SK sustainable development digest

What is sustainable development? In 1987, the UN Brundtland Commission defined sustainable development as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. For business, applying sustainable development strategies and practices means three things:

  • serving the interests of the enterprise and its stakeholders
  • rational use of natural resources
  • protection against climate, social and economic risks in the long term

The urgent need for sustainable development has already become evident. The negative effects of climate change are already directly affecting not only 70% of all sectors of the world economy but also individual enterprises. In 2019, the first-ever bankruptcy was caused by improper actions and measures in abnormal climatic conditions of high winds and droughts, which resulted in the collapse of power lines and utility poles, causing large-scale forest fires, human casualties and heavy material losses.

What does sustainable development mean for Ukraine? Ukraine needs to adapt to the global policies in the field of sustainable development. Thus, 79 countries have already established policies on sustainable consumption and production. Ukraine has a number of obligations enshrined in the Paris Climate Agreement, the Association Agreement between Ukraine and the European Union and the Treaty establishing the Energy Community. The European Green Deal is an example of an economic challenge posed for Ukraine – it establishes the EU’s desire to achieve climate neutrality by 2050. The Green Deal provides for Carbon Border Adjustment Mechanism (CBAM), which will include several policy instruments posing a challenge to Ukrainian business: carbon tax, extension of the Emission Trading System and new customs duty. CBAM could lead to estimated losses in metallurgical sector of EUR105-200 million per year by Ukrainian exporters.

What does this mean for business? Subject to compliance with the new requirements of the European Green Deal, Ukrainian business will be able to occupy new markets relieved from uncompetitive carbon-intensive products from third countries. Modernisation of production capacities is possible with the support of EU Member States or with the use of appropriate funds (for example, the programme “Horizon 2020” has already allocated EUR 31,8 million  in the form of 182 grants from 2014 to 2020).

In addition to compliance with Ukrainian legislation and adapting to the changes across foreign markets, business must take care of its own protection against the negative impact of climate change and economic crises. Thus, the companies considering sustainable development in their practices receive 18% more return on investments. At the same time, nearly three in ten companies notice operational consequences from climate disasters (damage to facilities, workforce disruptions), experience a significant rise in prices for raw materials.

What does this review contain? This review is aimed to provide information about the recent changes in the field of climate, environmental and sustainable development. It has an update on regulatory changes in the fields of economic activities, the state of implementation of Ukraine’s international obligations in the field of sustainable development, case review of sustainable development practices in Ukraine and abroad.

Sectoral legislation

The Ukrainian Parliament has registered the draft law of the Cabinet of Ministers of Ukraine “On Strengthening the Liability for Criminal Offences Against the Environment” № 6148, dated 07.10.2021, which provides for:

  • criminal liability for failure to carry out an environmental impact assessment/ absence of a license to carry out operations in the field of hazardous waste management/violation of the license which had grave consequences or caused damage to health or death
  • an increase in fines for concealment, non-disclosure or provision of deliberately false information on the state of the environment (a fine of UAH 51,000–68,000)
  • increased liability for littering, waste damage and pollution of land, water bodies, air, violations of legislation on pesticides and agrochemicals
  • establishment of liability for violation of the requirements for activities related to ozone-depleting substances and fluorinated greenhouse gases; illegal import /export of fauna and flora objects

The draft law of the Cabinet of Ministers of Ukraine “On Strengthening Liability in the Field of Environmental Protection, Use of Natural Resources” № 6175, dated 13.10.2021 provides for an increase in fines for a long list of administrative violations in the field of environmental management and protection (such as violation of rules on water management, water pollution, violation of the conditions of removal, preservation and use of the fertile layer of soil, air pollution, etc.).

The draft law of the Cabinet of Ministers of Ukraine “On Environmental Insurance”6018, dated 09.09.2021 provides for obligatory liability insurance against the damage caused to the state, life, health and property of an individual, legal entity or a physical person–entrepreneur as a result of violation of environmental legislation. This applies to high-risk business entities classified in accordance with the criteria for assessing the degree of risk from economic activity. The criteria will also determine the frequency of state supervision planned measures (control) by the State environmental inspectorate of Ukraine. Environmental insurance is provided by a member-insurer of the Bureau of environmental insurance, the creation and operation of which are envisaged by the draft law.

