The Global Impact of European ESG Initiatives
European sustainability regulation often has global implications by design, as rules apply to both EU companies and international companies with EU subsidiaries. Hellman explained that the intention of climate policy is always to encourage other nations to follow in the EU’s footsteps. Especially with Europe’s very close partners, such as Norway and the UK, climate policy usually has a “strong sense of coordination.” He gave the example of the Carbon Border Adjustment Mechanism, which some have described as a tax on carbon emissions produced outside of the EU. “This mechanism intends to encourage other countries to implement emissions limits within their own borders, so they will be able to export to the EU without paying rates on their carbon emissions,” said Hellman.
But it’s not only the EU whose ESG initiatives have a global effect. Renard mentioned that the EU’s Green Deal Industrial Plan is largely a response to the U.S.’s Inflation Reduction Act. Responding to policy that could make the American market more attractive than Europe for the manufacture of net-zero technologies, the EU has now set clear targets for its manufacturing capacity. She notes that the Industrial Plan also has an ingrained geopolitical aspect, whereby the EU will push for better relationships with third countries (non-EU members) through raw materials extraction deals to secure supply.
How Organisations Can Prepare for Regulation Changes in the EU and Beyond
The ESG regulations currently coming out of the EU mean that all companies operating in Europe may have to make significant changes to their operations or risk being penalised for non-compliance. “The most important thing here is early and thorough preparation,” said Gipson. “Being proactive is key to ensuring that the transition into following these new regulations is done in time for the required start dates.”
She particularly emphasised that it can be difficult for someone without an ESG background to stay completely up-to-date on changes in the legislative landscape, and trying to understand new proposals can be very time-consuming. Monitoring regulatory changes in the EU is vital to be ahead of future regulations. As Renard points out, by the time the Commission presents a proposal, it might already be too late if you want to advocate for an issue or submit comments to policymakers.
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