In Europe, the transition towards a low-carbon and more sustainable society is already reshaping the economy, creating new opportunities, and changing the cost of business activities. For companies, the implications are evident. Not becoming more sustainable will make them vulnerable to loss of revenue and reputation, as well as litigation and regulatory penalties.
Regulation itself is an important driver of these changes and a critical factor for companies in planning how to meet their commitments in terms of transforming their activities. 2024 will be a crucial year for the launch of sustainability regulations. Several key sustainability initiatives will be implemented, and the European Parliament elections in June will determine the direction and level of ambition of the next wave of green economy legislative activity in the Union.
Experts at Deloitte have dedicated a detailed outlook to sustainability regulation, exploring the most urgent developments and their implications on business strategies and operating models.
The European Union’s response to what is called the “climate imperative” begins with the Corporate Sustainability Reporting Directive (Csrd), and for most companies, there is still much to be done to fully meet the new requirements. The Csrd can be leveraged to generate changes and improve efficiency through other regulation-driven developments.
In addition to reporting requirements, the Deloitte document highlights four key themes that companies should focus on this year. The keywords are: circularity, supply chain, decarbonization, and greenwashing.
Circularity
Circularity is an unavoidable theme. “In 2024,” write the experts, “companies should focus on understanding what circular design means for their products and services, with EU regulatory initiatives setting requirements for product design, packaging and packaging waste, the ability to repair products, and end-of-life waste disposal, among other things. The focus on circular design can also create opportunities for companies, such as sourcing secondary materials, designing products using waste from other companies, and offering repair services.”
Supply Chain
The European Union is credited as a pioneering institution globally in defining supply chain sustainability as part of its strategy to decarbonize the economy. The Csrd obliges companies to report not only on their operations but also on upstream and downstream supply chains. This means that companies need to invest more resources in their relationships with suppliers and integrate sustainability risk assessment into their purchasing decisions.
The use of rare metals, contribution to deforestation, and relationships with companies in countries with human rights abuses are among the factors that companies need to evaluate. Regulation, for example, prohibits the sale, import, or export of certain commodities unless it can be demonstrated that they do not contribute to deforestation and are produced in compliance with the relevant legislation of the producing country.
Decarbonization
Decarbonization is the ultimate goal of many of the Union’s initiatives. The Csrd will influence most industrial sectors, obliging companies to monitor emissions and report their reduction targets.
The so-called “Carbon Border Adjustment Mechanism” (Cdam) is another of the many regulatory initiatives launched by the EU. The Cdam requires reporting on emissions data for high carbon intensity products imported such as aluminum, steel, and cement, which will be taxed based on their carbon content from 2026.
Real estate management also faces significant challenges: from 2024, the Energy Performance of Buildings Directive (Epbd) will seek to ensure that buildings across the Union meet certain minimum energy performance requirements. To achieve “net zero,” companies should invest in projects or adopt measures to avoid greenhouse gas emissions or remove them from the atmosphere.
Greenwashing
Finally, to minimize exposure to greenwashing risk, companies must ensure there is no discrepancy between what they claim to do and what they actually do. Under the Empowering Consumers for the Green Transition Directive (Ecgt), corporate communications must change to avoid greenwashing.
From 2026, generic phrases such as “green,” “carbon neutral,” “biodegradable,” and “eco-friendly” will no longer be allowed. Companies will need to ensure that their environmental messages are clear and fully supported.
In this scenario, companies need an action plan that links the parts acting on sustainability through regulation and corporate strategy, and identifies opportunities to increase collaboration between finance, internal risk management, and procurement departments.
Deloitte, Sustainability regulation outlook 2024
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