EU Sustainability Regulations For Businesses

• EU sustainability, compliance, and reporting standards can feel overwhelmingly complex and ever-changing. Here’s a high-level overview of what’s what.
• We’ve divided the regulations into five buckets: deforestation, ecodesign, reporting, human rights, and standards with key dates and potential implications.
• The common thread we discovered to achieving compliance with current and future regulations? An audit-proof traceability infrastructure to collect data.

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DEFORESTATION

EU Regulation on Deforestation-free Products

What do I need to know?

The EU Regulation on Deforestation-free products requires companies sourcing coffee, cocoa, palm oil, soy, beef, and wood commodities (or derivatives of these commodities) to conduct due diligence on their supply chains to identify, prevent, and mitigate deforestation and forest degradation. The list of affected commodities will be revisited regularly and is subject to change.

Who does it affect?

EU and non-EU companies doing business in the EU with over 500 employees AND sourcing commodities and/or their derivatives: Beef/ Leather, Palm Oil, Soya, Coffee, Cocoa/Chocolate, Wood/Furniture, and rubber.

What is the risk of noncompliance?

Fines for non-compliance can be up to 4% of turnover in an EU Member State.

What info/data is required for compliance?

Proof that products did not come from land deforested or degraded after 31 Dec 2020, commodities were produced in accordance with the laws of the source country, and the geo-location data of the farm where the commodity harvest takes place.

What enforcement timeline can I expect?

Passed, October 2022
Expected to be enforced, 2023-2024+

Companies must be able to prove “limited assurance” - meaning you have limited knowledge of your supply chain impacts, and have potentially conducted your own internal audits - that their supply chains do not contribute to deforestation by October 1st, 2026.

Companies must be able to prove “reasonable assurance” - meaning you have solid knowledge on your supply chain impacts and have conducted third-party audits to confirm that their supply chains do not contribute to deforestation by October 1st, 2028.

*Note: Large companies have 18 months to comply. Smaller businesses have 24 months.

Any tips for compliance?

Work on getting a system in place to track and analyze land data and monitor deforestation ASAP. Companies sourcing from areas that are at “higher risk” of deforestation will want to take extra caution and proactivity.

How can I learn more?

Learn more about how you can be compliant with the EU sustainability regulations by clicking the buttons below.

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‍‍ECODESIGN

Ecodesign for Sustainable Products Regulations (ESPR)  

What do I need to know?

Aims to regulate sustainable, eco-friendly materials used in design.  

‍Who does it affect?

Any companies selling products in the EU market.

What is the risk of noncompliance?

TBD, but it will likely involve large financial and legal penalties.

What info/data is required for compliance?

All regulated products must have a “Digital Product Passport” (DPP) that provides info about the products’ environmental sustainability/origins.

What enforcement timeline can I expect?

Proposal, March 2022
Expected to be enforced, 2024+

Any tips for compliance?

Get a system in place for end-to-end supply chain visibility
Fostering collaborative relationships with downstream suppliers and manufacturers will be key in getting the data needed to comply.

How can I learn more?

REPORTING

EU Corporate Sustainability Due Diligence Directive (“Supply Chain Law” / CSDD)

What do I need to know?

Requires companies to identify their actual and potential impacts on the environment and human rights. Holds company boards and leadership responsible for overseeing and reporting on due diligence.

‍Who does it affect?

Applies to EU and non-EU companies doing business in the EU with 250+ employees and a net worldwide turnover of 40M Euro. Applies to directly owned operations and value chains (direct & indirect).

What is the risk of noncompliance?

Member States will determine fines.
Victims can initiate legal action.

What info/data is required for compliance?

Companies must integrate supply chain due diligence into company policies, management systems, and internal controls, including a complaints procedure that everyone along your supply chain can access. Publicly report on your organization’s success in fulfilling its supply chain due diligence obligations, including relevant data in your annual report.
If your annual turnover is more than €150 million, you must outline a transformation plan that intends to enable you to meet the Paris Climate Agreement emission reduction targets.

