How the EU's Ambitious Climate Action is Changing Global Markets

by Abigail Osbourne, FiscalNote, FiscalNote

FiscalNote invited experts in ESG trends and regulation to take part in an online roundtable discussing EU regulatory changes and the impacts that they will have on organisations in Europe and beyond.

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Europe has seen a seismic political and regulatory shift toward prioritising non-financial ESG factors over the past few years. This change is driven by legislation that requires companies to be more conscious and transparent about their impact on their environment and community, as well as influences from consumers and investors.

FiscalNote invited experts in ESG trends and regulation to take part in an online roundtable “The ESG Landscape: EU Regulation Changes and Global Implications” discussing EU regulatory changes and the impacts that they will have on organisations in Europe and beyond.

The roundtable was moderated by Stina Warnstam Drolet, head of sustainability at Oxford Analytica, and joined by Justine Renard, environmental policy analyst at EU Issue Tracker, Axel Hellman, political advisor on the Green Deal Agenda at the European Parliament (speaking on a personal capacity), and Melissa Gipson, ESG and climate strategy associate with FiscalNote ESG Solutions, each lending their expertise to speak on the topic.

Read on for the highlights of this insightful conversation.

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Regulation Trends in ESG in Europe

The underlying driver behind ESG regulation is the Green Deal, which the Commission announced in 2019. “The targets this package sets for carbon neutrality are a major driver of current ESG regulations in Europe, as recent legislation aims to lay the groundwork for the push toward net-zero by 2050,” Hellman said. Besides these temporal goals, the European elections in 2024 also provide a certain time pressure for the European Parliament to adopt new sustainability legislation before the end of the current parliamentary term.

Top-down legislation is not the only catalyst of ESG practices in Europe. Consumers are keen to support companies conscious of social and environmental issues, such as by using minimal packaging or reused materials. “This push from consumers has resulted in companies making more claims about their environmental impact, requiring EU legislation to combat greenwashing and require increased transparency,” Renard said.

The targets this package sets for carbon neutrality are a major driver of current ESG regulations in Europe, as recent legislation aims to lay the groundwork for the push toward net-zero by 2050.

Axel Hellman, Political Advisor, Green Deal Agenda
European Parliament

Key ESG Proposals in the EU

Panellists mentioned several key EU proposals that they think could impact the ESG operations of companies working in the region.

The Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (CSRD) is a set of rules applicable to large companies requiring them to publish regular reports on their operation’s social and environmental impact. Gipson noted that these are some of the highest reporting standards in the world, with several more reporting metrics than other similar statutes, such as the Securities and Exchange Commission’s (SEC) climate disclosure rule in the U.S. “We see this instrument having cascading effects in other regions with close ties to the EU, as companies outside of Europe voluntarily adhere to CSRD standards,” said Gipson.

The Sustainability Due Diligence Directive

The Sustainability Due Diligence Directive (SDDD) also requires companies to be more transparent as to their environmental and social impact. Renard explained that this measure will encourage “sustainability and responsible behaviour throughout the value chain” by requiring companies to identify and mitigate the human rights and environmental impacts that their organisation will have.

Circular Economy Action Plan

Hellman highlighted the Circular Economy Action Plan (CEAP), which aims to transition the production of consumer goods to a more sustainable model. “This will be done through several proposals aimed at making sure every product sold in the EU meets certain sustainability standards,” he said.

Gipson further mentioned the Right to Repair, one of the most talked about recent regulations under the CEAP umbrella. “Electronics are the fastest growing source of waste in the EU. Therefore the proposed regulations that allow consumers to repair their own devices within the warranty, and facilitate increased access to parts and manuals, will encourage consumers to repair rather than replace electronics,” she said.

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The most important thing here is early and thorough preparation. Being proactive is key to ensuring that the transition into following these new regulations is done in time for the required start dates.

Melissa Gipson, ESG and Climate Strategy Associate
FN ESG Solutions

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.

EU Issue Tracker’s team of Brussels-based policy analysts help you not only monitor but also act on changes in EU policy. We capture the latest developments and future timelines of all EU dossiers and monitor, catalogue, and assess their implications. Acting as a force multiplier, EU Issue Tracker takes a systematic approach to policy intelligence and analysis. By removing the manual work typically involved in policy monitoring, EU Issue Tracker saves you time and puts the information that matters in front of you.