(3/3) Why must businesses commit to climate action ?

The ESG (Environmental, Social, and Governance) and CSR commitments of companies is becoming increasingly significant in defining their value. Nowadays, the analysis of non-financial performance criteria complements the assessment of financial performance.

In a series of three articles, we will explore how (i) stakeholders, (ii) opportunities for value creation, and (iii) regulatory constraints exert internal and external pressure on companies, encouraging them to make serious commitments to the environment and climate action.

I. REGULATORY CONSTRAINTS

Companies are subject to a set of regulatory constraints aimed at encouraging them to adopt more environmentally friendly practices and contribute to the fight against climate change. Here is an overview of the main regulations and obligations:

1. European and international regulations

a. European regulations

European Green Deal: the European Green Deal is a strategic roadmap of the European Union aimed at transforming the European economy to achieve carbon neutrality by 2050. Here are the key points of this initiative:

• Objectives: reduce EU greenhouse gas emissions by 55% by 2030 compared to 1990 levels, and achieve climate neutrality by 2050.

• Areas of action:

• Energy: increase energy efficiency and the share of renewable energy.

• Industry: support innovation and the transition to clean technologies.

• Buildings: renovate buildings to improve their energy performance.

• Mobility: develop sustainable transportation and reduce emissions in the transport sector.

• Agriculture and food: promote sustainable agricultural practices and more ecological food systems with the "Farm to Fork" strategy.

• Biodiversity: restore and protect ecosystems and biodiversity.

• Financing: Mobilize at least €1 trillion in sustainable investments over the next decade.

European taxonomy: the European taxonomy is a classification system introduced by the European Union to define what constitutes an environmentally sustainable economic activity. Companies and investors must disclose the extent to which their activities and portfolios align with the taxonomy criteria. An economic activity is considered sustainable if it substantially contributes to one or more of the six environmental objectives:

• Climate change mitigation

• Climate change adaptation

• Sustainable use and protection of water and marine resources

• Transition to a circular economy

• Pollution prevention and reduction

• Protection and restoration of biodiversity and ecosystems

CSRD (Corporate Sustainability Reporting Directive): effective from January 1, 2024, the CSRD is a European legislation adopted to enhance and improve corporate transparency regarding sustainability. Replacing the NFRD (Non-Financial Reporting Directive), the CSRD requires companies to provide detailed information on their environmental, social, and governance (ESG) impacts. The CSRD now applies progressively to a larger number of companies, including large listed and non-listed companies, listed SMEs, and subsidiaries of foreign groups operating in the EU.

SFDR (Sustainable Finance Disclosure Regulation): this is a European regulation aimed at increasing transparency in sustainability within the financial sector. It is designed to provide investors with clear information on the environmental, social, and governance (ESG) impacts of financial products. Financial actors must disclose information on their sustainability policies, including how they integrate sustainability risks into their decision-making processes. Financial products are classified into three categories based on their level of sustainability commitment (Article 6: financial products with no specific sustainability objectives; Article 8: financial products promoting environmental or social characteristics, or a combination of both; and Article 9: financial products with sustainable investment objectives). The SFDR aims to harmonize ESG disclosure requirements across the EU, reduce greenwashing, and direct capital flows towards sustainable investments, thus contributing to the objectives of the European Green Deal and the transition to a greener and more inclusive economy.

b. International agreements

Adopted in December 2015 during COP21, the Paris Agreement is an international treaty signed by 194 countries and the EU, aiming to fight climate change by limiting global warming. Here are the key points of this agreement:

• Main objective: limit the global temperature increase to well below 2°C above pre-industrial levels, while pursuing efforts to limit the increase to 1.5°C.

• Nationally Determined Contributions (NDCs): each country must define and communicate its national commitments to reduce greenhouse gas emissions, known as NDCs, and revise these commitments every five years to make them more ambitious.

• Transparency and accountability: countries must regularly track and report their progress in implementing their NDCs, in accordance with an enhanced transparency and accountability framework.

• Climate financing: developed countries commit to mobilizing $100 billion per year starting in 2020 to help developing countries mitigate the effects of climate change and adapt to its impacts.

• Adaptation and resilience: encourage countries to strengthen their capacity to adapt to the adverse effects of climate change and improve their resilience.

• Market mechanisms: establish mechanisms allowing countries to cooperate to achieve their climate goals, notably through carbon markets.

2. National regulations

Regulations can vary by country, but several major trends emerge, particularly through the adoption of energy transition laws, specific regulations such as carbon taxes, or standards aimed at regulating the manufacturing and marketing of certain products (e.g., banning certain single-use plastics). In France, the main regulations include the law for energy transition, the climate and resilience act, and the carbon tax law.

"Loi relative à la transition énergétique pour la croissance verte" (LTECV)

Enacted in 2015, this law sets ambitious targets to reduce greenhouse gas emissions, increase the share of renewable energy, and improve energy efficiency. The main measures include:

• Reducing greenhouse gas emissions by 40% by 2030 compared to 1990.

• Reducing fossil fuel consumption by 30% by 2030.

• Increasing the share of renewable energy to 32% of final energy consumption by 2030.

• Reducing final energy consumption by 50% by 2050 compared to 2012.

Climate and resilience act

Adopted in 2021, this law aims to accelerate the ecological transition in France. It covers a wide range of areas such as food, housing, transportation, and industry. Key measures include:

• Strengthening energy performance requirements for buildings.

• Promoting low-emission zones to reduce pollution in major cities.

• Reducing the carbon footprint of industry through measures like reducing CO2 emissions.

• Encouraging short supply chains and sustainable agriculture.

Duty of vigilance law for parent companies and ordering companies

Effective since 2017, this law requires large companies to implement vigilance plans to prevent environmental, social, and governance (ESG) risks in their supply chains. Companies must:

• Identify risks and prevent serious harm to human rights, health, and the environment.

• Publish an annual report detailing the measures taken and the results achieved.

In addition to these laws, there are sector-specific regulations and green taxation:

a. Automotive Industry

Automobile manufacturers must comply with strict CO2 emission standards for new vehicles. For instance, the average CO2 emissions of new cars must be below 95 grams per kilometer.

b. Waste Management

Regulations require companies to manage their waste efficiently, including source separation, waste reduction, and increasing recycling and waste recovery. The Anti-Waste for a Circular Economy Act (AGEC) of 2020 introduces measures like banning single-use plastics and requiring the provision of reuse solutions.

c. Green Taxation

Companies in France are subject to various environmental taxes designed to encourage more sustainable behaviors:

• General tax on polluting activities (TGAP): a tax on various polluting activities such as waste, industrial emissions, etc.

• Carbon tax: introduced in 2014, this tax applies to CO2 emissions from fossil fuels.

ABOUT APOLOWNIA

Apolownia is a mission-driven company committed to making a significant impact in the climate sector.   

We support businesses and funds willing to engage in long-term and impactful decarbonization strategies - within and beyond their own value chain - by designing, implementing and monitoring science-based carbon reduction projects that restore natural ecosystems.  

Through technology and innovative solutions, we aim at shaping a resilient and environmentally friendly world, by encouraging the decarbonization of the economy and supporting social and environmental initiatives.  

You can drive positive change for the climate, biodiversity and local communities.  

Contact us to engage or for more information. Find us on www.apolownia.com.

Sources :

• Légifrance - Code de l'environnement

• Ministère de la Transition Écologique - LTECV

• Ministère de la Transition Écologique - Loi Climat et Résilience

• Assemblée Nationale - Loi sur le devoir de vigilance

• Légifrance - Loi AGEC