Sustainability regulation: why it’s never better to ‘wait and see’
Organisations planning their sustainability budgets are often impacted by the shifting nature of the regulatory landscape.
A recent case highlights this point. It’s emerged that businesses that have already invested in line with the EU Deforestation Regulation (EUDR) face being saddled with significant unrecoverable costs.
The EUDR was scheduled to come into effect on December 30 this year. But just three months short of that date the European Commission has proposed a 12-month postponement, prompting complaints from some companies that they have already paid premium prices for deforestation-free commodities. Naturally, they’re upset that the costs they’ve absorbed might not be reflected in market prices should the delay go ahead.
This begs a question for businesses planning sustainability budgets for 2025 and beyond. Should they routinely adopt a ‘wait and see’ approach to avoid this kind of risk? Or should they work well ahead of the game, fully committed to sustainable practices before, and, indeed, regardless of regulation?
Creating long term value
The answer in our experience at Sancroft is very much the latter – despite the potential up-front costs that being an early adopter may incur.
Admittedly, this takes some investment in time, cost and effort. Part of the reason businesses have lobbied the EU for a delay in the EUDR is that regulation is complex. It requires companies to trace their supply chains down to the precise plot of land where raw materials like cocoa, coffee and soy are grown. This level of transparency is challenging, especially for industries that deal with thousands of small-scale farmers, many of whom lack the infrastructure to provide the necessary data.
But businesses must embrace that challenge sooner rather than later. This is the only way they can mitigate long term supply chain disruptions and raw material cost hikes exacerbated by issues like deforestation.
Businesses that invest in sustainable practices whether required by law or not build reputations as responsible leaders in their industries. A delay in regulation doesn’t change the fact that customers, investors and partners will increasingly gravitate toward businesses that demonstrate genuine commitment to environmental and social responsibility – not just because it’s the right thing to do, but because continued unsustainable practices present serious risks of harm, which bring their own, often staggering, costs.
The long-term opportunity to build loyalty and trust far outweighs the short-term financial investment that might be needed to absorb the cost of compliance during a regulatory delay.
Equally, businesses that bet on the certainty of climate change rather than the unpredictable nature of regulatory frameworks will be more likely to achieve long term success. We know that deforestation is the second largest source of greenhouse gas emissions after the burning of fossil fuels, so whether or not the EU delays the EUDR for a year, it’s clear that stricter rules are coming and that action is necessary regardless of those rules.
Those that don’t act with forward-looking purpose run the risk of losing market access – not to mention fines that could be as steep as 20% of their turnover. In contrast, businesses that proactively invest in sustainable supply chains will have already established the relationships and processes they need to operate profitably and compliantly while competitors scramble to catch up.
Fixing the system
The financial benefits of sustainable practices may not always be immediately apparent, but they are real. Sustainable supply chains can lead to more efficient resource use, lower waste, and, ultimately, cost savings over time.
Businesses that work closely with their supply chain partners also help to create a more resilient and robust system for the future.
Those companies which have paid premiums to secure deforestation-free raw materials ahead of EUDR, for instance, have already shown leadership by supporting small-scale farmers and traders whom they will inevitably need to rely on to comply with future laws.
These are the businesses who are also more likely to be working work with farmers and suppliers to ensure that everyone benefits from a transition to more sustainable practices, rather than leaving the poorer, small scale producers behind. They have made a head start, and a significant one.
The path forward
Ultimately this is a question about leadership. Companies that act proactively, and budget accordingly, do so because they recognise that sustainability is not only good for the planet but also for business. They understand that being proactive creates opportunities for innovation, builds consumer trust and positions them ahead of competitors.
They also recognise that while compliance is necessary, it shouldn’t consume the entire focus of the sustainability team or its budget. They prioritise time for strategic planning, ensuring their teams have bandwidth for long-term initiatives that align with both business goals and environmental needs.
Bottom line: businesses that act according to their conscience, that make the case for “doing the right thing”, regardless of the regulatory timeline, will be the ones best prepared to thrive in an increasingly sustainability-driven marketplace. Waiting and seeing may protect against some short-term losses, but seizing the initiative is the key to long-term success.