7 days ago
How renewables can help the earth live long and prosper
'What's the problem, Scottie?'
'It's the engines, Cap'n. They cannae take it anymore. She's gonna blow!'
'Then have to risk a full power restart. How long do you need?'
'At least fourteen hours, Cap'n. I cannae change the laws of physics!'
'You've got eight minutes.'
In fairness to Captain Kirk, despite facing a seemingly unsurmountable crisis in almost every episode of the original Star Trek, he never actually lost the USS Starship Enterprise, and so continued to explore strange new worlds, to seek out new life and new civilizations, and to boldly go where no man has gone before.
The Starship European Union could learn a lot from him, particularly in relation to delivering innovative solutions to complex problems in double quick time and on schedule.
Admittedly, the EU missions tend to be far less glamourous than interplanetary exploration, but another important milestone date has just been pushed out and although it won't implode the whole spaceship, it is yet another small tear in the fabric of the EU sustainability strategy.
The issue is with the prosaically titled 'Corporate Sustainability Due Diligence Directive' (CS3D), an instrument designed to improve and standardise the quality and content of reporting sustainability performance among companies doing business in Europe. Think of an accountancy balance sheet but instead of stating asset and money balances, it measures 'good behaviour by companies.'
The CS3D directive is a key element of the overarching 'Green Deal' strategy with the long-term objective of adding transparency and accountability on an 'apples with apples' comparison basis to ensure that businesses of meaningful size provide clear and reliable information on their performance against environmental, social and governance (ESG) mandates.
The other key obligation is that 'in-scope' companies adopt and put into effect a transition plan for climate change mitigation which aims to ensure, 'through best efforts, compatibility of the business model and strategy of the company with the transition to a sustainable economy and with the limiting of global warming to 1.5°C'.
For businesses, it presents a trade-off between the cost and hassle of implementing additional regulatory overhead and the commercial opportunity that an increased focus on sustainability will drive additional goodwill to their brand in global marketplaces and better efficiency and innovation in their supply chains.
Broadly speaking, the directive has two tangible demands on the companies impacted. Firstly, to drive focus across global 'value chains' for climate mitigation. Secondly, it formalises the principle that all businesses have a responsibility to respect human rights, which are 'universal, indivisible, interdependent and interrelated'.
The intent, or — more accurately — hope, is that to meet these twin objectives, companies would begin to steer more capital investment towards sustainable processes and products and reduce impediments to better net-zero and human rights outcomes.
Peter Burke, Minister for Enterprise, Tourism and Employment, has welcomed the deferral of the 'Corporate Sustainability Due Diligence Directive' (CS3D).
Simply put, companies that are subject to the directive will be compelled to report and publish information on any material risks identified and what countermeasures taken to mitigate these risks and publish annually the impact, positive or negative that accrue from these changes. Even simpler put, lots more cost and time-pressure for companies for what is effectively an increased burden of 'non-finance' accounting.
CS3D was issued early in 2023 and scheduled to be enacted into the national laws of the member states by July 2024. Given that the accounting standards that we know, and love today can be traced as far back as ancient Mesopotamia this has proved to be a very short timeline for such a fundamental re-engineering of corporate statements and opposition to the whole package is gathering, like belligerent Klingons, on the starboard bow of the directive.
'How long do you need, Scottie?"
"Five thousand years, Cap'n."
"You can have two.'
Opposition to the proposal among businesses of all sizes has deepened and as result of intensive lobbying the European Parliament realising that resistance was futile, 'set their phasers to stun' and voted overwhelmingly to 'stop the clock', allowing all stakeholders time and space to catch their breaths and reset the implementation tempo and strategy.
The original timeline for full implementation has been extended in by two years and the number of companies that will be subject to the directive has been reduced.
The amendment to the directive reclassifies 'large' companies to those whose activities are more likely to impact human rights, and the environment will be impacted. The new threshold means that companies with more than 5,000 employees and net turnover exceeding US$1.6bn are now subject to the directive and are expected to begin reporting from 2028. These changes also mean that 80% of the companies originally targeted for inclusion in the programme are now off the hook.
Additionally, the transposition of the directive into national law has also been extended by another year. Since the 2024 due date has passed, only Bulgaria, Czechia, Denmark, Ireland, France, Croatia, Italy, Lithuania, Hungary, Romania, Slovakia, and Sweden have met the target date for national legislation. Twelve down, still fifteen to go.
While the recent amendments are not exactly a 'full power restart', they at least provide some much-needed wriggle room for Kirk to navigate the Enterprise away from those pesky Klingons.
Other problems with the directive which may in the longer term be deeper than the noisy business issues were identified in an article published last December by Cambridge University Press, (The Unintended Consequences of the EU Corporate Sustainability Due Diligence Directive). In it, ESG lawyer Jowita Mieszkowska, argued that the CS3D directive could turn out to be a hat trick of own goals.
Firstly, she points to the possibility that companies will withdraw from countries with problematic human rights because the risk of EU sanction leading to negative economic outcomes for regions that most need the investment. Second is the sheer regulatory overhead of implementation might divert capital from more productive and ethical uses. Thirdly, the directive might in fact weaken even stronger national legislation. For instance, Germany would actually have to dilute the impact of it's 'Supply Chain Act' to conform with the provisions of CS3D.
Peter Burke, Minister for Enterprise, Tourism and Employment, welcomed the deferral, saying that he 'strongly supports the simplification and burden reduction agenda that is being led by President von der Leyen at European level, to maximise the competitiveness of businesses in the EU in the evolving global trading environment. These proposed changes will of course significantly help enterprise in Ireland, and most of all our SMEs.'
The CS3D directive is a key element of the overarching 'Green Deal' strategy; businesses of meaningful size must provide clear and reliable information on their performance against environmental, social and governance (ESG) mandates.
Mr Burke will now have to amend the Irish legislation to accommodate the changes enforced by a missed schedule and the elephant in the room has been pushed into a dark corner where it will be neither seen nor heard. The intent of CS3D was after all to help stop the planet growing warmer by reducing sustainability-related risks and promote climate neutral economic transitions in accordance with the 2015 Paris Agreement.
These noble aims have been sidelined amid all the political and administrative turmoil and First Officer Spock might reasonably ask: How will this help planet earth to live long and prosper?
