As a place to do business, the European Union offers much to like—a stable economy, seamless cross-border trade, an educated workforce. But these benefits are often accompanied by challenges such as slower growth, a complex energy market, and rising carbon emissions. Hindrances like these have motivated Europe’s efforts to accelerate its transition to a carbon-neutral, resource-light, socially inclusive economy. At the center of these efforts is the European Green Deal. Approved in 2020, it sets in motion more than 175 directives and regulations that will establish or expand clean energy investment, climate tech innovation, supply chain requirements, carbon pricing, sustainability reporting mandates, and other programs. For businesses, these mechanisms will create fresh growth opportunities, as well as new obligations.
The resulting transformation of Europe’s business landscape isn’t some far-off development for your firm’s next leadership team to deal with. It’s unfolding now. Consider the recent experience of a company operating in France: this business had just completed the setup of a production line for packaging when it discovered that a key material was set to be banned in two years’ time. The looming restriction would require the company to either write off its investment in the production line or make an additional investment to repurpose the asset. And experiences like this may soon be common.
What’s more, many Green Deal policies apply equally to companies with headquarters or operations in Europe and to companies that sell products and services there, regardless of where they’re based. Although leaders at some multinationals may prefer that their EU entities develop compliance plans on their own, we’ve seen instances in which a coordinated, transcontinental approach helped companies gain advantages and mitigate regulatory risks.
Policy effects like these are prompting executives around the world, not just those located in Europe, to revise their long-held beliefs and management approaches. These leaders appreciate that reinventing their business models for a sustainable European economy can preserve value, improve margins, and boost top-line growth. Indeed, PwC research indicates companies that take more action on climate-related opportunities and risks also have better financial performance. Below, we look at how executives are seizing on the Green Deal as an opportunity to make smarter decisions about strategy, capital spending, innovation, and other fundamental drivers of success.
A transformative policy agenda
Around the world, governments are directing their economies toward decarbonization, energy and resource efficiency, and other sustainability goals. The US Inflation Reduction Act (IRA), Japan’s Green Growth Strategy, and China’s 14th Five-Year Plan are cases in point, each mobilizing billions of dollars to support the global net-zero transition. The EU has gone as far as others, or farther, in terms of the scope and ambition of its policy work; its legal requirements stand in contrast to less prescriptive approaches elsewhere. To many business leaders, the Green Deal makes Europe a bellwether for the net-zero transition and an incubator for sustainable business practices.
Among the Green Deal’s central components is the European Climate Law, which mandates carbon neutrality by 2050, with a 55% reduction in emissions by 2030 (compared with 1990 levels). It also has policies focused on particular sustainability challenges. The Just Transition Mechanism, for example, aims to mobilize some €55 billion to ensure, in the European Commission’s own language, “no one is left behind,” and the Farm to Fork Strategy promotes sustainable agriculture and food systems. The Circular Economy Action Plan focuses on minimizing waste and promoting recycling, with targets for sectors including textiles, electronics, and plastic. The Ecodesign for Sustainable Products Regulation requires companies to use environmentally friendly materials, design products with disassembly and recycling in mind, and limit products’ noise emissions.
The many policies emerging from the Green Deal—including laws and regulations brought into force by EU member states—create complexity for corporate decision-makers by imposing myriad compliance requirements, while also beaming out new demand signals that should create business opportunities. To make sense of things, leaders may find it useful to think about Green Deal regulations in terms of three broad categories: policies with direct financial impact, those requiring transparency and reporting, and those with direct value chain impact.
Policies with a direct financial impact
Carrots or sticks? The Green Deal uses both, encouraging change with both financial incentives and the threat of sanctions. The Green Deal Industrial Plan calls for relaxing specific state aid guidelines to allow for more funding categories and to increase funding opportunities for decarbonization and clean tech manufacturing. These developments augment existing EU funding capacity, which includes €40 billion of grants from the EU Innovation Fund to support innovative decarbonization technologies, the €300 billion REPowerEU program, which supports renewable energy and energy efficiency projects, and the €372 billion InvestEU infrastructure financing package.