It is envisaged that the funds of the Bureau may be used to finance preventive measures to reduce the likelihood of future insured events for business entities, which have not experienced an insured event in the last three years.

The draft law provides for a possibility of partial or complete suspension of the business entity’s activities in case of violation of its norms.

According to the explanatory note to the draft law, 14,000 companies are potentially covered by the compulsory environmental insurance.

Two alternative draft laws (№№ 6018-1 and 6018-2, dated 29.09.2021) have been registered with the draft law № 6018.

On 21 October, the Ukrainian Parliament adopted the Law “On Energy Efficiency”, which was previously registered as the draft law № 4507, dated 17.12.2020.

The Law provides for:

  • establishment of a target indicator for annual reduction of energy consumption and introduction an energy efficiency commitments scheme in case it is not achieved (in this case, the electricity and gas supplier must reach the target annual reduction of energy consumption)
  • establishment of requirements for product ecodesign
  • principles of energy audit and energy management
  • promotion of energy efficiency in the fields of transmission and distribution of electricity, natural gas, heat
  • energy service requirements

The Law establishes liability for violations of legislation in the field of energy efficiency: for failure to achieve the target indicator for annual reduction of energy consumption – a fine of up to UAH 1.02 million; for violation of the requirements on energy efficiency potential assessment – a fine of up to UAH 510,000.

On 21 October, the Ukrainian Parliament adopted the Law “On Amendments to the Law of Ukraine “On Alternative Fuels” for the Development of Biomethane Production, which was registered as the draft law № 5464, dated 05.05.2021. The Law provides for the definition of biomethane, establishment of biomethane registry, introduction of biomethane origin guarantees.

Subject to the resolution № 1065, dated 11.10.2021, the Cabinet of Ministers of Ukraine approved the Regulation on the Unified Ecological Platform “EcoSystem”, which is a nationwide ecological automated information and analytical system for providing access to environmental information held by the Ministry of Environmental Protection and Natural Resources of Ukraine. All information resources of the Ministry of Environmental Protection must be integrated into this system.

International experience

The UN has declared access to a clean and healthy environment as a fundamental human right, which will affect further judicial practice.

28 global mining companies have expressed their intention to become climate neutral by 2050 or even earlier. The statement was issued by the International Council on Mining and Metals, which represents a third of the world’s mining and metallurgical industries. The commitment includes annual reporting on the process of emissions reduction in production.

CEO of Maersk, the world`s biggest shopping company, calls for a ban on the construction of fossil fuelled ships. Søren Skou, the head of the Danish container operator, is convinced that the gradual introduction of a carbon tax of up to USD 450 per ton of fuel will facilitate the eventual transition to climate-neutral ships.

California adopted a law to reduce the intensity of carbon emissions from cement production by 40% by 2035. Cement production, responsible for 8 per cent of emissions, will be the subject of a strategy to achieve zero emissions by 2045.

Ford will invest USD 11 billion in expanding production of zero-emission cars. The company will increase production capacity in the United States by building an automobile plant in Tennessee and two battery parks in Kentucky.

Sustainable development in Ukraine

Ukraine will participate in the COP26 UN Climate Change Conference in Glasgow, which will take place from 31 October to 12 November 2021. A number of issues will be discussed at this international event: climate commitments, decarbonisation and introduction of a carbon tax by the member states. It is expected, that a common stance of business and government representatives will be presented.

The Ministry of Environmental Protection and Natural Resources of Ukraine presented the key priorities for the implementation of climate policy:

  • Development of Action plan for the implementation of the Nationally Determined Contribution (NDC2)
  • Development of a digital version of the Unified registry for monitoring, reporting and verification of greenhouse gas emissions
  • Modeling of the Greenhouse gas emissions trading scheme
  • Adoption of the Strategy on ecological safety and adaptation of Ukraine to climate change by 2030, development of regional strategies and action plans for adaptation to climate change
  • Creation of Ukrainian Climate Fund and reform of environmental finances. The fund will ensure permitted use of budget funds received from environmental taxes in decarbonisation projects

Information contained in this article is for the general informational purposes only, does not constitute legal or other professional advice and should not be relied upon as a substitute for specific professional advice adapted to the specific circumstances.

Authors: Maryna Hritsyshyna, Nataliia Hutarevych, Sergiy Bovkunovych

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