EU Rules Begin To Bite

Tim Mohin
02 Aug

Readers of this newsletter know the extensive array of world-leading sustainability regulations coming out of Europe. While there are still many questions about how all of these policies will work and interact, the time for implementation has arrived.

In the last month, two new regulations have been formally adopted: the EU’s Eco-design Sustainable Products Regulation (ESPR) and the Corporate Sustainability Due Diligence Directive (CSDDD).

The ESPR is a framework regulation that will eventually require the majority of products sold on the EU market (food and medicine are the only exceptions) to make their products more sustainable, or risk penalties still to be determined by member states. A critical and challenging part of this rule is creating digital product passports containing information about materials, repair and recycling instructions, and environmental performance.

Only a few months ago, it looked like the CSDDD might not pass, but after some key changes reduced the number of affected companies, it scraped through. As of July 25th, 2024, it is an official law, and the EU Commission released FAQs to summarize the rules. Member states have until July 2026 to transpose the rule into national law, and the first group of companies must comply by 26 July 2027.

Even more pressing are the deadlines for the EU’s Deforestation Regulation (EUDR) and Corporate Sustainability Reporting Directive (CSRD):

For the EUDR, companies importing products derived from cattle, cocoa, coffee, palm oil, soy, timber, and rubber will need a customs declaration regarding the product’s effects on deforestation by the end of this year. The declaration must prove that the products were not derived from areas deforested or degraded after December 31st, 2020.

For the CSRD, some companies have already begun to report, and thousands more will report next year. Last week, the European Financial Reporting Advisory Group (EFRAG), released a European Sustainability Reporting Standards (ESRS) implementation study, looking at the practices of 28 companies that have already reported using the standards. The study highlights the practices and challenges of these 28 companies, focusing on double materiality, data points, value chains, and more.

The pressing deadline of the EUDR is fueling an international uproar, with the US joining a growing chorus of nations challenging the fairness and feasibility of the rule and asking for a delay. However, the EU will stay the course, with European Environment Commissioner Virginijus Sinkevičius saying, "We are hearing feedback from some stakeholders that preparation for implementation may be challenging. However, we also see encouraging signs in many sectors and countries working to align with EUDR requirements." For example, major cocoa producers - Ghana and the Ivory Coast - have been preparing for EUDR and expressed “deep concerns” over calls for a delay.

The clear message to companies doing business in the EU is, “Get to work—it is time to comply!”

Kamala on the Campaign Trail

Last week, we shared a forecast of a possible Kamala Harris Adminstration from a climate and sustainability lens. Now, as Harris hits the campaign trail, her position on climate is attracting the attention of both Democrats and Republicans.

Harris has received support from long-time climate policy advocate Al Gore and a youth-led environmental justice group, the “Green New Deal Network” (an endorsement that eluded President Biden). These supporters want Harris to reconfirm her commitment to climate policy and The Green Deal. The problem is that so do the Republicans who would like to paint her as an “ultra-liberal” anti-fossil fuel candidate, as they did in this Pennsylvania election ad.

Harris understands the importance of winning votes in key states, like Pennsylvania, a swing state heavily reliant on fracking. In an attempt to appease Pennsylvanians, she announced that she would not ban fracking, reversing her previous stance.

Another way Harris might be looking to shore up support in Pennsylvania is by picking the governor, Josh Shapiro, as her running mate. Shapiro is one of four likely candidates. He has strong approval ratings in Pennsylvania, and his energy policy appeals to both fossil fuel fans and renewable advocates.

With such a gulf in climate positions between the two party’s candidates, most US companies are holding off making new ambitious pledges. Even in Europe, clean energy companies are postponing their plans until after the election.

SBTi Carbon Offsets Indecision

Photo by Iuta Mizushima on Unsplash

The furor over the Science Based Target initiative’s (SBTi) proposed inclusion of carbon credits in their Net Zero Standard continued this week when the group issued mixed messages on the issue.

SBTi released a discussion paper proposing three scenarios where offsets could be used in future revised versions of their standard. On the same day, they released a review of the evidence of carbon credits' ability to reduce carbon. They concluded that “various types of carbon credits are ineffective in delivering their intended mitigation outcomes.”

