The main challenge for the global economy in the next decades is to achieve its just transition to a more sustainable model and to fulfill the objectives enshrined in the Paris Agreement, to limit global warming to 1.5°C, but also the objectives of the Kunming Montreal Global Biodiversity Framework. This transition will not occur in time without decisive actions. Through its Green Deal, the European Union is taking action, shaping a unique framework allowing us to take sustainability seriously in all economic sectors.
Transparency is necessary to drive transition efforts. Standardized disclosure requirements are an important tool to achieve this, as they root out entrenched market failures.
With the directive on corporate sustainability reporting (CSRD), the EU is bringing sustainability reporting to a whole new level. The information disclosed by companies will be verified and comprehensive. They will bring transparency on the environmental and social impacts of approximately 50 000 companies in the coming years, from all economic sectors. This will require important efforts from our companies. Nevertheless, it should not be seen as an additional administrative burden but rather as a transformative tool for companies to monitor and manage their risks and improve their environmental performance. The extension of the European taxonomy of sustainable activities to an increasing number of economic sectors sets them a course consistent with our ambitious objectives, and should be pursued.
But transparency requirements will not be enough to drive change. Another milestone in completing this framework will be the directive on corporate sustainability due diligence. As the French law of 2017, it will require large businesses to identify, prevent and mitigate sustainability adverse impacts. Due diligence is not a simple requirement of information but a duty to take concrete actions. Multinational enterprises should no longer turn a blind eye on the activities of their suppliers of cocoa or rare earths. They should make sure that employees and smallholders in their supply chain work in safe conditions and benefit from a decent living. Similarly, clothing brands and car manufacturers should pay attention as to whether their subcontractors handle hazardous wastes in line with international law. These mandatory rules should apply to all.
The objective is clear: to use the strength of the Single Market – the first in the world by its size – to upholds human rights and better protect the environment.
To be fully effective those transparency requirements need to be driven by strong public policies that define a clear path and economic mechanisms that incite businesses to invest in sustainable projects to the maximum extent of their capacity and boosts their competitiveness. This is the aim of the European Green Deal through its investment in green activities and technologies and low-carbon energy. The Green Deal Industrial Plan and the Net-Zero Industry Act will create a more supportive environment for scaling up the EU’s manufacturing capacity for net-zero technologies and products.
The EU is also committed to implement incentives and make polluters pay for their greenhouse gas emissions while generating revenues to finance the EU’s green transition. This is the aim of the European carbon market (EU ETS), described as the cornerstone of the EU’s climate policy, that has been recently strengthened in line with the EU’s commitment to reach -55% net greenhouse gas emissions by 2030 compared to 1990 and carbon neutrality by 2050. The EU is also implementing a Carbon Border Adjustment Mechanism (CBAM) designed to be compatible with rules of the World Trade Organisation to ensure that the carbon price of imports of carbon-intensive products is equivalent to the carbon price paid by European producers thus preventing more efficiently carbon leakage [that occurs when companies based in the EU move carbon-intensive production abroad to countries with less stringent climate policies].
The EU is building an ambitious framework conducive to the integration of sustainability in all economic sectors and decisions.
To embark everyone, we need to keep it practicable and proportionate. To make it effective, we need to make sure that it does not have unintended effects on the competitiveness of our companies. Strong European economic actors will be drivers of the transition worldwide.