Two essential topics of the century…
Digitisation and sustainability are the topics of this century; they are already fundamentally changing our society and will continue to gain considerable importance in the coming years. Both topics feature prominently on the agendas of national and European legislators, and there are extensive political programs for both. Many governments place both topics at the top of their agendas and have presented both a digitisation strategy and a sustainability strategy. The EU Commission presented its strategy for a Digital Single Market for Europe back in 2015. Building on the United Nations 2030 Agenda for Sustainable Development adopted the same year, the EU is pursuing the 17 Sustainability Goals (SDGs). The 2019 European Green Deal is the blueprint for numerous legislative projects. Digitisation and sustainability are also important topics for science and research of almost all disciplines, and law is no exception. Especially in business law, sustainability and digitisation are currently receiving great attention and are shaping the discourse with remarkable intensity and depth.
…Yet two separate discussions
Given the prominence and practical significance of both transformative phenomena, it is surprising that the two leading discourses have not been sufficiently connected. In the legal sciences, two almost separate communities have formed, with virtually no points of contact. For real success in both transformative fields this must change. Digitisation and Sustainability need to be thought of together in terms of a ‘twin transformation’: If the sustainability transformation of the economy and society is to succeed, it cannot do so without the means of digitisation, because digitisation has an important enabling function in this respect. And conversely, digitisation can only be effective in the long term if it takes sustainability concerns into account. Sustainability thus sets targets for digitisation and models a framework for its development. This is particularly true regarding companies as the central players on national and transnational markets. In business, the mutual enabling and framework function can be demonstrated by numerous current examples.
Enabling function of digitisation for sustainability
According to the World Economic Forum, digital solutions can reduce global emissions by up to 20 per cent. It is true that digitisation can enable sustainable businesses in many ways. Firstly, it can help eliminate information asymmetries: Consumers, investors, and even the public sector are increasingly questioning the authenticity of information on products or services advertised as sustainable. Conversely, companies are subject to ever more stringent reporting obligations in this regard. These can be found in national and the planned European supply chain regulation (CSDDD) or in the EU Directive on non-financial reporting). The latter will soon be replaced by the EU Directive on sustainability reporting (CSRD), which considerably expands and intensifies the reporting obligations.
In practice, however, the numerous disclosures often lead to an information overload, and they are not always readily available and comparable. In this vein, it is also challenging to effectively avoid greenwashing. Digital certificates can provide a remedy, as they provide user-friendly binary information on the one hand and are particularly forgery-proof on the other, for example by being set up on a blockchain network. The planned EU Ecodesign for Sustainable Products Regulation picks up on these advantages and aims to fundamentally reshape product markets with the introduction of a digital product passport. This product passport is to be easily accessible – from 2026 at the earliest – by means of a QR code on the respective product and stored and maintained in a decentralized manner for the benefit of flexibility and innovation. Interested parties will thus be able to obtain general information about the desired product, such as manufacturing plant and raw material source, as well as the carbon footprint and individual recycling instructions – all in a matter of seconds by simply scanning the product passport with their phone. For enforcement purposes, the Commission is planning to set up a product passport register as an accompanying measure. In addition to a more efficient flow of information between companies and consumers, but also in the supply chain as well as in the relationship with authorities, the Commission also hopes that this will bring advantages in the monitoring and enforcement of sustainability-related regulations.
On the corporate side, digital solutions provide crucial support for the implementation of risk management, which large companies have recently been obliged to do based on national and European supply chain regulation. The proposed CSDDD requires companies to identify and subsequently eliminate or mitigate risks to environmental concerns and human rights in their supply chains. Given the often opaque nature of supply relationships, which can span numerous companies and countries, this is a complicated task. It is therefore not surprising that a survey-based study by the German Association for Supply Chain Management, Procurement and Logistics (BME) shows that in the fall of 2022, 75 per cent of the companies surveyed were already looking at using technology to identify sustainability risks in their supply chains, up from just 37 per cent the previous year. Increasingly, providers such as IntegrityNext, which was involved in the study, are responding to this development. As a cloud-based platform, IntegrityNext is able to check a large number of suppliers for the consideration of sustainability issues in a standardized and automated manner. It is thus obvious that the means of digitisation can play a key role in enabling more sustainability in (business) life.
Framework function of sustainability for digitisation
The framework function of sustainability for digitisation is immediately apparent in view of the climate crisis. According to estimates, the information and communication technology sector causes up to 3.9 per cent of global greenhouse gas emissions. Specifically, the environmental sustainability of blockchain applications is problematic: Although blockchain technology holds considerable potential for the economical use of storage capacity, the decentralized validation mechanism causes problems due to its extensive computing power. It has long been known that the so-called proof-of-work process continuously consumes approximately as much electricity as the entire Republic of Ireland, i.e. about three gigawatts in the period of one year (with variations depending on the validation algorithm). The use and training of Artificial Intelligence (AI) can also have a detrimental effect on the environment and thus requires sustainable regulation. To optimise the energy efficiency of data centres as large electrical consumers, the EU Energy Efficiency Directive that has been revised and amended in 2023 provides for the introduction of a mandatory Power Usage Effectiveness (PUE). This key figure describes the energy efficiency of data centres across all sectors and indirectly sets targets for the utilization of IT systems. In addition, all operators of large data centres are to use electricity from renewable energies in the future.
However, the framework function of sustainability for digitisation also concerns social aspects, especially regarding the platform economy: Digital platforms often offer precarious services that are designed as click, crowd or gig work. In particular, this raises the question of bogus self-employment of the service providers – which was answered in the United Kingdom by classifying Uber, for example, as the employer of the drivers it provides. This affects core issues of labour law, which must react to the new developments. A core problem here is that digital platforms typically offer services only as intermediaries, without establishing an employment relationship with the persons performing the services. The proposed EU Platform Work Directive, which is currently in the trialogue, seeks to ensure that people working through platforms have the correct employment status. However, Uber has recently announced, that if adopted in its current form, the directive could ‘force’ the transport company to shut down its ride-hailing service in hundreds of EU cities—and to ‘raise prices by as much as 40 per cent.’
Let's connect the twins
The list could easily be continued. It is obvious that sustainability and digitisation mutually influence each other through their enabling and framing functions. The connection of the great leading discourses of our time therefore belongs on the agenda of legal research and lawmakers. Because law plays a central role when it comes to providing the twin transformation with the best legal infrastructure.