Europe's Latest Plan for Net Zero

In recent years, no area of the world has elevated sustainability in terms of overall social, economic, and political importance more than the European Union (EU).

In 2019, the EU unveiled its vision for a ‘European Green New Deal', a sweeping set of measures designed to make Europe the first climate-neutral continent by 2050.

However, beyond political signaling, the EU is taking many important — and significant — steps to implement this plan, including a sweeping set of policy changes with implications for cities, families, and an estimated 50,000+ companies in the region.

The three main near-term EU sustainability shifts are:

1. Corporate sustainability
2. Circularity
3. Energy transformation

Aimed at achieving climate mitigation, economic resilience, and overall improved quality of life for EU citizens.

1. EU Corporate Sustainability

This month, the EU Parliament and the European Council officially approved the EU Corporate Sustainability Reporting Directive (CSRD) . The CSRD, which goes into law in 2023 and starts to take effect for larger companies in their fiscal year 2024, requires companies to track and report their environmental, social, human rights, and governance activities using metrics defined by EFRAG (European Financial Reporting Advisory Group).

The CSRD will apply to all companies with:

1. Over 250 employees
2. More than 40€ million in annual revenue
3. More than 20€ million in total assets
4. Publicly-listed equities and have more than 10 employees or 20€ million revenue
5. International and non-EU companies with more than 150€ million annual revenue within the EU and which have at least one subsidiary or branch in the EU exceeding certain thresholds

The CSRD makes the EU the first region to mandate corporate sustainability and ESG reporting for thousands of companies (in the coming years). The EU’s belief is the CSRD will improve corporate accountability, reduce divergent sustainability standards, and inspire companies to improve and invest in their sustainability performance to accelerate the transition towards a?more sustainable economy.

According to EU Minister of Industry and Trade Jozef Síkela:

The new rules will make more businesses accountable for their impact on society, and will guide them towards an economy that benefits people and the environment. Data about the environmental and societal footprint would be publicly available to anyone interested in this footprint. At the same time, the new extended requirements are tailored to various company sizes and provides them with sufficient transition period to get ready for the new requirements.

We are already seeing EU and international companies taking action to prepare for the CSRD in the new year, and expect CSRD compliance and reporting to be a major topic for EU companies in 2023, alongside increased supply chain due diligence scrutiny with laws like Germany’s LkSG (Lieferkettensorgfaltspflichtengesetz) .

For companies in search of EU CSRD compliance help, Brightest tracks all your ESG policy exposure, as well as the metrics and data needed to stay CSRD compliant.

2. Circularity

A second major EU economic and cultural shift is around circularity .

In economics, circularity means a product, service, or resource is renewed or regenerated, rather than wasted. In a circular economy, when a product or resource is used, it's then recycled, composted, or re-used in a way that allows it to go back into a new lifecycle or supply chain. It's a closed-loop usage model, rather than one that produces discarded waste.

For example, many beverages like coffee, tea, and beer leave behind organic materials when they're produced and brewed. Instead of throwing those materials out at their end-of-life, circularity takes what's left over and re-integrates it back into nature. A brewery's waste output can be used by local farmers for animal feed. Used coffee grounds can be composted back into the soil and used as agricultural fertiler.

Similar principles and approaches can be used with wood, metal, and many other materials and waste streams.

According to a recent European Union (EU) study , only around 9-10% of the global economy is circular today. That means we primarily live and work in a linear economy characterized by unsustainable production and consumption. We take raw materials from the Earth, process them into products we consume (usually generating additional waste along the way), and then throw them away after use.

The EU is looking to fundamentally upend that model by introducing a group of laws designed to shift the region towards a more fully circular economy:

Starting this year, the EU is introducing new sustainable product design regulations, laws to reduce plastic waste, textile recycling and re-use rules, and other acts designed to promote circularity and reduce waste throughout the region’s economy:

And, according to a new rule just announced yesterday , all packaging in the EU market will be required to be fully recyclable by 2030.

Overall, these new rules begin to lay the groundwork for an economy where circularity is incentivized (and has competitive advantages), irresponsible linear waste is increasingly penalized, and sustainable procurement becomes a vital capability for companies, governments, and other organizations.

In particular, industries like fashion and apparel will face majority regulatory consequences unless they adopt more circular, sustainable practices. Many European companies, ranging from Adidas to IKEA are already investing in product and supply chain circularity, which we expect will be another significant strategic trend and differentiator going forward.

3. Energy Transition

While the European Green New Deal is set to irrevocably change Europe’s energy long-term energy landscape, Russia's invasion of Ukraine is forcing the region to adapt far faster.

“Weaponization” of energy resources by Russia exposed Europe's critical, decades-long dependence on cheap Russian oil and natural gas imports, a turbulent reality given the economic importance of energy stability and security.

While it’s impossible for Europe to immediately ‘rip the bandaid off’ its fossil fuel binge, policymakers across the region recognize major energy investment and transformation is necessary to avert disaster.

According to estimates by investment bank Goldman Sachs, as much as $1 trillion additional energy investment may be required in the coming years to transition the EU’s energy ecosystem toward a net zero future.

In Wilhelmshaven, Germany's only deep sea port, hundreds of millions of euros are already being invested in the construction of the Wilhelmshaven Terminal. The terminal will create the world’s largest green hydrogen project, designed to supply 50 million tons of hydrogen by 2040.

And, while the cost of low carbon energy can vary depending on the technology and scale, the bankability equation is clearly going in the right direction. Around the world, banks and investors are pulling back on fossil fuel project finance, while allocating more capital towards clean energy and carbon capture .

Beyond hydrogen, billions will need to be invested in hydro, offshore wind, solar PV, and — quite likely — nuclear energy in order to fully transition Europe off fossil fuels and keep the region on track to hit its sustainability and energy security targets.

Ultimately, if all these measures and initiatives succeed, the EU Green New Deal will transform the region’s economy, and reshape global supply chains around the world. With conflict in Ukraine, economic slowdown, higher interest rates, and mounting extreme weather impacts from climate change, the moves couldn’t be more timely.

As European regulators conclude:

The Green Deal is the new growth strategy of the Union. It aims to transform the Union into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases (GHG) by 2050. It also aims to protect, conserve and enhance the Union's natural capital, and protect the health and well-being of Union citizens from environment-related risks and impacts. The Green Deal aims to decouple economic growth from resource use, and ensure that all regions and Union citizens participate in a socially just transition to a sustainable economic system whereby no person and no place is left behind. It will contribute to the objective of building an economy that works for the people, strengthening the Union’s social market economy, helping to ensure that it is ready for the future and that it delivers stability, jobs, growth and sustainable investment.

Here’s to a greener European — and global — future.

—

This Week in Sustainability is a weekly email from Brightest (and friends) about sustainability and climate strategy. If you’ve enjoyed this piece, please consider forwarding it to a friend or teammate. If you’re reading it for the first time, we hope you enjoyed it enough to consider subscribing . If we can be helpful to you or your organization’s sustainability journey, please be in touch .