Other programs apply charges to discourage certain behaviors. The EU’s Emissions Trading System, for example, sets a price on carbon emissions. However, the prospect of paying the carbon price has led some organizations to move their operations outside the EU, resulting in so-called carbon leakage. To counteract this pattern, the EU introduced the Carbon Border Adjustment Mechanism (CBAM), which from 2026 will levy tariffs on goods imported from jurisdictions that have lower carbon prices than the EU does. The adjustment is indexed to the volume of greenhouse gases generated by the manufacture of such imports as cement, steel, and fertilizers. PwC research suggests that the CBAM could increase the cost of carbon for certain goods by a factor of five or more.
Policies on transparency and reporting
Almost every sustainability-conscious consumer has felt the frustration of checking product labels for information and not knowing what terms like green or eco-friendly or fair trade really mean. The EU’s Green Claims Directive, if adopted, would oblige companies to substantiate any explicit environmental claims by performing an in-depth assessment that entails the use of widely recognized scientific evidence and relevant international standards, among other requirements. Furthermore, the Green Claims Directive may introduce rules specifying that green claims and environmental labeling design must fulfill certain requirements and could be subject to verification, depending on the outcome of negotiations.
This directive is emblematic of the way in which the Green Deal aims to ensure that companies clearly describe the environmental and social aspects of their sustainability programs and back up the statements they make. Greater transparency, the theory goes, will promote more sustainable behavior. So too will accountability: under a number of Green Deal regulations, companies can be held liable.
In one particular application of the drive toward transparency, Green Deal regulations are expanding the scope of corporate reports to cover sustainability matters. The Corporate Sustainability Reporting Directive (CSRD) will require around 50,000 companies not only to publish details of their performance and plans related to environmental, social, and governance topics but also to have this information audited. In a reflection of the CSRD’s wide scope, many companies in a recent PwC survey reported that they were already engaging multiple business functions in their efforts to comply with the directive. Survey respondents also said the CSRD could create business benefits: about one-third expected CSRD implementation to lead to revenue growth and cost savings.
Policies relating to value chains
A third group of Green Deal rules sets out what companies can and cannot do in relation to their entire value chain, involving both their own operations and the operations of downstream and upstream entities. Perhaps the most significant policy is the Corporate Sustainability Due Diligence Directive (CSDDD), which is expected to be implemented between 2027 and 2029. Applicable to companies that meet certain size thresholds, the CSDDD requires them to identify and mitigate adverse impacts on the environment and human rights along their value chain.
Through the Circular Economy Action Plan, the Green Deal places particular emphasis on the use of circularity principles to cut waste in materials and resources and to preserve their value. Various extended producer responsibility mechanisms oblige makers of packaging, single-use plastic items, batteries, electronics, and electrical equipment to bear some of the costs of dealing with goods that consumers no longer want. The Ecodesign for Sustainable Products Regulation establishes requirements related to the durability, reusability, energy efficiency, and recycled content of various products.
Other supply chain regulations have a more specific focus. The EU Deforestation Regulation, for example, is intended to bar companies from selling, marketing, or exporting products that contribute to deforestation or forest degradation, or that were produced in ways that violate other countries’ forest protection laws. The Critical Raw Materials Act aims to secure European supply chains for vital technologies and industries, by providing financial incentives for projects that aim to develop raw material resources and processing capacity.
Catalyzing business reinvention
The Green Deal ushers in a new era for organizations doing business in Europe. And because Green Deal policies aim to accelerate solutions to sustainability problems, the shift to a more sustainable economic model is happening more quickly than businesses may realize. Some regulations are already in place, and many others will take effect within two to three years, leaving companies little time to devise their responses. So it is worth understanding the ways in which early movers have started to track regulatory developments and bring the knowledge they gain into core business decisions—thereby getting ahead of their rivals. Below are several examples of what leading enterprises do.
Taking a cross-functional approach to compliance
For one consumer goods company, the need to keep up with regulations and pinpoint the most relevant rules became clear after managers realized that information on the composition of one of its products hadn’t been added to the packaging, as required by regulators. Correcting the omission involved significant labor, additional warehousing costs, penalties from distributors, and revenue losses.
Revisiting the incident, managers saw that the company’s functional specialists across Europe hadn’t been informed about the sustainability regulations that had been introduced or how those regulations might apply to their work. Nor was it clear who would be primarily responsible for ensuring compliance and managing the risk of violations interrupting business. In both respects, the company’s experience wasn’t unusual; many firms face similar challenges.
