BCG readies businesses for EU climate and ESG regulations
Insight from Boston Consulting Group (BCG) follows the increased uncertainty around the European Union’s (UN’s) most recent environmental, social and governance (ESG) regulations.
The most recent requirements from the organisation are set to reduce carbon emissions and protect more sustainable companies from unfair competition. The social aspect of this looks at fair business opportunities and discourages poor trading practices among industries.
The EU’s New ESG regulations
The most important changes to not, according to BCG are the Carbon Border Adjustment Mechanism (CBAM) and the EU Deforestation Regulation (EUDR).
CBAM
This looks at the pricing of carbon emissions associated with importing materials from developing countries and matching with that of current EU fees. This includes materials like steel, aluminium, and chemicals, which will impact a fair number of industries—namely the automotive sector that is reliant on metals and other elements to produce cars, electrified or not.
EUDR
This regulation bans the sale of commodities harvested from recently cleared rainforest areas, including cocoa, coffee, palm oil, and timber. The legislation will impact exports into the EU from Southeast Asia, Latin America, and Africa, but will likely hinge on the ability to trace certain resources back to their origins.
Challenges for emerging markets
These regulations will pose a number of challenges for supply chains. Firstly, those not reporting their entire value chains are likely to fall behind. While not eliminating trade altogether, the CBAM means that organisations could incur heavy taxations for goods that fail to comply with its traceability requirements when it comes to emissions. The cost of bringing in higher carbon goods will be much higher—ideally to influence more sustainable sourcing.
When it comes to the EUDR, this regulation targets commercialising materials from protected areas across the globe and aims at reducing the risk of deforestation continually damaging efforts to increase biodiversity and reduce climate emissions.
Strategies for compliance and competition
Some of the key ways in which BCG experts suggest to approach the new regulations starts with ESG readiness. By mapping out the relevant areas of the business that could be impacted by these changes, companies must gain transparency of their supply chains to be in with a chance of serving the EU. Whether goods are sustainably sourced or not, the new laws will likely scrutinise all consignments entering its borders. Furthermore, the general drive for businesses at the moment is to access and report quality data to map out the path ahead. This requires an understanding of upstream supply to ensure that goods don’t breach any major laws.
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