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EU taxonomy: How SMEs in the plastics industry are affected

Ingo Schwarz, MD Schwarz Plastic Solutions GmbH

EU taxonomy: How SMEs in the plastics industry are affected

The plastics industry is under increasing pressure to introduce sustainable production processes. As a supplier, companies today already have to disclose information about the sustainability of their processes.

From January 2023, access to finance will also be linked to sustainability criteria.

What impact this may have on your company and how you can best prepare for the realignment of the financial market, we explain in this blog article.

What is the EU Sustainable Finance Action Plan?

In June 2020, the EU Taxonomy (Regulation 2020/852), an initiative of the European Union, was launched to redesign the European financial system. The aim of the EU taxonomy is to create a more sustainable financial system that supports the transition to a low-carbon economy.
The goal of operating and living emission-free by 2050 is to be achieved, among other things, by directing investments and capital into low-emission economic activities in the future.The new, “green” financial market must therefore contribute to achieving the climate goals in the future by:

  • the use of “green” financial resources contributes to reducing the carbon footprint,
  • promote responsible investment practices,
  • climate-relevant company information and standards are used and
  • Sustainability risks are disclosed.

From 1 January 2023, the taxonomy is intended to create a coherent and Europe-wide uniform framework for the allocation of investment funds. And not only for capital market-oriented companies but also for companies of all sizes. Although the regulation excludes small and medium-sized enterprises (SMEs), they are certainly covered by the supply chains.

According to the new EU taxonomy, what are sustainable economic activities?

How or what is considered a sustainable economic activity is classified in the Taxonomy Regulation. Sustainable economic activities contribute to the achievement of the six EU environmental goals:

  • Climate protection
  • Adaptation to climate change
  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

In order to be classified as a sustainably operating company, the evaluation criteria set out in the taxonomy for various economic activities must be met.

Why the EU Sustainable Finance Action Plan also affects SMEs

One pillar of the EU taxonomy is to link the future granting of loans and other subsidies to certain sustainability parameters. In the future, all companies will be obliged to disclose certain information on the subject of sustainability in the case of loans and other subsidies. This duty to provide information makes the topic of “sustainable production” an integral part of the decision-making process of financial institutions and investors.
Not only capital market-oriented companies, but also small companies and German SMEs will be affected by the taxonomy’s evaluation criteria in the future. While SMEs already have to disclose information on production processes indirectly – as a supplier – from 1 January 2023 they will also be directly affected – when granting loans. How the EU taxonomy will affect SMEs in concrete terms is presented schematically in the next section.

Shifting capital and investment resources toward sustainability

With the introduction of the new EU taxonomy, politicians have linked the disclosure of so-called sustainability information to the granting of loans and other subsidies.
The consequence for smaller companies that cannot sufficiently meet the information obligations of the banks could be more expensive credit conditions or even the rejection of essential financial resources. But existing loans could also be terminated if the lender’s credit policy excludes such (yet) unsustainable commitments.

→ SMEs that are unable to provide sustainability information or are unable to provide sufficient sustainability information will in the future be disadvantaged or completely cut off when granting loans.

What small and medium-sized companies now have to consider

In order to continue to have the usual access to important loans and debt capital, it is already important to familiarize yourself with the new EU taxonomy and to be aware of the effects on your own business model. Do you finance your company with debt capital? If so, what economic activity is currently supported by investment?

→ Since the realignment of the financial system has a significant impact on all actors involved, an early discussion and preparation are advisable.

Example for the plastics industry: opportunities and risks of the EU taxonomy

The need for sustainable, lightweight, and efficient materials that support the transition to new technologies offers huge opportunities for the plastics industry. However, the increased demand for materials such as thermosets or thermoplastics presents the traditional plastics industry with some hurdles.
In addition to challenges such as the shortage of skilled workers and high reject rates due to a lack of production experts, the plastics industry must also comply with the new sustainability standards and reporting obligations.
On the one hand as a supplier, but on the other hand also as a player in the financial market. Cutting off risks from loans and being completely excluded from supply chains must be taken seriously.
However, there are also great opportunities for plastics companies that invest in sustainable production techniques and can prove this through sustainability reports.

→ By investing in “green” technologies, companies can secure access to attractive credit conditions in the future and thus expand a major competitive advantage over competitors who miss out on this change.

Process optimization and sustainability reports for the plastics industry

The reduction of plastic consumption, the reduction of the reject rate, and the use of more efficient manufacturing processes offer great potential for companies in the plastics industry. In order to be able to document and prove these process optimizations in sustainability reports, new technologies are required that monitor and document production. In the next section, we will introduce you to what this can look like in concrete terms for the plastics industry.

How to master the upcoming challenges with AI

If you are looking for a way to gain full transparency and control over your production process, sensXPERT is the perfect solution. Through the use of AI and intelligent sensors, sensXPERT provides a detailed insight into possible material deviations and enables you to intervene in production and reduce the reject rate.
Continuous monitoring by sensors and evaluation by artificial intelligence takes over essential parts of quality control and is fully documented and can serve as the basis for your sustainability report. sensXPERT is therefore the perfect choice for you if you want to optimize and sustainably design your processes in the future and are looking for the necessary documentation for your supply chain and financial institutions. At the same time, this technology provides proof to your customers that optimized processes (deviating from approvals) still bring assured quality.

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