Trying to steady the ship, SBTi’s chief technical officer, Alberto Carrillo Pineda, said, “The SBTi believes that direct decarbonization must remain the priority for corporate climate action and looks forward to the extensive public consultation on the draft Corporate Net-Zero Standard.”

This lack of clarity keeps the SBTi at the center of a broader discussion on the role and reliability of carbon offsets in meeting climate targets. I shared my two cents in this FT article: “While NGOs push for offsets to be banned altogether… they (offsets) are here to stay either way, so the focus should be on improving the quality and disclosure surrounding them.”

With the departure of SBTi’s CEO Luiz Amaral, there will be more chapters in this story as they change leadership and its new draft standard is released before the end of the year.

IASB Proposes Climate Risk Reporting Guidance

The International Accounting Standards Board (IASB) produces the financial accounting standard used in more than 140 countries. The IASB is housed under the same group as the International Sustainability Standards Board (ISSB), the International Financial Reporting Standards (IFRS).

This week, the IASB released illustrative guidance on how companies can use their accounting standards when reporting the effects of climate-related risks in their financial statements. The examples do not change the standards but provide guidance on how climate risks can be integrated with financial reports, strengthening the connection between financial and non-financial disclosures.

Andreas Barckow, Chair of the IASB, said, “Investors have clearly communicated that they factor climate-related risks into their decision-making process. Although our Accounting Standards already address such risks, we have identified a need for illustrative examples to improve the application of these requirements.”

The IASB has invited stakeholders to comment on the guidance by 28 November 2024.

Interoperability for Nature

The Global Reporting Initiative (GRI) and Taskforce on Nature-related Disclosures (TNFD) have released an interoperability mapping tool to show where the two standards are aligned on biodiversity reporting. The mapping tool shows a high level of alignment across the concepts, definitions, and disclosure metrics in the GRI 101: Biodiversity 2024 standard and the TNFD recommendations.

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.

Other Notable News:

A new US energy permitting bill currently making its way through the Senate is aimed at easing the administrative burden for both renewables and fossil fuels projects. More than 360 climate and environment groups wrote a letter opposing the bill due to its potential misuse.
Wildfires are getting hotter, bigger, more frequent, and are coming earlier in the year, but are they the result of a warming climate? In a word, yes, but it is not the only factor.
Thailand is set to become the second East Asian country to require a carbon tax. The tax is expected to be implemented next year and will charge US$5.60 per tonne of CO2e to imported diesel and gasoline.
This new white paper from my company, BCG, looks at how banks can turn accelerating physical climate risks into opportunities through accurate quantification.
New research has found that US oil and gas facilities are leaking as much as four times the methane as previously predicted. This wasted gas would be enough to power half of American homes each year.
Despite renewables adoption, accelerating increases in energy needs and increased coal use in 2023 are expected to level out in 2025.
This new report from BCG looks at the viability of carbon capture and utilization by looking at four potential applications for the captured carbon.
A new review of the effects of London’s low emissions zone has revealed that the policy has been hugely successful, substantially reducing most harmful air pollutants. This report could be pivotal in other cities creating no car or low emissions zones.
81% of c-suite executives recognize the need to mitigate AI’s carbon emissions. However, 57% believe that AI will accelerate climate action to make up for its huge footprint.

Notable Podcasts:

I was featured on this week’s edition of The Planet Pulse with CO2 AI CEO Charlotte Degot.
The NYT’s The Daily podcast explored a new multi-billion nuclear plan backed by Bill Gates that is revolutionizing nuclear energy in the US. TerraPower has broken ground on its first reactor in Wyoming to demonstrate how the new type of reactor is safer, cheaper, easier to build, and—of course—lower in emissions.
In this week’s episode of the BBC’s The Climate Question, host Grahaig Jackson asks if science fiction storytelling helps solve the climate crisis. The episode involves a discussion with acclaimed US sci-fi author Kim Stanley Robinson, who usually includes climate change as one of the main themes in her work.

Notable Jobs:

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