7 THINGS BUSINESSES SHOULD KNOW ABOUT CLIMATE CHANGE AND THE LAW
March 29, 2023 at 2:53 pm
7 Things Businesses Should Know About Climate Change and the Law
We have gathered the most important current and upcoming EU legislative initiatives that address climate change and significantly impact how businesses must operate in the future.
1. Net Zero Industry Act Proposal – Tackling Climate Change
1.1 Background for the proposal
The Net Zero Industry Act is a proposal for a Regulation of the European Parliament and of the Council aimed at strengthening the European Union’s net-zero technology manufacturing ecosystem. The proposal supports Europe’s decarbonisation goals for 2030 and climate neutrality by 2050.
The global market for mass-manufactured net-zero technologies is expected to triple by 2030, reaching an estimated annual value of EUR 600 billion. Net-zero technologies are now central to geostrategic competition as countries seek to secure access to advanced clean-energy technologies.
The proposal aims to ensure that at least 40% of the EU’s net-zero technology deployment needs will be manufactured domestically by 2030. To achieve this, the Regulation creates a legal framework to promote investment, support innovation and strengthen supply security for essential technologies.
1.2 Facilitating investments in net-zero technologies
Specific objectives include facilitating investments, reducing CO₂ emissions, creating skilled jobs, improving access to markets, supporting innovation, and establishing governance and monitoring structures for implementation.
The proposal covers technologies that significantly contribute to decarbonisation, including solar photovoltaic and thermal, onshore and offshore renewables, storage technologies, heat pumps, geothermal energy, electrolysers, fuel cells, biogas and biomethane, carbon capture, storage and utilisation, nuclear-related advanced technologies, and grid infrastructure. Strategic Net Zero technologies will receive priority support.
2. Taxonomy Regulation 2020 (Regulation (EU) 2020/852)
The Taxonomy Regulation supports the EU’s transition to a climate-neutral, resource-efficient economy by enabling sustainable investment flows. It provides a common classification system for environmentally sustainable economic activities.
2.1 Guidance to investors – How climate change affects investment decisions
Clear guidance on which economic activities qualify as environmentally sustainable helps investors identify and finance projects with real environmental benefits. Investors must also disclose how the Taxonomy criteria are applied in their financial products.
Transparency enables investors to understand the degree of environmental sustainability of their portfolios and how their investments contribute to environmental objectives.
3. SFDR 2019 – Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088)
The SFDR reduces information asymmetry between financial market participants and investors. It requires firms to disclose sustainability risks, adverse sustainability impacts and how sustainability considerations are integrated into investment decisions and advice.
Financial advisers must publish policies regarding sustainability risk integration and make sustainability-related disclosures in pre-contractual and periodic reports.
4. EU Green Bonds Framework (2023 Proposal)
The Council and European Parliament have reached a provisional agreement on the European Green Bonds (EuGBs) framework. EuGBs will finance green technologies, energy efficiency, sustainable transport and related research infrastructure.
At least 85% of proceeds must be allocated to economic activities aligned with the EU Taxonomy. A flexibility pocket of 15% applies where the Taxonomy has not yet defined criteria. External reviewers will be registered and supervised to ensure market integrity.
5. CSRD 2022 – Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464)
CSRD expands sustainability reporting obligations to all large companies and listed SMEs (except micro-entities). It aims to give investors access to reliable, comparable and comprehensive sustainability data.
5.1 Requirements for small and medium-sized undertakings
Listed SMEs must comply with sustainability reporting requirements for financial years starting on or after 1 January 2026, with a two-year opt-out option. Large companies must report from 2024 onwards. Non-EU companies with significant EU turnover must also comply.
6. NFRD – Non-Financial Reporting Directive (Directive 2013/34/EU)
Large public-interest entities with over 500 employees must prepare a non-financial statement addressing environmental, social, employee-related, human rights, anti-corruption and bribery matters.
6.1 When preparing a non-financial statement
The statement must include the company’s environmental impact, use of resources, emissions, energy sources, social responsibility, labour rights, human rights due diligence and anti-corruption policies.
7. Climate-Aligned Clauses in Commercial Contracts
Climate-aligned clauses are already being developed to incorporate climate solutions into commercial contracts. These clauses are designed to support emissions reduction goals across industries and jurisdictions.
If you want to understand how climate-aligned clauses can be applied in your business, our specialists are happy to advise you.
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This article is for information only and is not legal advice.