The EU is tightening up: it is no longer enough for companies to “look green”

By: STA Date: 2023. 03. 17. 11:50

Analysis of BDO Magyarország’s ESG business on changes affecting the field of sustainability.

(Photo: Pixabay)

The EU’s expectations in the field of sustainability (ESG) are apparently getting stricter in line with this, as a new standard will soon apply to bond issuers in the European Union. As we wrote about earlier, on February 28, 2023, the negotiators of the European Council and the European Parliament reached a temporary agreement on the creation of a standard for European green bonds (EU Green Bond Standard). A recent development in this area is that on Tuesday, March 14, the European Parliament adopted the regulation in which the rules of the joint commitment regulation [(EU) 2018/842] of the 27 EU member states were reviewed, and which stipulates that compared to 2005 By 2030, instead of 30, greenhouse gas emissions must be reduced by a total of 40 percent at the European Union level. The degree of tightening and emission reduction requirements varies from one Member State to another. The EU’s stricter regulations also have an impact on the economic activities of companies operating in its territory. The carbon reduction expectation affecting our country also significantly affects the future plans of domestic companies.
The joint commitment decree, which has now been adopted with high support, is part of the so-called “Fit for 55” climate protection package, which, in accordance with the European climate regulation, aims to ensure that the European Union emits at least 55 percent less greenhouse gases by 2030 than in 1990.

According to the newly adopted EP announcement on GHG reduction targets broken down by member states, the 27 member states must now reduce their emissions by between 10 and 50 percent at the member state level, not uniformly. The individual 2030 target values were determined on the basis of GDP per capita and cost-effectiveness aspects. In other words, the member countries will not be able to exceed the annual emission limit allowed to them from now on. For example, a 7 percent reduction has been imposed on Hungary so far. With the tightening now adopted in the EP, this will increase to 18.7 percent by 2030 compared to the 2005 level.

The legislated changes that can be clearly seen point to the same tightening direction
The EP emphasizes that the revised provisions close the loopholes that would prevent the achievement of the general, EU-level emission reduction goal, and limit certain transactions of emissions trading units. In this way, it will be regulated how many emission units a given member country can transfer from one year to another or use for the burden of its future framework, as well as how much it can trade with other member countries. All this in the main points:
• By 2030, all EU member states must reduce their emissions compared to 2005;
• Reduction targets for each member state based on GDP per capita and cost-effectiveness;
• The possibility of trade, borrowing and emission savings will be limited;
• Greater transparency than the disclosure of information on national measures.
The revised regulation must now be officially approved by the Council of the European Union. It will enter into force twenty days after its publication. The Effort Sharing Regulation is part of the aforementioned “Fit for 55 in 2030 package”, the EU’s plan to reduce GHG emissions by at least 55% by 2030 compared to 1990 levels, in line with European climate law .

Ákos Veisz, ESG business manager of BDO Magyarország, previously drew attention to the fact that the EU’s stricter directives, such as the GBS, fundamentally change the existing standards. Therefore, it is definitely worth monitoring the EU’s legislative and market regulation steps related to sustainability. The defining direction of this for the future is the EU-level GHG reduction target just adopted by the EP, as well as the relevant EU GBS regulation on February 28.

The coordinated tightening of the guidelines is also an opportunity for domestic companies

Achieving a climate-neutral transition by 2050 requires an investment of approximately HUF 50,000 billion in Hungary. Climate neutralization of the energy sector requires the largest share of investments.
Examining domestic industries, the eight sectors responsible for 92.7% of corporate GHG emissions in Hungary account for 60.2% of GDP based on 2019 data. Among the sectors of the national economy, the manufacturing industry had the highest greenhouse gas emissions, followed by the electricity, gas, steam supply and air conditioning sectors, but the transport, storage, agriculture, construction, trade and vehicle repair sectors had the highest greenhouse gas emissions – its output is also significant.

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