Citi Perspectives Spring 2020

22 | Treasury and Trade Solutions The regulatory imperative Regulatory requirements have been important in moving ESG up the agenda for corporates. Within the European Union, two initiatives — the 7th Environment Action Program (EAP) and the adoption of circular economy principles — are especially important. The 7th EAP guides European environment policy until 2020 and has three overarching goals: • Protect, conserve and enhance the EU’s natural capital. • Turn the EU into a resource efficient, green and competitive low-carbon economy. • Safeguard EU citizens from environment-related pressures and risks to health and well-being. The EU has also established various initiatives and strategies aligned to circular economy principles, with the goal of stimulating Europe’s transition from a “take make waste” linear economy toward a circular economy, focused on resource recovery and product reusability. These include: • A Circular Economy Action Plan that seeks to “close the loop” of product lifecycles, including circular design of products, turning waste into resources, and creating a market for alternative and reusable raw materials. • A strategy for plastics in a circular economy, including enhancements to facilities for recycling (to improve efficiency and quality) and a ban on 10 single-use plastic items most often found on Europe’s beaches. • A low carbon economy roadmap, with a commitment to reduce greenhouse gas emissions by 40% by 2050 compared to 1990 levels. Quantifying sustainability as a strategic risk and cost factor The fast-changing regulatory environment in relation to ESG presents potential challenges and risks for corporates in the EU. It is essential for companies to keep abreast of developments in order to remain compliant, avoid financial penalties and invest in transformational infrastructure to retain shareholder confidence. The repercussions of noncompliance can be significant. Once companies have come to grips with the risk and cost implications of sustainability, they can start quantifying anticipated savings and incremental returns from financial investment into a sustainable future business model.