COMMENT: From 40% to 55% – what does the EU’s new emissions target mean for companies?

Published 16:12 on December 11, 2020  /  Last updated at 01:29 on December 12, 2020  /  Conversations, EMEA, EU ETS, International, Views, Voluntary Market  /  No Comments

(Free read) - With the Green Deal, the EU is producing a regulatory storm that will stretch far into the future, deep into today’s profit models, and way beyond Europe’s borders. Companies should bring the Green Deal into the heart of their business in order to secure the competitive advantage of regulatory pre-alignment, argues Christiaan Gevers Deynoot of South Pole. 

By Christiaan Gevers Deynoot, Business Development Manager – Benelux, South Pole 

Today,  EU leaders announced a new greenhouse gas emission reduction target for 2030, raising the reductions from 40% to 55% across the EU compared to 1990 levels. This increased ambition is welcome. As the world turns to the Climate Ambition Summit 2020 tomorrow, we need all the support we can get.

The new target is another clarion call for action under the Green Deal. We already know that Europe’s new growth strategy is a game changer that will make or break the companies of today. The increased target will only emphasise this reality. The Green Deal has unleashed internal ‘soul searching’ across countries and economies: which business models will make the cut?

As policymakers and pundits start to focus on beefing up the rules and regulations needed to deliver the new target, businesses should not wait around for the details before they act. After all, to make Europe the first climate neutral, circular and competitive continent in the world by 2050 echoes a ‘do-or-die’ mentality that befits the scale of the climate crisis our society faces today.

With the Green Deal, the EU is producing a regulatory storm that will stretch far into the future, deep into today’s profit models, and way beyond Europe’s borders. It is more than a new set of rules; it is a paradigm shift to ensure European society can live within the planet’s boundaries.

Business should make sure to go beyond lobbying for (or against) new policies. In-depth analysis of regulatory risk and pre-compliance action are vitally important. After all, even if the details remain fuzzy, the direction of travel is clear, both for the economy as a whole and for each sector.

The drivers of change abound 

Building corporate climate resilience is as much about emergency response as it is about pre-compliance action. Companies are being put to the test as COVID-19 continues to affect supply chains across the globe. As numerous commentators have argued, it is also a clear signal of the type of disruption businesses can expect from climate change-induced calamity.

Business can draw lessons and prepare measures to stem the fallout of climate risk on profit models. In fact, in a recent report published by South Pole, we found that the COVID-19 crisis is in fact making organisations ‘Net Zero-ready’: They realise their vulnerability to external shocks and are thinking strategically about the next big emergency.

Surfing these winds of change, however, is not restricted to the physical risk that the climate crisis brings. Regulatory action around the world is rapidly raising the resilience agenda of business in the shape of ‘transition risk’.

We should all turn into green dealers 

The Green Deal is a generational effort with few equals. In terms of scale, it aims to overhaul the economic system to an extent equal to the introduction of the European Single Market. It propels decarbonisation and economic growth to 2030 and beyond, while making sure that the impact is felt today.

The intended reach is also significant: it seeks to drive investment decisions across the internal European market, the world’s largest single market area, and beyond. Embedded in the Deal are clear elements of external governance; the ability to influence regulatory systems and markets outside of Europe.

Taken together, the scale, timing and reach of the Green Deal ensure that its impact will be felt across sectors and geographies. It will reward companies who leverage sustainability for competitiveness, while companies that are slow to adapt to the risks and do not seize the opportunities by aligning with the Green Deal could soon become irrelevant. Piece-meal action later on will undoubtedly drive up costs.

Incorporating the Green Deal is smart business 

When it comes to climate change and its impact on market dynamics, the difference between surviving and thriving is that benefits can be reaped later by putting sustainability first. This can be felt across at least five areas:

  • Business model – Carbon-dependent business models are meant to become redundant: The Green Deal is an economic growth strategy meant to realise a climate neutral, competitive and circular economy by 2050. Circular business models will benefit greatly.
  • Bottom line – The cost of lagging behind increases exponentially: This is visible in the EU’s Emissions Trading System (ETS) which forces companies to buy emission allowances. The lower a company’s emissions compared to the sectoral benchmark, the lower the compliance costs.
  • Incentives – Public funding to transform a business will go to the more ambitious: Companies stand a greater chance to access EU funding for innovative projects than for those that push business-as-usual.
  • Shareholders – New rules and frameworks will ‘green’ investment portfolios: The EU’s Sustainable Taxonomy, for example, includes specific screening criteria for sectors such as manufacturing, agriculture, construction and real estate, power generation, transport and ICT.
  • Global competition – The global competitive landscape will be disrupted: The expected carbon border tax adjustment measures have a clear impact. But the extra-territorial ripple effects of the Sustainable Taxonomy are also likely to be severe, as the first of its kind.

Do not get left behind; sprint ahead

It is smart for companies to embed the sustainability transformation into their growth strategy before policy demands it. A company can find its own unique path to sustainability. The Green Deal can be a guiding framework for any business strategy, requiring a clear plan for realisation.

Sustainable and resilient business models thrive in times of crisis, and those companies that sync up with the Green Deal will have more sustainable and resilient business models. To fully grasp the benefits, they need to internalise how aligning with the Green Deal will lock in long-term competitiveness.

 

Christiaan is a sustainability advisor and business development manager at South Pole with focus on the Benelux. He has more than eight years of working experience in the field of energy and climate issues. Christiaan works with clients across the financial and energy intensive industries, as well as the public sector. Prior to joining South Pole, he consulted on EU energy, climate and environment policies, including sustainable finance.

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