Beyond the EU Battery Regulation
Reporting on environmental, social and governance (ESG) performance will no longer just be the responsibility of large companies in 2023 and beyond. This is particularly true for battery manufacturers looking to scale-up their production in the EU.
Old and new disclosure requirements are changing the reporting landscape, and as S&P notes, companies will have to deal with a growing number of complex regulations which are difficult to align. So what reporting requirements must European battery manufacturers respond to so they can remain competitive and compliant in the next few years?
Regulations to watch out for
2021: Sustainable Financial Disclosure Regulations (SFDR)
This regulation is focused on financial players and has an impact on battery manufacturers' ability to unlock funds from investors or receive discounted financing based on sustainability premiums. Though battery manufacturers themselves do not directly need to report on SFDR, investors will have to, among other things, disclose whether any ‘sustainable investments’ are aligned with the EU Taxonomy Regulations (explained more below) and measure the adverse sustainability impacts of both the entity and each of their investment products. This means investors will also be requesting manufacturers for information on their sustainability performance to support them in their own compliance efforts, such as a company’s carbon footprint.
2022: EU Taxonomy Regulations
The EU Taxonomy is a separate regulation linked with SFDR that guides financial actors on whether a company they invest in is sustainable. Disclosing against the EU Taxonomy provides battery manufacturers with better access to financing, as it signals to investors that the company’s activities are aligned with the EU’s definition of being environmentally sustainable.
For a company’s activity to be eligible under the EU Taxonomy, it has to contribute to at least one of the Taxonomy’s six objectives – climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems. The activity must not only contribute to one of these six areas but also not significantly harm any other objective and meet a set of minimum safeguards.
~ 2023: EU Battery Regulations
As with most sustainability-based regulation, disclosures across multiple ESG areas – such as supply chain due diligence, carbon footprint, recycling and digital labelling – is a central part of the EU Battery Regulations. You can read more about how to stay ahead of the EU Battery Regulations in my previous post.
2025-7: Corporate Sustainability Reporting Directive (CSRD)
This regulation requires companies to report on the sustainability impacts of their entire value chain, meaning that upstream supply chain players will face increased pressure to comply with and report on an expansive set of sustainability topics, including climate change, pollution, affected communities, and business practices to name a few. Initial drafts of the reporting standards emphasise disclosing policies, procedures and company performance against defined targets. Interestingly the CSRD is a revision to the previous Non-Financial Reporting Directive (NFRD) that significantly expands the scope of what companies need to disclose and is part of a wider trend for more rigorous sustainability reporting regulation.
How can battery manufacturers stay ahead of the upcoming regulation?
The bigger picture
These are only a handful of the regulatory requirements and standards, both in the EU and globally, that battery manufacturers will have to stay on top of in 2023 and beyond. Though smaller battery manufacturers may not fall within the scope of some of them now, it is likely that this will change in the near future and so customers and investors are already wanting to know how they will be prepared. Industry players who want to follow industry best practice, go beyond compliance and remain competitive need to quickly understand the regulatory landscape, understand what their key ESG impacts are, and ensure the necessary policies and processes are in place to make progress and demonstrate compliance. If battery makers do this now, they will be able to capitalise on the new landscape for sustainability reporting and use it to access cheaper financing and win larger customers.
