The EU’s Green Deal could be a double-edged sword for SA companies. ‘On the one hand, the complexity and rigorous nature of these regulations, such as the Carbon Border Adjustment Mechanism [CBAM], might be very onerous for local companies that will need to comply with new standards and may lead to surface-level compliance and greenwashing,’ says Tanya dos Santos-Ford, who is leading the MBA climate and sustainability module at the University of Pretoria’s Gordon Institute of Business Science as adjunct faculty. ‘On the other hand, it does offer a potential opportunity to accelerate decarbonisation and transition to a green and more circular economy.’
So where does the EU Green Deal currently stand, and exactly how will it affect SA businesses? Approved in 2020, this ambitious and comprehensive policy framework wants to turbo-charge climate action in Europe to achieve carbon neutrality by 2050. Yet its implementation is a work in progress. Key goals include circular economy initiatives, carbon border adjustments, a farm-to-fork strategy, sustainable mobility and transparency in corporate sustainability reporting.
In the EU, the regulations are set to affect all sectors and industries – businesses and individuals alike. In SA, the impact is likely to be sector-driven as it will primarily affect export sectors and their suppliers, as well as companies wanting to operate in the EU, says Jayne Mammatt, Deloitte partner – sustainability, climate change and equity.
‘The Green Deal is essentially a trading partner barrier to entry for companies to export to the EU or form part of export value chains.’
As a bloc, the EU is SA’s largest trading partner, attracting 19% of our exports ($21 billion) in 2023, according to Trade and Industrial Policy Strategies (TIPS). The Pretoria-based think tank has cautioned that the Green Deal will have a drastic impact on SA’s agricultural and manufacturing value chains, notably the export of wines, citrus fruit and cars.
‘A major financial challenge stems from mechanisms like the Carbon Border Adjustment Mechanism, farm-to-fork strategy and regulations on deforestation-free supply chains – to name but a few of the policies that further reinforce compliance requirements and could affect trade relationships with the EU,’ says Seutame Maimele, a TIPS economist focusing on sustainable growth. ‘To navigate the challenges posed by the Green Deal, South Africa must adopt a collaborative and co-ordinated response, involving both industry and governments, including Global South countries.’
Undoubtedly one of the costliest new mechanisms for SA companies is the CBAM, which imposes a carbon cost on imported goods to the EU. The aim is to level the carbon pricing between goods produced within the EU and outside. In addition, it’s meant to prevent carbon leakage, where companies relocate from the EU to jurisdictions with less stringent policies, thereby increasing carbon emissions elsewhere.
The CBAM is still in its transition period and will come into full effect on 1 January 2026. ‘South African companies will then have to pay a tax on their landed products in the EU based on the carbon footprint of the product as well as the prevailing carbon price on the EU,’ explains Shameela Soobramoney, CEO of the National Business Initiative.
‘So if the EU rate is R100 per ton of CO2e, and the company has paid a carbon tax in SA of R20 per ton, then they will be liable to pay the difference – R80 – to the EU. This could render some products uncompetitive in these markets, and that then could lead to scaling down for some sectors as they possibly lose market relevance.’ On the flip side, she points out that there is opportunity for those entities that are able to produce low-carbon products to the EU, to pick up market share and build a future-fit product line.
There’s no way around it – large SA companies wanting to export to the EU over the long-term must reduce the carbon emissions embedded in their product. ‘However, even if you are not part of CBAM now, if you are exporting to the EU, you’ll need to aim for a carbon-neutral product or service,’ says Mammatt. ‘Otherwise you may become uncompetitive and can’t export.’
This applies not only to direct exporters but also to their suppliers and the entire value chain, because CBAM – and the circular economy mechanism – considers the life-cycle carbon footprint of a product.
Non-compliance with EU regulations could have significant repercussions beyond penalties and fines, cautions Dos Santos-Ford. Firstly, those companies risk losing access to the important European market, which can lead to revenue loss and a weakened competitive positioning.
Additionally, she says, ‘non-compliant companies may face reputational damage, as global consumers are increasingly choosing more sustainable and low-carbon products’.
