Thursday, November 14, 2024

Countdown to Compliance: CO2 Emissions and ESG Regulations in 2024

ECOLOGYCountdown to Compliance: CO2 Emissions and ESG Regulations in 2024

Companies have less and less time to take action related to climate change and 2024 will be a crucial year for implementing ESG-related regulations. The green transformation is changing the economy, creating new opportunities, and reducing the costs of conducting business. According to the latest analysis by the advisory firm Deloitte, titled Sustainability Regulation Outlook, companies that don’t become more sustainable may risk losing revenues and may also face legal disputes and regulatory penalties.

The latest Deloitte experts’ forecast discusses the most urgent regulatory changes related to ESG set to take effect in 2024, their significance for business strategies and companies’ operating models. The European Union, in response to climate pressure, is putting particular emphasis on improving ESG reporting and thus implementing the EU Corporate Sustainability Reporting Directive (CSRD). In the coming months, meeting the new reporting requirements will become a considerable challenge for companies obliged to report.

The matter of the EU’s decarbonization strategy, which is the ultimate goal of many EU initiatives, remains significant. Both market expectations and regulatory changes in this area drive swift changes, creating opportunities and challenges at the same time. According to data from the European Environment Agency from 2023, the European leaders in terms of the share of renewable energy sources in their energy mix are Iceland (almost 90 percent), Norway (over 70 percent) and Sweden (over 60 percent). For Poland, this share is around 18 percent.

Emphasis on decarbonization in 2024

In 2023, the EU undertook actions in key decarbonization areas, including reporting within the CSRD, carbon dioxide emission taxes, sustainable fuels, renewable energy, electricity markets, buildings and green infrastructure, and CO2 absorption.

Many companies have set decarbonization goals and are currently implementing transition plans. To achieve their climate neutrality goals, organizations will have to make consistent efforts towards green transformation for several years to come. In 2024, the key priority for companies will be determining their emission levels, setting goals, and developing a comprehensive strategy to achieve them, especially in the short-term – says Julia Patorska, partner, leader of the sustainable development team in Poland, Deloitte

Among all the regulations favoring decarbonization, the CSRD will presumably have the greatest impact in 2024 on all industries (except for public services). Actions to be considered under this directive include monitoring emissions and reporting on emission reduction targets if they have been set. To achieve their short-term targets (by 2025 and 2030), companies must oversee the process of reducing carbon dioxide emissions in the entire value chain. Entrepreneurs also need to be certain that their medium-term (by 2040) and long-term plans (by 2050) are implementing the expected CO2 emission reduction trajectory, aimed at maintaining the target global temperature increase of 1.5°C.

The real estate sector is significant in terms of the need to implement dynamic decarbonization. Actions in this area are necessary for the European Union to achieve its goals of reducing carbon dioxide emissions. Representatives of this sector will need to rethink and adjust their strategy and investment processes. It will be necessary to consider not only new regulatory requirements, including the need to adapt to the provisions of the Fit55 Package and Taxonomy, but also business development opportunities in the context of changing market expectations and the resulting new needs for capital expenditure – notes Tomasz Gasiński, partner in the sustainable development team in Poland and Central Europe, Deloitte.

CSRD requires preparation

The CSRD directive obliges companies to report not only their own activities but also those of entities in the supply chains. This means that companies must invest more resources in relationships with their suppliers and include an assessment of sustainability-related risk in their purchasing decisions. There are several factors that companies should evaluate, including: the use of rare earth metals, contributing to deforestation and relationships with companies in countries where human rights are violated.

Deloitte’s analysis indicates that the CSRD will impact most industries, obliging businesses to track emissions and report reduction goals. Therefore, companies will have to report data on emissions of high-emission imported products, such as aluminum, steel, and cement. Importantly, starting in 2026, they will be subject to a carbon content tax.

In the opinion of experts, all eyes will be on the CSRD and the corresponding European sustainability reporting standards, ESRS, in 2024.

“We predict that companies will be publishing even four times more data under the CSRD than under the previously applicable Non-Financial Reporting Directive (NFRD). To adequately prepare for incoming regulations, companies must consider how implementing reporting requirements will result in broader changes in their strategy, management, operations, and data. New reporting obligations will also necessitate assigning responsibility for sustainable development issues at the managerial level – notes Magdalena Osowiecka, senior manager in the Sustainability Consulting CE team, Deloitte.

Fight against greenwashing

Another challenge for companies within the progressing green transformation will be aligning their messages with actions to minimize the risk of greenwashing as much as possible. Organizations should avoid discrepancies in these two areas if they don’t want to be accused of environmental fraud. Moreover, starting in 2026, terms such as “eco-friendly”, “carbon-neutral”, “biodegradable”, and “environmentally friendly” will no longer be allowed. Therefore, businesses will have to ensure that their environmental protection messages are clear and fully justified.

The EU Green Claims directive is combating this phenomenon by establishing new communication, justification, and verification criteria that companies must comply with when developing and promoting their eco-friendly slogans aimed at customers. Experts expect the regulations to take effect in 2025 at the earliest and be obligatory from 2027.

Companies respond to the ecological transformation in various ways, starting from innovations in their business models and co-operation with new partners, to promoting their credibility in environmental protection. At the same time, investors, customers, and civil society are raising their expectations regarding companies in the field of ESG.

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