Navigating EU Sustainability Regulations: Challenges and Solutions for SMEs

Mr. Mancke, when we last spoke four years ago, there was a lot of uproar because of the German Supply Chain Act (Lieferkettensorgfaltspflichtengesetz-LkSG). How do you perceive the situation in companies today? 

Raoul Mancke: At that time, the German Supply Chain Act was new and the effort involved could not really be estimated. Many companies have provided employees and ressources specifically for this topic. Since then, the requirements have increased rather than decreased, especially due to other regulations such as CSRD and CSDDD. Many companies must undergo supplier audits at the request of their downstream customers who are subject to the CSRD, even if those companies themselves do not fall under the CSRD due to their size. Small and medium-sized companies in particular are finding it increasingly difficult to cope these requirements. 

Some companies criticize that these EU directives are more paper tigers than an effective benefit for the climate and the environment. 

Raoul Mancke: This criticism is often voiced, especially when companies try to comply with EU directives literally "on paper". In my opinion, an efficient and effective implementation of the new sustainability regulations is only possible with modern digital solutions. In this area, both companies and certification bodies need to evolve. The CSRD standards and the associated ESRS are undoubtedly extensive. They serve comparability, but take up a lot of resources due to their uniform, very detailed reporting. Focusing on the most relevant and critical data points could help smaller companies in particular to manage the increasing demands without being overburdened. At the same time, it is indispensable that central aspects such as the reduction of greenhouse gas emissions, including those of upstream companies, are retained if the goal of climate neutrality is to be achieved. However, this objective must not be at the expense of other environmental or social factors. A good balance is crucial here. The ESG standard, like the We-Care standard for the food industry shows that a comprehensive approach is possible and offers a viable solution for both SMEs and large companies to holistically integrate and verify sustainability. 

Accordingly, Could We Care as an established ESG standard also contribute to the fulfilment of the CSDDD? 

Raoul Mancke: In principle, yes. It is important to note that proposals to adapt the CSDDD have been put forward as part of the EU Omnibus Package I. These proposals aim to clarify the requirements of the Directive and make them more feasible. We Care covers many of the aspects required by the EU, especially in the area of supply chain management and other fields of action. An ESG certification like the We-Care certification can therefore serve as an externally verified verification instrument. It supports companies in meeting the requirements of the CSDDD and communicating this credibly to stakeholders and customers. We Care can be used to prove that a company – whether as an independent organization, subsidiary , Tier 1 or Tier N supplier – has successfully implemented sustainable supply chain management. In addition, it is proven that sustainable corporate management, effective environmental management and responsible employee management have been established at the company's own sites. As an independent certification body, we are convinced that the We-Care seal not only supports companies in meeting regulatory requirements, but also sets an example of trust and sustainability in the market. Therefore, we are actively committed to increasing the visibility of the We-Care seal in order to fully exploit its potential. 

They mentioned the omnibus procedure as a proposal to reduce regulation. For you, this is an opportunity or a setback for sustainability? 

Raoul Mancke: While companies groaning under the burden of regulation welcome the planned regulatory decrease, critics see them as a possible softening of the goals of the EU Green Deal. In particular, those companies that have already taken up the cause of responsible business are skeptical about the new publications. The EU omnibus procedure, which has so far been a proposal, aims to evaluate existing regulations and, if necessary, to simplify them, for example the CSRD. Companies with fewer than 1,000 employees and a turnover of up to €50 million or a balance sheet total of less than €25 million could be exempted from the reporting obligation, which would be a significant restriction of the scope of application. If this were to be implemented, many companies would no longer fall within the scope of the CSRD. In this context, existing ESG certification schemes can be effective, as they usually map the most important data points and comprehensive risk management and can thus serve as alternative proof of companies' sustainability efforts. 

Another proposal of the Omnibus procedure regarding the CSDDD concerns supply chain requirements: companies would only have to consider Tier 1 suppliers and generic supplier risk management. This would mean that risks at lower levels of the supply chain would no longer have to be subject to mandatory assessments. Here, ESG-certified companies after an independent scheme would have a clear advantage, as they already have an eye on the entire supply chain – even beyond Tier 1. This comprehensive approach provides security not only for the companies, but also for their B2B or B2C customers, who can trust third party certified companies to implement holistic risk management. The possibility of using the label like We-Care on products also allows companies to communicate their sustainability measures clearly and transparently to their customers. At the same time, the implementation of the omnibus proposals could be problematic. In particular, the planned reduction in the punishment of violations poses a major risk. Weaker enforcement could reduce the motivation to meet the SDGs and jeopardise the achievement of EU climate targets. Especially already ESG certified companies act out of conviction and often go beyond legal requirements. 

In summary, the omnibus procedure offers opportunities for companies to reduce bureaucracy. At the same time, however, there is a risk that these regulatory decreases will weaken the implementation of sustainability goals. Companies that already rely on standards such as We Care or SEE today could take a pioneering role here and stand out from others through their comprehensive measures. 

With the Clean Industrial Deal (CID), companies are now facing another initiative. 

Raoul Mancke: The goal of a circular and climate-neutral industry is not only sensible, but also urgently necessary. With the CID, the EU Commission has created a framework that aims to combine the competitiveness of European industry with decarbonisation and innovation. Such initiatives are essential to put the industry on the path to a sustainable future. Binding targets and regulations are needed for the market as a whole to continue to develop – and not just those companies that are already acting sustainably out of intrinsic motivation. The CID offers an opportunity to set clear guidelines here, which can include both mandatory and voluntary standards. This combination is crucial to strike a balance between ambitious climate targets and economic competitiveness. However, if the major goal of a climate-neutral, ecological and social EU is jeopardised by too many compromises or a softening of the requirements, this would send the wrong signal with potentially fatal consequences. Binding goals and standards must therefore be pursued consistently. The CID can be an important step in this direction, but its implementation will be crucial. Only if the measures are ambitious and at the same time practicable can the CID contribute to the sustainable transformation of industry and strengthen the EU's competitiveness. 

This interview was conducted by Volker Laengenfelder on behalf of We Care.
To read the original article, visit We Care's website.