The consumer goods company’s response was to involve many more people in sustainability compliance. Managers organized workshops at its EMEA (Europe, Middle East, and Africa) headquarters, inviting a variety of business stakeholders to explore legislative sustainability topics that they would need to help manage over time. The stakeholders reviewed regulations that might affect decisions being made across the organization and its value chain. (For an example, see the chart below.) And they established a cross-functional sustainability committee to meet periodically and coordinate their responses to common issues.
In a further move to help staff understand regulatory obligations for their specific parts of the business, the company began developing a dedicated, user-friendly digital dashboard. The dashboard consolidates information about new regulations and distills it into language that doesn’t require a legal degree to understand. Upon logging on, users can filter the regulations by countries, topics, and products to quickly identify rules pertaining to their activities. This technology holds the potential to streamline regulatory communications and ensure that they reach the right decision-makers within the business.
Aligning commercial moves with regulatory time frames
When managers at a leading environmental services company began looking into the prospect of building a recycling facility for electric vehicle (EV) batteries, they were already well aware that regulation would affect the plant’s commercial outlook. The EU’s Batteries Regulation, in particular, would influence both the supply of used batteries and the demand for recycled materials. The company also recognized that market and regulatory conditions would vary from place to place, making some locations favorable for the new facility and others challenging. To form a sound business case for the recycling plant, the company sought to develop a detailed view of the regulatory environment at each possible site and integrate this knowledge into commercial considerations.
The team undertook a study encompassing complex extended producer responsibilities in relation to cars and batteries, the Batteries Regulation and its implementation in various countries, waste shipment legislation, and environmental authorizations for recycling businesses. Their work reinforced an initial hypothesis about the project: that because the supply of used batteries was expected to be low in the short term and medium term, the plant would be more successful if it focused in its early years on recycling waste from battery manufacturing—rather than end-of-life batteries—and only later shifted to battery recycling. The study confirmed that the regulatory framework would improve access to used batteries as EV sales grew and a significant number of batteries reached the end of their life.
Applying their research even further, managers used their regulatory insights to refine their localized projections of EV sales, battery supply, and battery recycling. By doing this, managers were able to select a site where they believed battery production, EV uptake, and regulatory conditions would combine to allow the plant to thrive.
Bringing regulatory foresight into business decisions
The first anecdote in this article concerned a company operating in France that was forced to reassess its use of a newly built production line for packaging after managers realized that one of the material inputs faced an imminent ban. The alarming discovery showed management that the EU’s Circular Economy Action Plan and other Green Deal rules would have significant commercial and operational implications as they were localized by individual states. Management resolved to bring regulatory factors into their long-term decisions about the company’s packaging mix, the materials it used, and its operational footprint.
The company’s leadership called for urgent action to close critical knowledge gaps. They asked managers to review Green Deal legislation and its application at the country level, which resulted in a detailed mapping of the current and future legal landscape. They also sought to understand how they might organize the company’s regional operations to reflect Europe’s fast-changing business environment. Managers carried out competitor and consumer research, considered markets in adjacent territories, and reviewed operations already in place.
Finally, they brought together all their regulatory and commercial findings to explore ideas for shifts in their packaging strategy. This multifaceted approach has provided the company valuable experience with new fact-finding and decision-making processes that could help it avoid the sort of situation that had arisen in France.
The conventional approach to regulatory matters is to assign responsibility to legal or compliance functions, which review the fine print and ensure that minimum standards are met. In the context of an expansive program such as the Green Deal, though, an overly legalistic approach can keep managers from seeing the big picture. Leading companies recognize that the Green Deal presents more than a test of compliance stamina—it creates an imperative to reinvent their business. By incorporating regulatory factors into core business decisions, these organizations are finding new ways to create value in Europe’s changing economy.
The authors thank Ismael Aznar Cano, Renate de Lange, Alwine de Vos van Steenwijk, Marieke de Wal, Marc Hogenhuis, Nadja Picard, and Alex Proudfoot for their contributions to this article.
Claudia Buysing Damsté specializes in trade and sustainable supply chains. She is a partner with PwC Netherlands.
Ron Kinghorn is the PwC US Consulting Solutions Sustainability Leader. He is a principal with PwC US.
Ivy Kuo is the PwC Asia-Pacific Sustainability Leader. She is a partner with PwC China.
Barry Murphy is the PwC Global Tax, Legal, and Workforce Services Sustainability Leader. He is a partner with PwC UK.
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