How to turn sustainability regulations into a strategy

This Article requires producers to inform consumers about the environmental qualities and characteristics of certain products and packaging - such as the proportion of recycled material, recyclability, presence of hazardous substances, rare earth or precious metals content. The aim of this law is to change the production methods of companies and the consumption patterns of consumers.

However, with various countries moving at a different pace and implementing different requirements, this patchwork approach is leading to further logistical and financial complications for producers. Whilst businesses may be struggling to keep up with the pace of change, it’s important that CEOs put this into perspective and recognise that this accelerated trend of sustainability regulations is about compliance and - in some cases - the right to access a market.

Regardless of whether businesses are currently affected by France’s new sustainability regulations, they simply cannot afford to overlook the significance and wider impact of these mandatory measures that are only going to affect more organisations as time goes by. So, what are the key points that all businesses need to be considering in order to avoid risks associated with market access or reputational damages, and future proof their businesses?

Understand the significance of the regulations

France is considered a pioneer when it comes to environmental law and has been at the forefront of pushing for environmental sustainability policies for the last two years. Other European countries are not quite there yet, but given the increasing demands from regulators and consumers, it is only a matter of time. If companies are not preparing for these regulations, and actively aligning their strategy then ultimately, they will not have the right to operate in certain markets. For example, to date, many companies are not aware of their Article 13 compliance obligations. Even those that know what they need to be doing are left facing complex questions, such as how to calculate the recyclability of a product? What needs to be displayed on packaging and/or digitally? How does this need to be communicated throughout the supply chain? Companies are struggling to navigate this alone and need support to better grasp the exact requirements that fall upon them.

Focus on scalable solutions – Snapshot of Article 13

Those companies within the scope of the Article 13 French obligation –based on their annual turnover and quantity of units of products placed on the national market – were left with very little time to comply with implementing the complex measures and were exposed to heavy sanctions. Indeed, the enforcement deadlines lie primarily with large companies putting in-scope products on the French market; however, this has a ripple effect on smaller companies that may be currently out of scope, supplying products to the companies already in scope. Those businesses below the scope threshold may still need to comply because the requirements will cascade onto suppliers selling into those within scope. Those within the supply chain are facing further complications with internal costs to gather data and supply specific information to their upstream partners. This then brings into question the cost vs profit of making and selling into the French market.

Anticipate and manage the risks

This is just the beginning. Whilst France is advancing more rapidly, what we are seeing worldwide is an increased request for transparency and disclosure. ESG disclosure is already becoming mandatory, and there are more and more regulations on companies regarding full disclosure of operations and supply chains. If companies are not willing to adapt, they will not be able to sell into the market. It is simply not a question of whether companies want to comply, it is going to become a necessity for them in order to have market access.

If companies are not willing to adapt, they will not be able to sell into the market. It is simply not a question of whether companies want to comply, it is going to become a necessity for them in order to have market access.

Understanding the urgency and the risks involved is key. Looking across the product portfolio allows identification of the products that will be most affected, the penalties or even market access restrictions, or risks for their business from a sale or reputational perspective. If these regulatory requirements lead to a restriction on placing products on the market, businesses need to anticipate if it is worthwhile and economically viable to comply. Is the turnover worth the time and cost of compliance and the potential risk of sanctions? Being mindful that some of these requirements conflict with those of other countries, it is understandable that companies don’t know where to begin.

The risks stemming from these regulatory developments can result in sanctions, thereby harming gross merchandise sales and the reputation of producers and their clients. If trading in a country – such as France with Article 13 – is becoming too complicated – that is a C-level issue to address. Environmental regulations have now moved to an access to market requirement, with companies having to label products based on the market they are about to enter and facing trade limitations if they do not comply.

The challenges are clear. This is a trend that cannot be stopped and will only accelerate. As is always the case with transformational change, it is important to recognise and embrace the opportunities that this presents to create value.

3 opportunities to future-proof the business

dss⁺ knows that companies are struggling to translate the Environmental Characteristics Display requirements into operational terms and comply by displaying this information digitally. Therefore, dss⁺ is working with clients globally to put in place an operational system, which includes analysing the requirement, suggesting a solution, scoping the associated risks, socialising the subject with all the relevant teams that need to be involved - Marketing, PR, Legal, Governmental Affairs, Technicians, Finance as well as any leadership – and finally, supporting with the actual implementation of the solution.

This approach allows dss⁺ to support producers in gaining insights into how severely their current products are affected by the regulatory changes, what corrective actions are needed for them to be compliant and what the consequences of non-compliance would be.

The sanction for this specific obligation can go up to €15,000 per case of non-compliance, or up to 10% of annual turnover and two years in prison. Companies thus need to be agile and ready to put in place scalable solutions, that are also replicable in other countries, to comply with current and future requirements.

To prepare for compliance with the French environmental law, dss⁺ offers support in:

• Forecasting & understanding the legal requirements & the applicability to producers’ products;
• Understanding & working towards the necessary environmental attributes of a given product that must be displayed & how to display them by urgency levels;
• Being in line with the overall requirements detailed in the French law.