Nordea Bank : CSRD, CSDDD, ETS, CBAM – 4 EU sustainability regulations that will shape companies’ business models

Global temperatures are rising around us. 2023 was the hottest year on record, with global temperatures close to the 1.5°C limit of the Paris Agreement on climate change. Restoring the health of our planet and reversing the trend requires collective action from businesses, financial institutions, governments, communities and all of us. Regulation is an important driver of this change and will shape the business environment in the years to come.

When it comes to sustainability regulations, the scope and pace of implementation will heavily influence changes to business models in both the corporate and financial sectors. Global climate- and biodiversity commitments are driving major legislative programmes, which have far-reaching impact. For example, 151 countries are committed to net-zero climate targets under the Paris Agreement, and 196 countries are committed to the Kunming-Montreal Global Biodiversity Framework targets.

For climate and environment targets, especially on biodiversity loss, the implementation gap remains significant, which increases the transition risk for many sectors. Within the EU, the European Green Deal and Fit for 55 framework encompass a wide range of new laws and regulations that are expected to shape corporate activity on climate and environment in the run-up to 2030 and beyond. Starting from 2026, there will be a significant ramp up both in the scope and ambition of EU regulation.

While these regulations are designed to deliver on climate and environmental goals, they will also be a source of disruption for sectors and business models and could increase costs for both businesses and households. Some regulations are clearly defined and narrow in scope, while others will have a broader impact. Here are some of the broad sustainability-related regulations to watch:

The CSRD is an EU regulation that requires large companies to report on their environmental and social risks, and on how their activities impact people and the environment. The regulation requires a broader set of large companies, as well as listed SMEs, to report on their sustainability. Some non-EU companies are also required to report if they generate over EUR 150 million on the EU market.

The new rules entered force in January 2023, and the first companies will have to start reporting for the first time for the 2024 financial year in 2025, with phased implementation through 2027 and beyond. The CSRD also requires companies to provide assurance on the sustainability information they report.

"The CSRD will create greater transparency and comparability around sustainability matters," says Peter Sandahl, Head of Climate and Environment in Group Sustainability at Nordea. "This might also lead to increased peer pressure which could drive increased ambition and more strategic changes by companies that do not meet the same level of performance as their peers."