Asian Enterprises Grapple with EU’s Enhanced Sustainability Regulations: Reputation Risk and Opportunity in the Race toward Carbon Neutrality

Asian businesses are at risk of damaging their reputation as stringent EU sustainability regulations come into effect. Deloitte points out that these new EU guidelines elevate sustainability reporting to never-before-seen heights, providing an upper hand to companies that are adequately prepared.

TUV Rheinland, a company providing assurance services for sustainability disclosures, suggests that Chinese manufacturers are greatly vulnerable to the necessity of enhancing their reporting and establishing goals across a broad spectrum of environmental and social performance measures. This is especially true considering the European Union is China's second largest market after the United States.

The Corporate Sustainability Reporting Directive (CSRD) mandates that large non-European Union businesses with publicly traded securities must adhere to new disclosure rules concerning their operations starting as soon as 2024. Smaller companies, however, will be given extended deadlines. A considerable number of foreign companies listed outside the EU will have to comply by 2028, subject to their revenue size.

"EU businesses that have branches in international markets, as well as non-EU companies with operations within the EU, will feel the effects of this new directive," stated Ryan Foo, a high-ranking technical manager at TUV Rheinland. He further noted that Chinese companies intending to establish plants for batteries, electric cars, or solar panels in the EU would also be impacted.

The European Union has launched the Corporate Sustainability Reporting Directive (CSRD), mandating businesses to reveal their carbon emissions to stakeholders. This initiative is a component of the EU's broader effort to cut down on greenhouse gas emissions by 55% from the 1990 levels by the year 2030 and to reach a state of zero carbon emissions by 2050

The mandate necessitates businesses to recognize, evaluate, and reveal sustainability-related figures and their financial impacts to an unparalleled degree, states Will Symons, the sustainability head at Deloitte Asia-Pacific. A significant number of Asian corporations are yet to be ready to fulfill these requirements, potentially jeopardizing their standing, he further notes.