Asian companies face reputation risk as tougher EU sustainability rules kick in

Asian companies, particularly in China, face the daunting task of meeting the European Union’s tougher sustainability regulations but they should seize the opportunity to raise their game and gain a competitive advantage, according to industry advisers.

Chinese manufacturers are more exposed to the need to upgrade disclosures and set targets on a wide range of environmental and social performance metrics, given that the EU is the nation’s second biggest market after the US, according to TUV Rheinland, a sustainability disclosure assurance service provider.

Known as Corporate Sustainability Reporting Directive (CSRD), large non-EU firms with listed securities must comply with the new disclosure requirements on their activities as early as 2024, while smaller firms face later deadlines. Many non-EU listed foreign companies must do so from 2028, depending on their revenue levels.

“Both EU companies with offshoots in overseas markets and foreign firms with business units in the EU will be impacted by the directive,” said Ryan Foo, senior technical manager at TUV Rheinland. Chinese firms with plans to set up battery, electric vehicles or solar panel plants in the EU will be affected, he added.

The EU introduced the CSRD to require companies to disclose their carbon footprint to investors. It is part of the EU campaign to slash greenhouse gas emissions by 55 per cent by 2030 from the levels in 1990, and achieve carbon neutrality by 2050.