by There will be an important vote in the European Parliament’s Environment Committee this Thursday, when MEPs will decide whether or not to include climate in their directive on business due diligence. Climate experts from Client Earth, Global Witness, Frank Bold and WWF explain why this is important. The article was written by Amandine Van den Berghe (ClientEarth), Arianne Griffith (Global Witness), Julia Otten (Frank Bold) and Uku Lilleväli (WWF European Policy Office).
It has been three years since the European Union pledged to become a climate-neutral economy by 2050 – a goal that will be impossible to achieve without urgently mobilizing the business world.
But in the absence of specific and enforceable legal standards, there is still a systematic lack of private sector action. While one tidal wave of corporate climate commitmentsthe work required to fulfill these commitments is simply not being done.
In a survey of the 1,000 largest companies operating in the EUonly 23 percent of them had strategies to address climate risks, and only 13.9 percent disclosed relevant data on their emissions reduction targets.
This means that this businesses are misaligned with shareholder expectations and miss opportunities to properly manage and mitigate the risk posed to their businesses by a warming world.
Can the EU force companies to report their climate impact?
This week there is an opportunity to change this unfortunate situation. The European parliament currently discussing the due diligence directive in the field of sustainable business practices.
This proposal could be the lever EU must force companies active in its market to drastically increase the pace.
Requiring companies to address negative environmental and climate impacts in their value chains is an essential part of the puzzle of a sustainable economy. It’s also good for business.
But there is a glaring flaw in the current legislative proposal: the narrow definition of what constitutes an ‘adverse environmental impact’ allows companies to turn a blind eye to key issues in their value chains, including their emissions.
As the European Parliament’s political groups are fighting for their opinion on the law, now is the time to put this right.
What does the Due Diligence guideline in the field of corporate social responsibility entail?
According to the Commission’s draft textcompanies should only track down and stop the consequences resulting from the violation of one of the 12 international environmental agreements referenced in the law – a list that doesn’t even include the Paris Agreement.
As all industries – automotive, construction, Chemicalsfood and drink, raw materials, metals and minerals, fashion and beyond – playing an irrefutable role in global warming and loss of nature, the current definition of ‘environmental impacts’ will not fully capture the carbon footprint of companies. That doesn’t exactly promote fair competition.
The Commission’s proposal would only require businesses to include adverse climate impacts as part of due diligence seven years after entry into force of the directive – likely into the next decade after 2030.
This is way too late. Climate science warns that unless we have massive emissions reductions now, the 1.5C target may soon be out of reach. It is also out of step with those companies that are already developing climate transition plans to manage risks to their business enterprises.
To ensure that this law is fit for purpose, the European Parliament’s Environment Committee must specify climate as one of the environmental impacts covered by the directive and urgently fill the major gaps in the EU regulatory framework on business climate.
Clear climate due diligence and effective transition plans
The Commission’s draft law contains requirements for companies to prepare a transition plan.
But it should also require companies to conduct an inventory of potential and actual negatives climate effects before developing these transition plans.
This is a critical step if companies are to successfully prevent, mitigate, halt and remedy these impacts. Without knowing these consequences, transition plans risk being nothing more than uninformed guesswork.
Business freeriders place an unfair burden on climate-friendly companies to reach the EU and the world climate goals.
Accuracy in target setting and the content of transition plans will ensure companies develop robust plans. This minimizes the risk of further greenwashingwhich threatens to undermine the transformative action we need.
Such strict requirements would even enable effective implementation of a tool already referenced in the EU Corporate Sustainability Reporting (CSRD) Directive and Taxonomy Regulation.
A wide range of stakeholders – from companies to investors – are calling for more legal clarity on corporate reporting and risk assessment practices as they move to more sustainable operations. Clear climate due diligence requirements would answer this call.
We must act now to keep the Paris Agreement alive
A reminder of how much is at stake: recent analysis of European companies’ public emissions reduction targets showed that the sector is far from being in line with Paris Agreement targets, but is on track for a 2.4C decarbonisation trajectory.
That is almost a degree of warming higher than the limit that the world must stay within to keep our planet habitable.
The urgency of the climate crisis means we need to get companies to act now.
To do this makes economic sense. After all, climate change is possible wipe out more than 4 percent of European GDP by 2030 in the worst case. Disasters such as droughts, which currently cost around €9 billion annually across the country EU and UK, have sany impact on business operations, with an impact on the operating result through financial losses, lower revenues and higher costs.
It is now up to Parliament’s environment committee to ensure that this bill actually encourages meaningful business action on climate and not just opens the floodgates for more greenwashing.
