SUSTAINABILITY
begins in 2024, with the largest listed companies required to report in compliance with the directive. While CSRD focuses on increasing transparency through reporting, several other legislations in the European Union aim to set compliance requirements for companies. Businesses should be aware of these legislations and prepare for potential compliance requirements.
Corporate Sustainability Due Diligence Directive (CSDDD)8 The CSDDD has sparked considerable discussion in European forums. It aims to make businesses more accountable for their environmental and human rights impacts throughout their value chains. The directive sets a corporate due diligence duty for large companies to identify and address adverse human rights and environmental impacts. While it has support from many
stakeholders, there are concerns about administrative burden, practicality, and whether it will drive or hinder the global competitiveness of EU companies. As it primarily targets large corporations, it is expected that approximately 6000 EU-based companies and around 900 non-EU companies will fall within the scope of the directive when it is phased in starting 2027.9
The Forced Labor Regulation10 The Forced Labor Regulation, which is separate from but related to the CSDDD, was approved by the EU Parliament in April 2024, and its adoption by the EU Council is expected in the autumn. It aims to establish a framework for investigating instances of forced labor and ultimately eradicate it from value chains. Key aspects of this regulation include a
centralized approach, risk-based assessments, and consideration of the scale and severity of violations. AAK is proactively engaging in the industry working groups on both the CSDDD and Forced Labor Regulation. In this way, we can ensure that we align our development and implementation efforts with the evolving regulatory landscape. By participating in these groups, we aim to stay informed, contribute to industry best practices, and position ourselves to be fully compliant with these requirements.
Green Claims Directive11 Lastly, the Green Claims Directive proposal is a significant step towards combating the issue of misleading environmental claims, commonly referred to as ‘greenwashing’. The directive aims to introduce minimum requirements for making green claims, which might have far-reaching implications for marketing and advertising practices. Claims must be reliable, comparable, and
verifiable, meaning companies must support all claims with data and proper processes. The proposal for the directive aligns with the SDGs. By providing consumers with more reliable information about the environmental impact of products, the directive empowers them to make more informed choices. However, the complexity of supply chains and the difficulty of measuring environmental impact pose challenges for companies, and
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there is debate about whether the directive will effectively combat greenwashing or if it might inadvertently discourage companies from communicating about sustainability efforts.
Change cannot happen in isolation As the above directives and regulations come into application, there will be a heightened need for traceability and transparency within supply chains, backed by stringent due diligence requirements to assess and mitigate risks. This increased transparency will push ingredient suppliers towards closer relationships with the primary producers at the beginning of the supply chain. For smallholder farmers, compliance with
new regulations offers the potential for improved market access, environmental stewardship, and social benefits. However, it is also more difficult for them to comply due to costs, resource access, and implementation challenges. The transition to a more sustainable, inclusive, and just economy is a key priority for the EU, and a collaborative
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approach involving policymakers, businesses, NGOs, and farmers is essential to maximize the benefits and mitigate the risks. For cosmetic companies and manufacturers, meeting new environmental and social standards may involve reformulating products, diversifying ingredient sources, rethinking packaging materials, and modifying production processes to minimize waste and emissions. Lifecycle assessments (LCAs) can play a key role in helping to identify hotspots and prioritize areas for intervention. So, these companies should look to partner with suppliers who understand and are transparent about climate risks within their supply chains and can offer collaborative solutions. Businesses will have opportunities to
differentiate themselves through innovation, such as implementing green chemistry principles, investing in renewable energy, and adopting eco-friendly packaging. We are increasingly seeing the development of new ingredients and formulations to reduce reliance
October 2024 PERSONAL CARE
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