In this dynamic and ever-evolving regulatory environment, businesses find themselves at a crossroads, facing both challenges and opportunities. While these regulations bring forth new compliance obligations, they also open doors to innovation, sustainability, and competitive advantage. It's no longer a question of whether businesses should pay attention to these developments but rather a matter of how well they can adapt and thrive in a world where environmental responsibility is paramount.
Here we'll explore a selection of these new and pending EU regulations, each with its unique scope and impact. From the Corporate Sustainability Reporting Directive and Carbon Border Adjustment Mechanism to the Energy Efficiency Directive and Streamlined Energy and Carbon Reporting, we'll provide insights into what these regulations entail, why they matter to businesses and how companies can prepare for compliance.
Streamlined Energy and Carbon Reporting
The Streamlined Energy and Carbon Reporting (SECR) requirement is a UK initiative to enhance transparency and improve energy efficiency in businesses. It mandates large UK companies and LLPs to report their annual energy use, carbon emissions, and energy efficiency actions in their directors’ reports. SECR applies to quoted companies and large unquoted companies and LLPs meeting at least two criteria: over 250 employees, annual turnover exceeding £36 million, or a balance sheet total over £18 million.
To comply, businesses should establish systems for accurate data collection, conduct regular energy audits, implement energy management systems like ISO 50001, train staff on energy efficiency practices, and ensure thorough reporting in annual directors’ reports. Staying informed about regulatory updates is also essential. Compliance helps reduce energy costs and supports environmental sustainability.
Energy Efficiency Directive
The Energy Efficiency Directive (EED) is an EU legislative measure aimed at promoting energy efficiency to achieve significant energy savings by 2030. It sets binding measures for member states, public sectors, large enterprises, and energy companies. Member states must implement national energy efficiency plans and public buildings must undergo annual renovations to meet performance standards. Large enterprises must conduct energy audits every four years, while energy companies need to achieve annual energy savings of 1.5% of their sales.
Businesses can prepare by conducting regular energy audits, adopting energy management systems like ISO 50001, upgrading to energy-efficient technologies, training staff, and establishing robust monitoring and reporting systems. Staying informed about legislative changes is also crucial. Compliance not only meets regulatory requirements but also reduces energy costs and enhances sustainability.
The Energy Efficiency Directive (EED) translates to the Energy Savings Opportunity Scheme (ESOS) in the United Kingdom. ESOS is the UK's implementation of the EED, requiring large organizations to assess their energy usage and identify opportunities for improvement. Under ESOS, organizations with more than 250 employees or an annual turnover exceeding £44 million must conduct energy audits every four years. These audits help businesses identify cost-effective energy-saving measures.
Compliance with ESOS ensures alignment with the EED's goals, promoting energy efficiency and reducing overall energy consumption in the UK.
EU CSRD: Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive (CSRD) is reshaping how companies in the European Union disclose their social and environmental impacts. The CSRD mandates that all large companies and listed companies provide detailed information on their environmental and social activities, risks, and opportunities.
This directive, currently in effect with a phased implementation, aims to create a more comprehensive and standardized framework for sustainability reporting. It impacts an estimated 49,000 EU and U.S.-based companies with significant EU operations, as well as countless more companies that are part of the supply chains of these directly affected businesses.
EU CBAM: Carbon Border Adjustment Mechanism
The European Union's Carbon Border Adjustment Mechanism (CBAM) represents another significant step in climate action. CBAM introduces an import tax on products deemed carbon-intensive, focusing on energy-intensive industries. This measure seeks to level the playing field for EU-based companies, ensuring they don't face unfair competition from regions with lax environmental standards.
CBAM's transitional period, running from October 2023 to December 2025, will be closely monitored by companies with operations in the EU that import carbon-intensive items. The first report under CBAM must be submitted by January 31, 2024, marking a pivotal moment for businesses to assess their carbon footprint and compliance obligations.
Conclusion
The global commitment to addressing climate change is translating into a rapidly evolving regulatory landscape. Companies, whether operating in the European Union, or beyond, need to stay vigilant and proactive in understanding and complying with these new and pending regulations.
Adapting to these changes not only ensures legal compliance but also positions businesses to thrive in a world where sustainability is increasingly essential. With each regulation comes a fresh opportunity to proactively respond to climate change while driving innovation and competitive advantage.
Have questions about climate change mitigation and adaptation for your business? Contact our Greenhouse Gas and Climate Change Advisory team.
