In order to achieve climate neutrality by 2050, the European Union has set out an ambitious legislative agenda packaged as the European Green Deal.

A myriad of existing environmental laws are being amended and new regulations are in the pipeline. These will impose stricter compliance standards for products traded within the European Union and require supply chains to deliver on efficiency, greener technologies, and traceability of products and activities, while improving communication between parties within the supply chain.

In the past, the European Commission concentrated on regulating the impact of isolated activities, such as setting targets and requiring reports on emissions for industrial operators, restricting the use of specific hazardous substances, and mandating special packaging or disposal for certain products. The Green Deal aims to redesign supply chains by focusing on the value created throughout the chain, and obliges businesses to have an entire-lifecycle perspective.

All businesses will need to comply, but certain industries, such as electronics, textiles, automotive, chemicals, heavy industry, and construction will have to make profound changes in a very short space of time. While the operational level will absorb the initial costs in order to go "greener" and become "more circular", every party within the chain will have to think strategically about—and report on—the impact of the changes instigated by the Green Deal on the company's overall adherence to environmental, social, and governance (ESG) issues.

With no current certainty over which new rules will make it into EU law and when will they start to apply, now is the time for businesses to comment on the impact of the Green Deal proposals by taking part in related public consultations and impact assessments.

Scope of the Green Deal

The Green Deal is vast, covering areas such as food, energy, CO2 emissions, finance, industry, and chemicals. Each of its key policy initiatives or "strategies" focuses on broad objectives and, in line with the Green Deal's holistic approach, covers multiple industries and value chain steps.

The Circular Economy Action Plan, which was adopted in March 2020, targets sustainable design, production, use, and disposal of products. Its proposed measures target product groups with resource-intensive value chains that have a high potential for circularity, including the following:

  • Electronics and information and communication technology products are required to last longer, be more energy efficient, and be easier to reuse and recycle. The right to repair proposal was adopted in March 2023 and we can expect to see an EU-wide take-back scheme for mobile phones and other devices.
  • Numerous sustainability requirements are expected for the manufacture of batteries and vehicles. These will likely include recyclability, ethical sourcing of raw materials, and monitoring of carbon footprint. Electric vehicles will also be affected by a revision of the rules on end-of-life.
  • New measures for packaging will result in the reduction of packaging waste and elimination of polymers or hazardous materials. New requirements for labelling will increase transparency.
  • The EU Strategy for Plastics in the Circular Economy aims to reduce plastic in the environment with a comprehensive set of initiatives, including a regulation on microplastics pollution; new REACH restrictions on microplastics; an EU policy framework for biobased, biodegradable, and compostable plastics; and a new directive on single use plastic products.
  • A number of new measures will be introduced to tackle fast fashion pollution, promote the re-use and recycling of textiles, and enhance the disclosure requirements on circularity and sustainability. Textiles will also likely be brought within the scope of the EcoDesign Directive, and a revision of the Waste Framework Directive may extend producers' responsibilities to textile manufacturers.

Circular Economy initiatives will also include revised requirements for the construction industry, and food/water consumption. Further product groups, such as steel and cement, will be covered in the future, depending on their environmental impact and circularity potential.

The Chemicals Strategy for Sustainability, which supports the objectives of environment protection and waste reduction, will focus on promoting the sustainability of critical chemicals and banning the most harmful chemicals from consumer products (unless deemed "essential"), including per- and polyfluoroalkyl substances.

The Farm to Fork Strategy aims to make fundamental changes throughout food production supply chains, including waste management, improved animal welfare, and a reduction in the use of harmful pesticides. One initiative focuses on driving investment and innovation in organic farming, while the agri-food promotion policy aims to increase the competitiveness of EU farm, food, and drink products.

The Zero Pollution Action Plan is an overarching initiative to reduce pollution levels by 2050 and to reduce greenhouse gas (GHG) emissions. Actions include

  • A Carbon Border Adjustment Mechanism to prevent production tourism i.e., carbon leakage
  • The EU Hydrogen Strategy to stimulate hydrogen innovation
  • The Clean energy for all Europeans package, consisting of eight new laws aimed at decarbonising EU energy and improving co-ordination between multiple EU energy providers
  • The Offshore Renewable Energy Strategy, which sets targets to scale-up the generation, distribution, and use of offshore renewables
  • Setting a binding target for renewable fuels of nonbiological origin used as a feedstock or energy carrier
  • Expanding the EU Emissions Trading System (ETS) which will affect the power, energy intensive industry, maritime, and aviation sectors, amongst others; and making free ETS allowances conditional on investments in cleaning up industrial processes
  • Setting a maximum limit on the GHG content of the energy used by ships.

There are multiple other initiatives, such as the Renovation Wave strategy to increase energy efficiency in buildings, the Strategy for Sustainable and Smart Mobility to redevelop the transport sector, and the Biodiversity Strategy to protect nature and reverse the degradation of ecosystems.

The list is vast and expanding daily, so businesses should prioritise the regular monitoring of proposed laws.

Impact on Industry

Irrespective of whether or not the Green Deal will materialise in full, behaviour by both consumers and investors is already driving changes in international value chains, and the voluntary early adoption of measures aligned with the proposals will likely result in economic value and competitive advantage.

There will be various funding options available to finance this transformation, but with funding comes due diligence and reporting obligations – see pg 6 and pg 9.

Green Deal initiatives should result in value chains making significant changes in the way they operate across all stages, from how products are designed (including sourcing materials and their availability), transported, and processed, to how they are distributed to consumers and ultimately disposed of. Companies will be required to disclose information on traceability and the efficiency of their value chains to the regulators, other parties in supply chains, and consumers. As many product value chains are international in nature, the impact of the Green Deal will be felt extraterritorially.

EU regulators are aware that the changes demanded by the Green Deal follow the disruption already caused by COVID-19 and Russia's invasion of Ukraine. To encourage the competitiveness of businesses operating in the European Union, various mechanisms will be introduced aimed at measuring compliance with existing and future environmental requirements. For example, companies will be prevented from making unsubstantiated claims to deceive consumers into believing a product is environmentally friendly.

All industries in the European Union will also need to adapt to the new GHG emission requirements. This may be particularly challenging for industries such as metals and mining owing to some of the value chain being tied to specific geographical areas where natural resources are present. These industries may therefore end up being penalised as a result of the higher CO2 emissions required to move raw materials from their source location to processing facilities, which may ultimately make processing operations in the EU less viable.

Businesses with complex international supply and value chains have already dedicated substantial human and financial resources to keep up with the global transformation to a circular economy. They will need to continue to monitor the progress of proposed legislation and engage early with EU regulators to be alert to potential changes and identify available financing opportunities. In addition, they will need to keep customers and investors informed in order to secure any competitive advantage available from being at the forefront of the Green Deal revolution.

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