Public Utility Companies & Value Chains | How the EU’s Sustainability Directives are Effecting Energy Providers
In February 2022, the European Commission proposed new guidelines requiring liability companies to account for the sustainability and equity of their value chains. This Directive on Corporate Sustainability Due Diligence is now waiting for approval by the European Parliament and Council.
Once approved, liability companies with more than 250 employees and an annual worldwide turnover of more than €40 million will have two years to sustainability-proof their value chains. According to the German group THÜGA, which comprises more than 100 public utility companies (PUC), many PUCs are also affected by these new standards.
As discussed in a previous QLab article, many German PUCs don’t have the knowledge or capacity to effectively deal with new sustainability demands, such as the new EU directive. This article informs stakeholders about the probable binding requirements of the EU’s value chain laws and discusses how PUCs may prepare.
Why public energy distributors are vital stakeholders in the energy transition
In Germany, energy is distributed through the networks of municipal public utility companies (PUCs; German: Stadtwerke). While smaller Stadtwerke buy the lawfully determined energy mix from producers, mainly via the European Energy Exchange in Leipzig (DE), the larger cities’ Stadtwerke only provide the network for energy coming directly from various producers.
The EU’s Directive on corporate sustainability due diligence
The EU Commission specifies its legislative demands as follows: “In order to comply with the corporate due diligence duty, companies need to:
- integrate due diligence into policies;
- identify actual or potential adverse human rights and environmental impacts;
- prevent or mitigate potential impacts;
- bring to an end or minimise actual impacts;
- establish and maintain a complaints procedure;
- monitor the effectiveness of the due diligence policy and measures;
- and publicly communicate on due diligence.”
Moreover, the EU Commission specifies how violations of the above requirements may be identified and punished:
- Enforcement: Guidelines are to be enforced by national authorities, which can impose financial sanctions in response to violations of the above directives.
- Victims’ rights: In case of violations, victims can evoke jurisdictional steps against the company responsible.
- Responsibility of management: Business directors and their management are required to not only act in the best interest of their company but also to decide in the best interest of human rights, climate change, and the environment.
How should PUCs prepare?
The German PUC group THÜGA acknowledges these upcoming demands. It serves as a hub for other PUCs, combining the expertise of supply chain experts and aiming to provide educational certificates for stakeholders. To prepare PUCs for the EU’s directives, THÜGA suggests the following:
- Sustainability standards: Based on preexisting international taxonomies, such as those provided by the OECD and ILO, PUCs should define their sustainability standards clearly and transparently.
- New contracts: Any new agreements with suppliers and other contractors should include these sustainability standards. These standards should also define who is responsible for assuring human rights and environmental issues.
- Risk assessment: PUCs should perform thorough risk assessments concerning human rights and the environmental effects of any processes and goods. THÜGA suggests that such risk assessments should be done “at least for immediate supply chains.”
- Complaint oversight: For remarks of violations of the standards for sustainable supply chains, THÜGA wants to create the capacity to receive and respond to make cases of non-compliance apparent.
- Communication: Any contractor should be informed about the sustainability standards and the complaint oversight system.
- Value customers’ interests: According to THÜGA, most customers want sustainable, equitable energy if it is affordable. PUCs, known for being close to their customers, are responsible for providing adequately sourced energy to ensure they don’t lose their customers’ trust.
Take-away and outlook
With the energy transition, European PUCs face substantial challenges. However, knowledge networks providing guidance are emerging, helping PUCs recognize them and find practical solutions.
The QLab is one of those experts. We recently concluded a consultancy project with a German PUC. We’ll publish the results next week on the QLab website and LinkedIn. Follow us to see them first!
In the following articles, we will subsequently dive deeper into issues related to the potential of public utility companies. Please share this article and subscribe to never miss the latest QLab insights!
Finn Faust, Webdesign & Research at QLab Think Tank GmbH
