-industrial levels and encourages efforts to limit it to 1.5°C.
2. Commitment by Countries
Every country involved in the agreement must create and share a plan, known as a Nationally Determined Contribution (NDC), outlining how they will reduce their greenhouse gas emissions. Countries must update these plans regularly.
3. Review Progress
Every five years, countries come together to review progress towards the temperature goals and see how they can do better. This review is called a "global stocktake.
4. Adaptation to Climate Change
Countries are encouraged to strengthen their plans to adapt to climate change impacts, focusing on becoming more resilient and reducing risks.
5. Climate Finance
Richer countries are expected to provide financial help to poorer countries to support both their climate change efforts and adaptation strategies. A goal of $100 billion per year was set for 2020, with continued support beyond that.
6. Monitoring and Reporting
Countries must regularly report their progress, showing how they are meeting their climate goals. This ensures transparency and allows for international review.
7. Net Zero Emissions
The agreement supports the long-term goal of achieving net zero emissions in the second half of this century. This means balancing the amount of greenhouse gases released with the amount removed from the atmosphere.
The Green Deal and its regulatory framework is the result of the Paris Agreement.
Who is affected
The Paris Agreement addresses the climate change issue, which is an integral part of the Green Deal but not the only environmental matter companies, both large and small companies, need to address in coming years. Large companies will have higher regulatory pressure, which means stricter emissions standards, energy efficiency requirements, and mandatory reporting on carbon footprints and climate transition plans.
How this affects SMEs
SME-s in the value chain will face expectations to adopt similar practices. SMEs that fail to align with these expectations risk losing business opportunities.
What needs to be done
The shift towards a low-carbon economy opens up new markets and opportunities for companies. Businesses that innovate in areas such as renewable energy, energy efficiency, or sustainable products may find growing demand for their offerings. All companies need to rethink existing products and processes to reduce environmental and social impact to stay resilient.
While adopting sustainable practices can lead to long-term savings, the initial cost of implementing new technologies or processes can be a burden for companies. However, failing to act might result in higher costs over time due to regulatory fines, higher energy prices, or loss of business.
Many financial institutions are now integrating climate risk into their lending criteria. Companies that are proactive in adopting sustainable practices might find it easier to access finance or could benefit from lower interest rates. Conversely, those lagging might face higher borrowing costs or difficulties in obtaining financing.
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