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Sustainable Trading with the European Union

The economy of the European Union (EU) is worth NZD27 trillion in 2023[1], and a newly signed free-trade deal adding an extra NZD1.8 billion of exports per year by 2035[2] supports the continued growth of our economy. But there were a couple of caveats.

The free trade deal came into force on 1 May of this year and included an enforceable promise by both parties to effectively implement our respective 2030 climate targets under the Paris Agreement. Our target is a net cut of 50 per cent off gross Greenhouse Gas (GHG) emissions in 2005, roughly 150 million tonnes fewer emissions over a decade.

In addition, the EU has developed and is deploying a slew of ‘green’ legislation, spanning the entire value chain, from product design and marketing to waste started coming into force this year. Here is a sample of some of the regulations that have, or are about to be, enforced:

EU’s Corporate Sustainability Reporting Directive (CSRD) This Directive helps regulators, investors, customers, and other stakeholders evaluate the sustainability performance of companies. An estimated 50,000 EU-based publicly listed companies (excluding micro-enterprises) and ‘large’ private companies will be impacted. Non-EU companies who generate over EUR150 million in the EU market will also have to report. These companies will need to disclose the externally audited risks and opportunities arising from social and environmental issues and the impact of their activities on people and the environment (double materiality). The European Sustainability Reporting Directive (ESRD) includes detailed reporting requirements. 
EU’s European Sustainability Reporting Directive (ESRD)The ESRD requirements include disclosures on:·   environment: – climate change (scopes 1, 2 and 3), pollution, water and marine resources, biodiversity and ecosystems and resource us and circular economy·   social: – data on their workforce, workers in their value chain, affected communities and consumers and end-users, and·   governance: – business conduct. 
EU’s Green Claims DirectiveThis Directive, also known as the Greenwashing Directive, is being rolled out between 2024 and 2027. It will enable customers to make sustainable purchasing choices by disallowing any product claims, in advertising or on the packaging, of ‘eco’, ‘green’, ‘recycled’, etc, without significant evidence to support the claim. One of the environmental policies being brought in by the EU ensures banned chemicals do not come in the back door, so our food and beverage exporters to the EU will need proof that their products contain no banned agrochemicals. 
EU’s Eco-design for Sustainable Products Regulation (ESPR)Last week, the ESPR was signed off by the European Parliament. aims to improve various aspects of products throughout their lifecycle to make them more durable and reliable, easy to reuse, upgrade, repair and recycle, and use less resources, energy, and water. This regulation requires a Digital Product Passport (DPP), enabling greater visibility of these aspects. The DPP is significant because, in 2026, an estimated 30 product categories will not be able to be sold in the EU (27 countries) unless they have a DPP. 

While navigating the complex web of supply chains and understanding Environmental, Social and Governance (ESG) data remains challenging for many companies, the annual savings made from the removal of the tariffs and the reduction of regulatory barriers on service exports by 10 to 20 per cent makes this extra reporting worth considering.

[1] Dann, Corin, 10 July 2023, EU trade deal, RNZ, sourced online April 2024[2] McClay, Todd, 25 March 2024, NZ-EU FTA gains Royal Assent for 1 May entry to force, Beehive, sourced online April 2024

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