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Reinventing Responsibility: What do you need to know to succeed in this area?

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Reinventing Responsibility: What do you need to know to succeed in this area?

At Instinctif Partners, we believe that businesses need to take a systems approach that puts people, the planet and long-term value creation at the centre of their growth strategies. Companies have a crucial role in accelerating the shift towards a more sustainable, healthy and equitable circular economy model.

This vision is shared by the European institutions. They have been adopting legislative initiatives aimed at increasing corporate responsibility and creating clear and binding obligations to stimulate the development of lead markets for climate-neutral and sustainable products. If these initiatives are approved, companies will have to pay more attention to long-term sustainable value creation than to short-term profits.

In this insight, we will try to shed light on this legislative framework and answer the question: which initiative applies to which sector?

The following European Commission initiatives are relevant: the Corporate Sustainability Due Diligence Directive, the Sustainable Products Initiative, and the Proposal on substantiating green claims.

The Directive on Corporate Sustainability Due Diligence would require companies to identify, prevent, end, mitigate, and account for adverse impacts of their activities on human rights and the environment. Large companies would also need to ensure that their business strategy is compatible with limiting global warming to 1.5°C above 1970 levels — an increasingly challenging target. The Commission presented this proposal to the European Parliament on 28 April.

Some political groups in the European Parliament have expressed some criticism about the proposal. Renew Europe and The Left have stressed that some legal definitions appear ambiguous and vague, namely that of actual negative impacts (as referred to in Article 8), and that of compatibility with climate change. The exclusion of SMEs among the targets of the directive was further critiqued, along with the exclusion of high-risk sectors. MEPs were also highly critical of the criteria adopted by the Commission to determine the companies that fall within the scope of the Directive: turnover and number of employees. They pointed out that due subcontracting, many companies could escape scrutiny.

Anna Cavazzini, MEP for the Greens, noted the lack of a specific level of fines, with the risk that Member States might then adopt different weights. She also called for a much stronger stakeholder engagement requirement, together with an assessment of the gender impacts of the initiative.

Among the Sustainable Product Initiative’s main objectives are reducing the negative environmental impacts of products over their life cycles and improving the functioning of the internal market. The initiative does not apply to all products: food, animal feed, and medical products are exempted.

The last initiative is the proposal on substantiating green claims. This piece of legislation will require companies to prove their environmental claims using a standardised methodology, namely the Life-Cycle Assessment (LCA). The Commission believes that this will help to prevent greenwashing.

The Commission is furthermore planning to adopt a proposal for a sustainable food labelling framework to make the EU food system sustainable and to integrate sustainability into all food-related policies. Much of the debate centres on the Product Environmental Footprint (PEF) methodology, which aims to calculate the environmental impact of a product over its lifetime. But the PEF impact categories do not accurately reflect all product qualities that contribute to sustainability. Indeed, LCA is generally considered the best tool currently available for targeting improvements of the environmental performance of both products and organisations.

These proposals will have a major impact on the way all companies do business in Europe and are an instrumental part of the Commission’s proposal for a European Green Deal.

Reach out to us at brussels@instinctif.com to receive updates on the changes taking place or to have your say in these initiatives.

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