Climate legislation is gaining momentum worldwide, driving significant changes in how companies operate and manage their brand integrity. As climate change intensifies, legal frameworks around the world are evolving rapidly, reshaping the way businesses approach compliance, intellectual property, and sustainability.
Companies navigating international markets or managing global licensing portfolios must now operate within an increasingly complex regulatory environment.
Climate Legislation and Divergent Models: US vs EU/UK
Since the Paris Agreement in 2015 set the global tone for emissions reduction, climate regulations are now front and centre in business planning.
The U.S. and the EU/UK are employing distinct approaches to climate legislation. Understanding these differences is crucial for professionals to build future-proof licensing strategies, as the impact on ESG reporting, product compliance, and brand reputation is immediate and profound.
United States: Incentives and Decentralisation
The US remains primarily driven by incentives. The 2022 Inflation Reduction Act unlocked more than $370 billion for climate and energy initiatives, offering tax breaks and subsidies to support sustainable business practices.
Climate regulation is often state-led, and California has instituted stringent emissions standards and product labelling laws that will become de facto national standards.
ESG reporting is currently voluntary at the federal level. However, California’s SB 219 requires major companies to track emissions and climate risks by 2026, with Scope 3 emissions reporting coming into effect in 2027. It means that licensees, particularly those needing to comply with California’s evolving mandates, will have to provide detailed data to licensors.
EU & UK: Compliance-first with Strict Enforcement
The EU’s Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR) mandate detailed reporting on environmental impacts. These regulations require companies to integrate sustainability into their business models and value chains. However, reporting obligations for companies with more than 1,000 employees were recently delayed to 2027.
As for product standards and labeling (EPR/Extended Producer Responsibility), from eco-design requirements to bans on certain single-use plastics, the EU and UK enforce rigorous product standards, and the onus lies with the brand holder.
Licensing agreements must include clauses on sustainable sourcing, lifecycle analysis, and recyclability. Non-compliance results in significant financial penalties and reputational damage. Companies can also be subject to audits and third-party verification of their sustainability claims. Thus, licensing professionals must incorporate sustainability requirements into their contractual agreements. Due diligence, supply chain transparency, and verified environmental claims are no longer optional.
A notable feature of the ESPR is the DPP (Digital Product Passport), which provides detailed information about a product’s composition and environmental impact, offers guidance on repair and recycling, and increases transparency. ESPR includes measures to prevent the disposal of unsold goods, fostering waste reduction and resource efficiency.
Strategic Impacts on IP and Licensing
Climate compliance is changing the way IP is managed. Licensing agreements now include specific provisions related to environmental impact, covering materials used, carbon footprint limits, recyclability of packaging, and energy efficiency. Moreover, licensors must ensure that their licensees uphold ecological commitments, with missteps resulting in brand dilution, greenwashing accusations, and penalties in the EU/UK. A product licensed in both the US and EU must meet differing regulatory expectations, requiring adaptable yet compliant licensing terms.
Additionally, the licensing of green patents and sustainable IP design is booming, with companies monetising innovations that help them meet compliance goals. Under EU law, licensors may audit licensees for environmental compliance, making third-party certification a common requirement.
Best Practices for the Evolving Licensing World
To navigate the evolving regulatory landscape, licensing professionals should consider some best practices. These include embedding environmental metrics into licensing KPIs and performance clauses and revising standard licensing agreements to reflect current climate laws and sustainability standards. Moreover, staying updated on regulations in all operating territories and evaluating the sustainability performance of potential partners, using tools like the Products of Change Maturity Index, could be helpful. Ultimately, professionals should work with environmental specialists and compliance advisors.
Turning Regulation into Opportunity
Climate regulation is not just a challenge but a catalyst for innovation. Integrating sustainability into licensing strategies will attract eco-conscious consumers, meet investors’ expectations, and withstand regulatory scrutiny. The divergent US and EU/UK approaches require businesses to evolve, be adaptive, and be proactive.
By aligning with environmental priorities, businesses can lead the way in building a more sustainable and profitable future.
Products of Change maximizes our collective understanding of where our industry is headed. We’ve gathered the players, research, resources, and shortcuts to help you navigate and comply with any upcoming legislation. Join us on this journey! To learn more, go to www.productsofchange.com
Read the article in our new Summer Issue, pages 80 – 82.
Curated by Andrea Green, POC Advisor
