As the EU’s institutions return from summer recess, urgency is building to strengthen the bloc’s ability to transform into a sustainable economy that can continue to compete globally.
Mario Draghi’s report on the issue is also expected in the coming months. Considering the EU’s ambitious Green Deal, this is often painted as a trade off between environmental ambition and action versus economic competitiveness, when, in reality, the two are not mutually exclusive. If anything, they go hand-in-hand and there is evidence that proves it.
Take emissions reductions for example: European companies that disclosed through the CDP (formerly the Carbon Disclosure Project) emissions cuts of three percent across scopes 1 and 2, from 2022-2023, actually increased their revenue by more than three percent during the same period, on average.
This is based on an analysis of environmental data from businesses representing almost 90 percent of European market capitalisation, disclosed through CDP - the non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions.
These companies’ environmental action did not impede their ability to grow —ˆ in fact, green transformation of key European industries like steel and electric utilities will be critical to the region’s ability to compete economically in the future.
The robust and consistent environmental data that informs the investment needed is ensured through the Corporate Sustainability Reporting Directive (CSRD) and its European Sustainability Reporting Standards (ESRS). Their timely implementation is critical for companies and financiers to effectively navigate and drive the sustainability transition. Ultimately, keeping this pace is key to achieving the objectives of the EU Green Deal to transform the bloc into a modern, resource-efficient and competitive economy.
The ambition set out in the EU Green Deal, including comprehensive and consistent sustainability reporting through the CSRD, is not hampering companies’ revenue growth — it is creating opportunities for them to better compete.
In fact, European companies identified €3.47 trillion in climate-related opportunities that come at a significantly lower cost of €620bn. These opportunities are in areas including the development of low emission goods and services as well as access to new markets.
Those investments needed to realise these opportunities, just like any other commercial investment, can only be made with comprehensive and consistent data on the issue at hand; sustainability data being fundamental here. The CSRD and ESRS are crucial to create the obligation to gather, prepare and publish this information so companies and financial institutions can effectively navigate and drive the opportunities within the sustainability transition.
Companies themselves report that the opportunities to be gained from these investments at scale vastly outweigh the costs involved. For example, Vattenfall disclosed opportunities of more than €650m from green hydrogen renewable energy initiatives from a cost of €147m. This development is linked with a major industry collective intended to help power green steel production, an area of much-needed expansion to support the EU’s transition to a sustainable economy.
Any delay in upholding the ambition of the EU’s green policy agenda, and the standards that are essential to it (such as the Corporate Sustainability Due Diligence Directive, EU Deforestation Regulation and Sustainable Finance Disclosure Regulation), would undermine Europe's future economic competitiveness, as well as its ability to achieve its climate and environmental objectives.
We could also see leading companies outpacing the evolving legal framework, leaving the smaller organizations being guided by the delayed roll-out of the standards and struggling to keep up with the real economy.
The data clearly shows that decisions on implementing regulation do not need to be a choice between environmental ambition and business growth. Rather, they power each other.
The green transformation of key European industries like steel and electric utilities will be critical to our region’s ability to compete economically in the future amid global demand for more sustainable products and value chains.
Take steel for example, which also represents about five percent of the EU’s CO2 emissions - nine-in-10 companies now offer low-carbon products. Still, they are set to be behind demand for green steel by 31 percent over the next 10 years - according to CDP and Oliver Wyman analysis.
Alongside boosting their own levels of expenditure, these companies need capital to grow their existing initiatives to the required scale. Comprehensive environmental data, ensured through robust regulation, is fundamental to guiding these investments and to transforming Europe’s economy into one that is both more sustainable and more competitive.
While many companies need the support of financial institutions to bring these projects to commercial scale, the finance sector needs proof such initiatives can operate sustainably at this level. This is becoming an urgent issue, with one-third of Europe’s companies now reporting access to capital as a key concern in decarbonization efforts, according to CDP analysis with Oliver Wyman.
Corporate environmental data, which CDP has been collecting for more than 20 years, is essential for providing financial markets with the information they need to make investment decisions that support of green initiatives.
Many major European businesses are already well prepared to comply with EU reporting rules on climate through their CDP disclosure.
Looking at Europe’s listed companies, 60 percent of them already report the majority of datapoints aligned with IFRS S2 through CDP, which is part of the global baseline ISSB standards and overlaps significantly with ESRS climate standards.
They are also taking the next step beyond just complying, as this data is shared with their financial institutions and customers to enable opportunities for better access to capital and stronger value chains. This means that data doesn't just collect dust in annual reports but is seen and used by the wider ecosystem.
Major manufacturers are already accessing financing with the support of this information. Take for example German steel giant Thyssenkrupp. The company is investing €3bn until 2027 in one of the largest industrial decarbonisation efforts of any business worldwide. They received a CDP 'A' score for the eighth year in a row in 2023, which has helped the organization secure public funding for its decarbonization initiatives. Rather than hampering business success, sustainability reporting will be fundamental in helping guide investments to power Europe’s economic competitiveness.
Pietro Bertazzi is director of policy & external affairs at the CDP (formerly the Carbon Disclosure Project) — a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.
Pietro Bertazzi is director of policy & external affairs at the CDP (formerly the Carbon Disclosure Project) — a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.