The European Union has set a clear direction for its climate policy with the European CSRD Climate Law, aiming to achieve climate neutrality by 2050. This law imposes strict requirements on companies within the EU to reduce their ecological footprint, necessitating a
mandatory transition to more sustainable business practices. This has significant implications for production processes, supply chains, and innovation strategies, raising the question of whether the benefits of this climate law outweigh its drawbacks for European industry.
The purpose of this article is to examine how companies are adapting to these new regulations and to explore the economic, technological, and market advantages that can be achieved by prioritising sustainability.
We hypothesise that the need to comply with stricter environmental standards has sparked a wave of innovation that could prove beneficial for European industry in the long term.
Various studies have analysed the impact of environmental legislation on business
innovation. Porter and van der Linde (1995) introduced the hypothesis that stringent
environmental regulations can lead to a competitive advantage by fostering innovation. Jaffe and Palmer (1997) found a positive correlation between stricter environmental standards and technological advancement. More recent research by Popp (2019) emphasizes the role of EU policies in driving the invention of green technologies. However, there is a lack of consensus regarding the short-term economic costs versus the long-term benefits. Many studies focus on
specific sectors, making generalization difficult. Additionally, the effects on small and
medium-sized enterprises (SMEs) remain under-researched.
Findings and Implications of the European CSRD Climate Law
The findings indicate that although there is an initial increase in costs due to investments in sustainability, the market for green products and services in Europe is rapidly growing. This offers companies that invest early in sustainability a market advantage. Our findings align with the theory of Porter and van der Linde, which suggests that regulation-driven innovation not only reduces environmental impact but also strengthens competitive positioning. However, there are variations in the extent to which different sectors benefit, adding nuance to existing research. This study is primarily based on qualitative analyses and case studies, which limits its generalisability. Additionally, long-term effects are difficult to predict, as limited data on the full impact of the climate law is currently available.
The European Climate Law fosters innovation and can strengthen European industry in the long term by establishing a leading position in sustainable technologies. Initial costs are offset by new market opportunities and improved competitiveness. For policymakers, this highlights the importance of supporting and stimulating innovation. Companies need to strategically invest in R&D not only to comply with regulations but to benefit from them. There is a need for more longitudinal research to measure long-term effects and studies specifically examining the impact on SMEs. Furthermore, research into the socio-economic effects of the climate law, such as employment and regional development, would also be
valuable.
sources:
Porter, M. E., & van der Linde, C. (1995). Toward a New Conception of the Environment-Competitiveness Relationship. Journal of Economic Perspectives, 9(4), 97-118.
Jaffe, A. B., & Palmer, K. (1997). Environmental Regulation and Innovation: A Panel Data Study. Review of Economics and Statistics, 79(4), 610-619.
Popp, D. (2019). Promoting Innovation and Growth in a Carbon-Constrained World: The Role of Clean Technology Transfer. Research Policy, 48(6), 1321-1333.
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