TIPS economist Maimele notes that companies in SA have already begun restructuring their business models, though this remains a costly endeavour. ‘The Green Deal has driven businesses to invest in decarbonisation and explore circular economy solutions,’ he says. ‘Additionally, firms should prioritise developing compliance infrastructure, including greenhouse gas accounting systems, to meet regulatory requirements.’
SA companies need to address the new EU requirements with a strategic, holistic and integrated approach, adds Dos Santos-Ford. ‘The journey begins with a comprehensive audit of current practices to identify areas needing improvement. I call it “getting your house in order”, because you need to assess where you are internally to understand what actions need to be taken. From there, companies need to rethink or align their purpose, business model, business strategy and reporting practices to incorporate sustainability at the core.
‘This transformation requires buy-in not only from the board and management but also from every department and staff member, fostering and embedding a culture of sustainability into the soul of the business,’ she says.
‘Initiatives such as eco-design, waste reduction and supply chain optimisation should be prioritised. If these actions are seen as part of a long-term strategic lever rather than a cost, it can become a competitive advantage.’
Additionally, corporates and financial institutions trading with the EU need to look into the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), which requires Europe-based companies to report extensively on their carbon footprints, social impact and other sustainability criteria. The aim is to advance sustainability and help investors make informed decisions through greater transparency.
‘This means that SA companies that fall within the ambit of the regulations, usually because they have operations in the EU or supply goods into the EU, need to ensure that they have the capabilities to collect and store the required data, report on it and track it as needed,’ says Soobramoney. ‘The skills needed will be in the broader sustainability space, in order to makes sense of the needs and the implications for evolving business models, as well as the very specific technical capabilities around assessing and managing – and, ideally – reducing their carbon footprints.
‘We will also need to work out how best to communicate to the EU regulators our needs and the realities of matters such as the cost of compliance, as well as the differing social context, which may mean that in practice SA companies have differing areas of focus,’ she says. ‘The impact of having frameworks thrust upon companies, when these frameworks were premised on a different operating context, is that the embodied issues are usually different, and reporting entities will be challenged in balancing their self-determined priorities with those of the regulator or the jurisdiction.’
However, the European Commission recently backtracked and reduced the regulatory burden on businesses. On 26 February 2025, several amendments were proposed in the Omnibus Simplification Package. These include raising the CSRD threshold to only include companies with more than 1 000 employees and €450 million-plus in annual net turnover; reducing the frequency of due diligence reporting, and penalties relating to the CSDDD; and simplifying the CBAM so it exempts those who import less than 50 tons of goods into the EU.
Disappointed environmental watchdogs such as the World Wide Fund for Nature (WFF) have called the Omnibus ‘a devastating blow to EU environmental objectives’ that risks devolving almost a decade of structured EU policymaking. ‘Limiting the value chain scope of the CSDDD overlooks critical risks across global supply chains, reducing the exercise to a waste of valuable resources, time and personnel for companies,’ according to the WWF. ‘Eliminating the obligation to implement climate-transition plans opens the door to greenwashing, turning the process into a mere box-ticking activity. This also undermines investor confidence and contradicts current market practice, slowing down the green transition.’
For SA companies, and others in the Global South, the relaxation of EU regulations may come as a relief. However, becoming ‘greener’ is something all businesses should strive for. ‘I don’t see it as a negative cost,’ says Mammatt.
‘If you want to participate in a global trading environment, you have to be competitive, and that’s no longer just about the price of your product. It’s also about your environmental footprint and carbon emissions.’
Ultimately, she says, if the Green Deal pushes companies to change how they manufacture their product or service, everyone wins. ‘The climate crisis is real. We’re missing all the targets, so there’s urgency in reducing our carbon footprints.’
As if that weren’t enough, Dos Santos-Ford makes the point that other countries, such as the UK, are also implementing similar green deals. Therefore, striving to meet the EU’s regulations and standards for sustainability could result in other additional opportunities for SA companies – and a better standing in the global market.
