By David Howe, CEO of Jordisk Consulting

David Howe will speaking at our next Meet the Experts session on Tuesday 11th June. 

It is widely recognised that the private sector has a big role to play to meet global climate commitments and contributing towards a more sustainable economy. Since the Paris climate agreement, many companies have acted voluntarily. Recognising that acting responsibly as a business is not only the right thing to do, but it can also create new opportunities. However, most companies still have a long way to go.

The recent news that Scotland will not meet its climate commitments has prompted a lot of discussion. Generally, the announcement was met with a sigh of disappointment, but for some it will have also prompted questions about what it would take to meet such ambitious commitments. Governments globally are finding it increasingly difficult to meet their commitments made under the Paris agreement in 2015, mostly for political reasons. A good question to ask is which governments are doing better.

The relationship between the state and the private sector has largely been soft when it comes to sustainability matters. A few examples exist such as emission trading schemes, designed to make the heaviest polluters pay for emissions. For the most part though, interventions from international legislators have been few and far between, but things are starting to change.

There is activity globally from legislative bodies who are turning their attention towards ESG regulation focused on private sector interventions. The European Union (EU) is leading under the coverage of the European Green Deal. This broad package of policies has been put together forming the plan for the EU to meet its Paris climate commitments and, in the process, to develop a modern and thriving economy. An economy which is resource efficient and climate neutral.

The Green Deal covers an interlinked set of policy areas, designed to drive the transition bringing all sectors and parts of society forwards together. For companies, the breadth and depth of new regulations is significant. The lead regulation for businesses is the Corporate Sustainability Reporting Directive (CSRD). This obliges large companies to report annually against a set of newly developed standards on ESG topics which are material to their business. This level of transparency will force companies to pay more attention to many topics which otherwise have been ignored.

In other areas, regulations on due diligence requirements will force businesses to take responsibility for environmental and human rights impacts in their value chains. There are also efforts to stop deforestation and forced labour. Companies will no longer be able to turn a blind eye to the negative practices which take place further back in supply chains.

There is a focus on stimulating the circular economy, with contributions from regulations on the design of products, packaging and waste. Business tactics such as designing early obsolescence of products have been banned. New products will have to be produced with increasing volumes of recycled material to reduce the consumption of virgin materials. Products and packaging will have to be more suitable for recycling and Deposit Return Schemes are being adopted broadly across Europe (Sadly not here in Scotland!). Focus is also applied to the longevity of products, requiring producers to design for repair and to provide low-cost repair options for consumers.

Another big area under the regulatory microscope is on the information companies provide about their products and general sustainability related activity. Green claims are made against thousands of products today with more than half of them misleading or simply inaccurate. All

claims in future will need to be independently verified, giving consumers confidence their purchasing power is being applied to products and brands they can trust.

It has taken the whole of the parliamentary term in the EU to develop and adopt the package of legislations which deliver on the Green Deal. With the EU going to the polls in June, a shift in sentiments from politicians is being debated on if these regulations are a step too far. Many businesses believe they are, but most accept that to address climate change and the risks it poses, companies must be prepared to make tough changes to their business models.

The regulations will not be perfect, nor are they likely to meet all of their objectives. What can’t be denied is that the EU as the state legislator is doing what regulators should be doing. Namely setting the rules which businesses must operate in. They are engaging the private sector, forcing them to take action to accelerate the shift towards a more sustainable economy. For companies doing business in the EU, there is a lot to work on over the coming years and the positive impacts are likely to benefit the environment and society significantly.