What has Brexit actually changed on sustainability for UK businesses?

Despite pledges to cut red tape, Britain is still aligning with EU environmental standards.

Production at Tarmac, a sustainable building materials and construction solutions business in Radlett, England. (Photo By Dan Kitwood/Getty Images)

Ahead of the 2016 Brexit referendum British voters were told that EU red tape was strangling UK businesses, with environmental standards highlighted as one key area. But two months after the UK’s departure from the EU regulatory framework there is no sign of any plan for Britain to diverge from EU sustainability requirements on British businesses.

Guidance from the Department for Business, Energy and Industrial Strategy (BEIS) on sustainability standards has so far identified few changes or even plans for changes. A spokesperson for the UK’s environment department (Defra) says reviews of UK sustainability requirements will be undertaken in the upcoming environment bill. But this legislation has been delayed three times since the process started in 2018. It was due to come out in January, but has now been delayed until the autumn. So far, there is no indication that it will significantly change the sustainability requirements embedded into UK law based on directives from Brussels.

“There isn’t really an appetite for revolution,” says Simon Tolson, a senior partner with the law firm Fenwick Elliot, which advises on sustainability requirements for the construction sector. “Some of the things they were talking about UK-ifying are not necessarily going to happen. We’re going to end up with mostly the same standards the EU has, standards we were quite involved in setting.”

So far, the changes have mostly involved giving EU standards equivalents UK names. The EU Emissions Trading System has been replaced by a UK Emissions Trading System that is separate but identical, with future implications of the separation yet to be worked out. The European Conformity (CE) marking indicating a product complies with EU health, safety and environmental standards has been replaced by a UK Conformity Assessment (UKCA) marking showing compliance with the same standards.

EU air and water quality, chemicals (REACH), and waste (WEEE and RoHS) requirements have remained unchanged, though sometimes transferred into a UK regulatory framework when needed. For instance, the enforcement of the RoHS regulation on hazardous substances and packaging has been transferred from the European Commission to the UK Secretary of State, with a new national regime for approving applications for exemptions.

The government spokesperson pointed out that one change in the short term has been the UK’s withdrawal from the EU Ecolabel scheme, “which we saw as having limited impact”. The government is consulting on creating a new labelling scheme, but some suspect it will largely recreate the EU scheme. There have also been some minor changes in the national waste take-back scheme (DTS) from 1 January.

“The EU Withdrawal Act 2018 made sure that all existing EU environmental law continues to operate in UK law, providing businesses and stakeholders with certainty now that we have left the EU,” the spokesman said. “The UK’s high standards have never been dependent on EU membership. Our exit from the EU enables the UK to review its environmental legislation to see whether we can deliver better environmental outcomes, more effectively and efficiently, and in ways which better align with our regulatory systems.”

The jury is out as to why the government has not yet made moves to deliver on its red tape-cutting promises, and why the environment bill has been delayed. Officials are obviously preoccupied with the effects of new Brexit trade barriers, as well as the pandemic. That context means businesses are not expecting any major changes in the next two years.

But once things calm down, will the government be under pressure to demonstrate some of the regulatory freedom it promised would be a benefit of Brexit?

Tolson says the requirements aren’t changing because companies aren’t asking for them to be changed. “The attitude now is, if it ‘aint broke, don’t mess around with it’. Despite our tensions with Europe, at the end of the day we’ve got to get along. It’s in the interest of everyone that sustainability requirements match the EU’s.”

He points out the EU’s Eurocodes standards were based on a merging of the UK’s British Standards and the German DIN standards, the world leaders. “As a nation we tend to lead in environmental legislation and practice,” he says. The government has sought to make the same reassurances. Last year, the BEIS department said the UK “will uphold common high product standards wherever possible and appropriate, or even exceed them where it is in the UK’s interest to do so”.

Ioannis Ioannou, an associate professor of strategy and entrepreneurship at the London Business School, agrees that British businesses are not asking for changes in their sustainability requirements. But the political pressures of Brexit may mean they will get changes nonetheless.

“If Brexit voters don’t see changes, they may regard this as a complete waste of time, if we end up completely replicating all of the work done by the EU and all its components without a clear benefit,” he says. “There is an ideological fixation that merely by diverging from the EU we’re going to create opportunities. And we haven’t seen those opportunities yet.”

The first test will be an upcoming set of specific taxonomies created by the EU that will define what sustainability means, particularly when it comes to sustainable investment. “Some people may be tempted to have the UK taxonomy diverge from what the EU is doing,” says Ioannou. If that were to happen, it could start a trend of diverging for the sake of it, and that could spell trouble for UK companies.

“It will all depend on who’s in power once the pandemic and the immediate Brexit trade crisis has subsided,” he says. “The Tories have a troublesome history with sustainability issues. Many of them see this as being entirely incompatible with their core economic philosophy of a laissez-faire entirely free market.”

Whereas in the past the UK’s membership of the EU served as a guarantee that changes in national government couldn’t result in a dismantling of environmental standards, that has been lost with Brexit. “At least in the EU the UK had a seat at the table when these standards were decided and at same time you have accountability to actually implement them,” says Ioannou.

He notes that Johnson has floated the idea of setting up a new “office of environmental protection”, an equivalent of the US Environmental Protection Agency (EPA), to fulfil that role of guaranteeing stability in environmental regulation. “But as we saw when the Trump administration dismantled the EPA, this can be subject to the whims of political cycles.”

Ioannou and Tolson agree that UK companies don’t want to see a roller coaster of changes to sustainability regulation in the coming years. “I think we have forward-looking businesses in the UK, especially in corporates which look at this from a long-term perspective,” says Ioannou.

But he adds that involving industry in discussion on standards is key to ensuring they are maintained: “We need businesses to be part of this conversation about regulation in a way that essentially ensures that political pressure doesn’t make us diverge for no reason.”