What enforcement timeline can I expect?

Passed, February 2022
Expected to be enforced, 2024+

Any tips for compliance?

Implement a traceability system to help you quickly identify adverse human rights and environmental impacts and risks throughout your supply chain.

How can I learn more?

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Corporate Sustainability Reporting Directive (CSRD)

What do I need to know?

Stipulates that companies are required to disclose information on their sustainability practices and their impact on the environment and society.

Who does it affect?

Applies to large companies based in the EU or with an annual turnover of above €150 million in the EU. Companies meeting at least two of the following three conditions will have to comply with the CSRD: €40 million in net turnover, €20 million in assets, 250 or more employees.

What is the risk of noncompliance?

‍Administrative sanctions and three possible penalties: public denunciation, order to change conduct, and financial penalties.

What info/data is required for compliance?

More detailed reporting requirements for sustainability issues, including environmental, social, and human rights. Reports must be certified by an accredited independent auditor or certifier and published in the company’s public reports.

What enforcement timeline can I expect?

Approved, November 2022
Enforced, January 2023
2025 reporting begins, January 2024 (for companies subject to NFRD)

Any tips for compliance?

Implementing a data capture traceability system with reporting capabilities will help make tracking and compliance much smoother.

How can I learn more?

STANDARDS

Task Force on Climate-Related Financial Disclosures (TCFD)

What’s the TCFD?

The TCFD recommendations on climate-related financial disclosures are widely adopted and applicable to organizations across sectors and jurisdictions. They are designed to solicit decision-useful, forward-looking information that can be included in mainstream financial filings. The TCFD issued recommendations on climate-related financial disclosures for inclusion in mainstream financial filings in 2017 and continually updates its recommendations.

Why is this important?

‍These standards help drive the language, definitions, and requirements around all climate-related reporting and disclosures. Keeping up-to-date on their recommendations will be key in setting up your own climate and sustainability frameworks.

What company disclosures do they recommend?‍

The TFCD recommends that climate reporting disclosures include:

Governance

• Describe the board’s oversight of climate-related risks and opportunities.
• Describe management’s role in assessing and managing climate-related risks and opportunities.

Strategy

• Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.
• Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.
• Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. ‍

Risk Management

• Describe the organization’s processes for identifying and assessing climate-related risks.
• Describe the organization’s processes for managing climate-related risks.
• Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.

Metrics & Management

• Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
• Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks.
• Describe the targets used by the organization to mitigate climate risk and harm.
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How can I learn more?

European Sustainability Reporting Standards (ESRS)

What’s the ESRS?

The ESRS is a sustainability reporting standard created by the European Financial Reporting Advisory Group (EFRAG) to improve corporate sustainability and environmental social governance (ESG) reporting within the EU.

Why is this important?

Similar to the TCFD, this standard is a great source of guidance for EU companies seeking to ensure compliance with current and future sustainability regulations.

What company disclosures do they recommend?

Company disclosures must include company governance, strategy, management of impacts risks and opportunities, and metrics and targets related to climate change.

How can I learn more?

Click the button below to learn more about European Sustainability Reporting Standards.

Conclusion: Successful EU businesses must prioritize sustainability compliance through traceability.

In conclusion, the EU has typically led the way in forward-thinking corporate sustainability regulations — and the coming years will be no exception. The regulations and auditors will come. And EU businesses who wish to protect their operations will begin prioritizing compliance and traceability sooner rather than later. Traceability — i.e., the ability to capture, trace, and track the data in your value chain from source to shelf — will be key to compliance as regulations continually raise the bar for proof.

BanQu is an enterprise-grade operating system that brings all company compliance, sustainability, and procurement data into one platform across the value chain. Our traceability platform provides the provenance and chain of custody data for a company’s entire value chain—including the exact geo-location of the source and every movement and transformation of those materials to a finished good and where necessary, through distribution and post-consumer use (circularity).

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