The European Green Pact, why and how are you concerned?

So how do you best prepare?

 

Getting informed and anticipating the European Green Deal

With the Green Pact or European Green Deal, nearly 5 years of texts are being deployed, and this, during the next 5 years. It is therefore a question of anticipating this gradual deployment and informing oneself because the consequences are not only regulatory. For companies, this is of course a question of compliance with regulations but the consequences are also observed on their business strategy and on the information they will have to provide in the future.

“There will be no winning company in a losing world”. If the company wants to continue to be profitable, it can no longer ignore the situation of our planet. The company of tomorrow will be a Full-CSR company, which fully integrates social, societal and environmental responsibility at all levels of its organization: activities, professions and practices. The issue of sustainable development is becoming a matter of general interest, and the regulatory dimension associated with these issues no longer concerns only Europe, since the United States has announced similar measures, just like certain areas of Asia. In addition, there has been a transition in the role of the company over the past two years, which declares itself to be one of the key players in the general interest, either by commitment or now by interest.

It is necessary to anticipate by equipping its teams with experienced employees, ready to meet the challenges raised by these new regulations and their implications in all the business lines of the company. Profiles dedicated to these topics are difficult to find, as there is tension on the CSR professions in recent years. However, one of the solutions lies in the transformation and training of existing teams. Today, the financial, tax and legal departments have expertise in sustainable development and combine profiles for a comprehensive approach. On the issues raised by the European Green Deal, it is essential to mix the skills of lawyers, climate specialists or accounting standards experts to understand the subject in its entirety and be able to provide an adapted and complete answer.

The challenge for companies in the coming years will be to turn each of the regulations induced by the Green Deal into local, tangible and measurable actions. It is therefore essential to anticipate for 1. Understand, 2. Translate and 3. Own the impacts of the green pact.

The extra-financial component, the company’s new passport

With the European Green Taxonomy, which aims to classify economic activities with a favourable impact on the environment, companies' extra-financial reporting obligations are tightening and expanding. Thus, companies will have to show an increasing “white mark” and present climate and environmental risks in their communication, from the end of the year with the obligation to declare their Regulatory GHG Balance Sheets, for companies with more than 500 employees. From 2023, the CSRD (Corporate Sustainability Reporting Directive), which replaces the NFRD (Non Financial Reporting Directive) currently in force and which regulates CSR reporting, will be implemented in France and will extend the reporting obligation to a larger number of companies. This directive is expected to affect more than 50,000 companies in Europe (against 11,000 currently by the DPEF). All listed companies will be subject to it, without threshold effect. For unlisted companies, the workforce threshold increases from 500 to 250 employees, with a turnover of more than 40 million euros.

The appointment at the end of 2021 of Emmanuel Faber to head the ISSB (International Sustainability Standards Board) which aims to establish international standards for accounting standards on social and environmental aspects, or the movement similar to the Green Deal initiated in the United States, help to chart a path in the global economy and converge towards a common reading grid, or almost, in just a few years.

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CSR issues, new corporate values

The developments allowed by the Green Pact allow the creation of business projects, which federate and mobilize all stakeholders. Tomorrow, these sustainable development criteria will be criteria for access to finance. The rating agencies will assess these criteria in order to deliver funding, ratings to companies and validate the “sustainable and green” dimension of the organisations under review. One of the pillars of the Green Deal, the Taxonomy Regulation, aims to allocate capital to sustainable activities. The taxonomy defines what is sustainable, the regulator ensures that resources are well allocated to activities of this nature. This will increasingly condition the financing of companies. Taxonomy will have a lasting impact on the company as a whole, and more precisely in its role.

The first change concerns the notion of performance: being a successful company is no longer just an economic issue. The regulator provides the extra-financial supplement. Tomorrow, performance will be assessed against financial, accounting and non-financial criteria.

The other major change brought about by the Green Pact, and taxonomy in particular, concerns the very definition of the company. In light of these new challenges, what should be the role of the company, what should be its impact? For the company, hiding these issues would mean ultimately depriving itself of its customers, future employees and potential investors.

You will have understood that, beyond its legal and regulatory obligations that must be mastered, the European Green Pact comes to profoundly modify the CSR stakes for French and European companies. The question is no longer, “is my company involved?” but well: “how do CSR topics become a real game changer for my company?”