What: New regulations are coming into force in Europe which will change the way that businesses operate and how startups will be financed and grown.

Why it is important: It is becoming more challenging for businesses operating in the EU to be able to comply with the various regulations that are being enforced. Startups have the opportunity to implement such regulations at the core of their businesses, but veteran companies will need to pivot to ensure compliance.

EU’s Sustainable Finance Disclosure Regulation (SFDR) came into force last year regulating disclosures of investee companies’ energy and water use, supply chains, waste systems and their gender pay gap, among other sustainability indicators. Further disclosure rules will come into effect on January 1, 2023, therefore the following steps should be considered in order to build a successful business model that will be sustainable over the long term.

1)    Make sustainability ingrained in the DNA of the business model

-    Regulations are cracking down on greenwashing claims, therefore companies need to make sure that all communication matches reality and does not mislead consumers.

2)    Track sustainability criteria and KPIs as soon as possible

-    These metrics need to go beyond environmental concerns and include social issues such as gender pay disparities and staff retention and should be captured as soon as possible.

3)    When choosing suppliers, have an ESG scorecard

-    Scope 3 emissions are part of SFDR’s reporting, therefore companies will need to understand their indirect impacts related to all suppliers, even outside of the EU.

4)    Appoint an ESG officer early

-    The C-suite needs to be involved and engaged in sustainability with an ESG advocate sitting at the top of the company.

How the changing ESG regulations in Europe will impact businesses