Crucial moment to ensure compliance with the Paris Agreement by EU companies

Companies often fail to accurately report their emissions, threatening efforts to limit global warming. ©Canva

_A key vote takes place in the European Parliament’s Environment Committee this Thursday, when MEPs decide whether or not to include climate in their corporate due diligence directive._Climate experts from Client Earth, Global Witness, Frank Bold and WWF explain why it matters. 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 promised to become a climate-neutral economy by 2050, a goal that will be impossible to achieve without urgently mobilizing the business world.

Yet, in the absence of specific and enforceable legal rules, there is still a systematic lack of action by the private sector. While there was a flood of corporate climate pledgesthe work needed to meet these commitments is simply not being done.

In a study of the 1000 largest operating companies in the EUonly 23% of them had strategies in place to address climate risks and only 13.9% disclosed relevant data on their emissions reduction targets.

That means these companies are not in line with shareholder expectations and lack opportunities to adequately manage and mitigate the risk a warmer world presents to their business.

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Could the EU force companies to report their climate impacts?

This week is an opportunity to change this unfortunate situation. THE European Parliament is currently discussing the Corporate Sustainability Due Diligence Directive.

This proposal could be leverage the European Union it needs to force companies operating in its market to dramatically accelerate the pace.

Requiring companies to address negative environmental and climate impacts across their value chains is an essential piece of the sustainable economy puzzle. He also has good business acumen.

But there is a glaring flaw in the current legislative proposal: its narrow definition of what constitutes a “negative environmental impact” will allow companies to turn a blind eye to significant issues in their value chains, including their emissions.

As the European Political groups in Parliament battle to finalize their views on the law, the time to set the record straight is now.

What will the Corporate Sustainability Due Diligence Directive include?

According to the Commission’s draft textcompanies would only need to identify and stop impacts that result from violating one of the 12 international environmental agreements referenced in the law, a list that doesn’t even include the Paris Agreement.

Considering that all sectors – automotive, construction, chemical substancesfood and beverages, raw materials, metals and minerals, fashion and beyond – play an irrefutable role in global warming and nature loss, the current definition of “environmental impacts” will fail to fully capture the environmental footprint of companies. That’s not exactly conducive to fair competition.

The Commission’s proposal would only require companies include adverse climate impacts as part of due diligence seven years after the directive enters into force, likely to last into the next decade after 2030.

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It’s too late. Climate science warns that unless we have massive emissions cuts now, the Target 1.5C it may soon be out of reach. It is also out of step with companies that are already developing climate transition plans to manage the risks for them businesses.

For this law to be fit for purpose, the European Parliament’s Environment Committee needs to specify climate as one of the environmental impacts covered by the directive and urgently fill large gaps in the EU’s corporate climate regulatory framework.

This week the European Parliament is debating due diligence laws.Canva

Clear climate due diligence and effective transition plans

The Commission’s bill includes obligations for companies to establish a transition plan.

But it should also force companies to take an inventory of potential and actual negatives climate impacts before they develop these transition plans.

This is a critical step if businesses are to successfully prevent, mitigate, cease and remediate these impacts. Without knowing these impacts, transition plans risk being nothing more than uninformed guesswork.

Corporate free riders place an unfair burden on climate-friendly companies to reach out to the EU and the world climate goals.

Requiring accuracy in goal setting and the content of transition plans will ensure companies develop robust plans. This minimizes the risk of further greenwashingwhich risks undermining the transformative action we need.

In fact, such stringent requirements would allow for the effective implementation of a tool already mentioned in the EU Corporate Sustainability Reporting Directive (CSRD) and Taxonomy Regulation.

A wide range of stakeholders, from businesses to investors, are calling for greater legal clarity on corporate reporting and risk assessment practices as we move towards more sustainable operations. Clear climate due diligence requirements would address this request.

We must act now to keep the Paris Agreement alive

A reminder of what’s at stake: recent analysis of European companies’ public emissions reduction targets has shown that, far from being consistent with the goals of the Paris Agreement, the sector is actually on track for a 2.4°C decarbonisation path.

This is nearly one degree of warming above the limit the world needs to stay within to keep our planet habitable.

The urgency of climate crisis it means we need to ensure that companies act now.

Doing so makes economic sense. After all, climate change might wipe out more than 4% of European GDP by 2030 in the worst case scenario. Disasters such as droughts, which currently cost around €9 billion a year worldwide EU and UK, have sa major impact on business operations, impacting the bottom line through financial losses, reduced revenues and increased costs.

It is now up to Parliament’s Environment Committee to ensure that this law actually drives meaningful corporate action on climate and doesn’t just open the door for more greenwashing.