Frances Schwartzkopff, a Copenhagen-based reporter covering ESG regulations, and Saijel Kishan, a New York-based reporter focused on ESG investing, tackle the current backlash against Environmental, Social, and Governance initiatives. They discuss the EU's rollback on ESG legislation and why many companies are quietly maintaining their ESG strategies despite skepticism. The conversation highlights the clash between U.S. and EU regulations, reflecting on the evolution of ESG frameworks and the financial implications for businesses navigating this complex landscape.
The rollback of ESG regulations in the EU, coupled with growing skepticism in the U.S., highlights the increasing uncertainty companies face in sustainability efforts.
Despite challenges and public backlash, many companies are engaging in 'green hushing' by continuing their ESG initiatives privately to avoid criticism.
Deep dives
The Rise and Challenges of ESG
The environmental, social, and governance (ESG) movement has seen its origins linked to a shift in corporate responsibility, focusing beyond simply financial profit to include societal obligations. The concept of corporate sustainability gained traction in the European Union after the 2012 financial crisis, leading to regulations such as the Non-Financial Reporting Directive, which mandated companies to disclose information on ESG factors. While these regulations aimed to standardize sustainability reporting, gaps in enforcement and vague requirements hindered their effectiveness in guiding investors. As ESG standards evolved, challenges arose in ensuring data accuracy and overcoming resistance from companies that struggled to adapt to these new expectations.
The Golden Age of ESG Rulemaking
The period starting in 2019 is often referred to as the 'golden age' of ESG rulemaking in the EU, marked by initiatives like the Taxonomy Regulation and Sustainable Finance Disclosure Regulation. These efforts aimed to create a framework for identifying environmentally sustainable business activities while encouraging accountability within the finance industry. However, as companies began to navigate these regulations, significant pushback emerged, particularly from medium-sized businesses, which expressed concerns over the feasibility and costs associated with compliance. This tension between regulatory ambition and practical implementation has prompted discussions on how to ease the burden on companies while still achieving transparency and accountability.
The Future of ESG in a Shifting Political Landscape
The landscape for ESG in the U.S. is evolving amidst a backdrop of increasing skepticism and political change, particularly with the return of Donald Trump to the presidency. Critics label ESG as 'woke capitalism,' while supportive investors grapple with compliance challenges and potential liabilities stemming from non-adherence to ESG standards. This division has led to a phenomenon known as 'green hushing,' where companies quietly continue their sustainability efforts without public acknowledgment due to fear of backlash. As businesses strive to balance compliance with evolving regulations in both the EU and U.S., the risk management perspective on ESG factors will increasingly shape corporate strategies and investor relations.
The world of ESG regulation and investing was already suffering a period of shaky confidence even before President Donald Trump returned to the White House. Now, companies are facing a new period of uncertainty when it comes to Environmental, Social, and Governance policies. Reporter Frances Schwartzkopff tells Akshat Rathi why the EU is rolling back some ESG legislation. And reporter Saijel Kishan explains that many companies today are still keeping their ESG plans in place — but just not talking about it.
Zero is a production of Bloomberg Green. Our producer is Mythili Rao. Special thanks this week to Aaron Rutkoff, Siobhan Wagner and Jessica Beck. Thoughts or suggestions? Email us at zeropod@bloomberg.net. For more coverage of climate change and solutions, visit https://www.bloomberg.com/green.
