Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one new story
Speaker 1: and explain it in just a few minutes with our
Speaker 1: experts here at Bloomberg. There are three letters that have
Speaker 1: inspired confused and angered. Environmental, social and governance rules are
Speaker 1: meant to make the world a better place, but the
Speaker 1: concept hasn't always been well defined, and it's become a
Speaker 1: political wedge issue. In the United States, I.
Speaker 2: Terminated the ridiculous and incredibly wasteful Green New Deal. I
Speaker 2: call it the Green New Scam. I declared a national
Speaker 2: energy emergency, and that's so important, national energy emergency toward
Speaker 2: lock the liquid gold under our feet. My administration has
Speaker 2: also begun the largest deregulation campaign in history, far exceeding
Speaker 2: even the record shetting efforts of my last term.
Speaker 1: Europe's approach has been quite different, but regulatory fatigue has
Speaker 1: become an issue, with France and Germany indicating that they
Speaker 1: want euregulations to be simplified. Will the EU on pick
Speaker 1: years of work developing this area. Here's why ESG isn't
Speaker 1: dead yet. Our managing editor for ESG Investing, Tuzzanim Broger
Speaker 1: joins us now for more tusanin are we seeing a
Speaker 1: major shift in attitude from businesses towards ESG regulation.
Speaker 3: So ESG is on life support perhaps, but it's not dead.
Speaker 3: As you say. The issue is very different from the
Speaker 3: issue in the US, where we've got the anti woke
Speaker 3: movement and we've got the Republican Party making very clear
Speaker 3: that they have started a campaign against ESG. In Europe,
Speaker 3: it's much more of a perhaps rational one could argue,
Speaker 3: reaction to just an endless stream of regulations that have
Speaker 3: been coming. And so we've reached a point where companies
Speaker 3: now are about to have to start reporting undreds of
Speaker 3: data points in their annual reports which will start coming
Speaker 3: out very soon, and Germany and France complaining that this
Speaker 3: has simply gone too far. It's an anti competitive development.
Speaker 3: Their economies are obviously struggling and dragging down the whole Eurozone.
Speaker 3: So we've got a change in the tone around you
Speaker 3: know what is going on with a regulatory burden, especially
Speaker 3: when it comes to ESG.
Speaker 1: Tasnin talk us through some of the rules that have
Speaker 1: come in for particular criticism in terms of what we've
Speaker 1: been hearing recently.
Speaker 3: So the concerns that we've heard have been very closely
Speaker 3: tied to the Corporate Sustainability Reporting Directive, which is to
Speaker 3: do with requirements for companies in terms of the data
Speaker 3: points that they need to start reporting. It's initially for
Speaker 3: very big companies, but the original idea is to sort
Speaker 3: of have it spread out over smaller companies in the
Speaker 3: years to come. Now, the big complaint from Germany and
Speaker 3: France especially is that there are simply too many companies
Speaker 3: being included in the scope of this regulation, companies that
Speaker 3: are actually two small to deal with the costs and
Speaker 3: the burden associated with the compliance needed to live up
Speaker 3: to this directive. You know, it's a conversation that's gaining
Speaker 3: a lot of momentum. We've seen similar comments from Italy,
Speaker 3: and so there's a sort of a moment of general
Speaker 3: acknowledgment that something needs to change.
Speaker 1: What has the European Union said in response to this criticism.
Speaker 3: The European Union has actually acknowledged that this is a
Speaker 3: time to listen. We've got the new Financial Services Commissioner Albuquerque,
Speaker 3: who's made the point that yes, there's a need for tweaks,
Speaker 3: there's a need for adjustments, but she's also made the
Speaker 3: point very clearly that you know, Europe is committed to
Speaker 3: its Green Deal, it's committed to the principles of sustainability
Speaker 3: that have sort of you know, funder Line has also
Speaker 3: made clear are sort of fundamentally part of the European
Speaker 3: way of thinking. So she describes that as we need
Speaker 3: to make adjustments, but the anchor remains in place, the
Speaker 3: anchor of sort of seeing sustainability is crucial to the
Speaker 3: way in which one conducts business in Europe.
Speaker 1: It took years of consensus building in Europe to develop
Speaker 1: these rules as well, So we're not at a point
Speaker 1: where policy makers are going to get rid of these regulations.
Speaker 3: No, that's exactly right, and it is as I said earlier,
Speaker 3: it is very different from the dynamic that we're seeing
Speaker 3: in the US. The US seems to be much more
Speaker 3: driven by ideology and sort of to an extent, even
Speaker 3: the degrees of denying that climate change is a thing,
Speaker 3: denying the science. That's not what we're seeing in Europe.
Speaker 3: We are seeing concern around protecting you know, small and
Speaker 3: medium sized businesses. Obviously, these are the companies that are
Speaker 3: employing the bulk of labor force in most of the
Speaker 3: big economies. So there's simply a desire to make sure
Speaker 3: that these drivers of economic growth aren't burdened with too
Speaker 3: much of a reporting requirement, that the administrative burden doesn't
Speaker 3: become excessive. So I think, you know, there's this process
Speaker 3: in place. Now. We've got what's called the omnibus process,
Speaker 3: which is where more than one piece of legislation will
Speaker 3: be dealt with in one go. That's being put forward
Speaker 3: by the European Commission at the of this month, and
Speaker 3: that will deal with the CSRD, the Corporate Sustainability Reporting Directive.
Speaker 3: It will also deal with something called cs triple D,
Speaker 3: which is to do with due diligence. That's also caused
Speaker 3: some complaints because of the extent to which companies value
Speaker 3: chain suddenly come under scrutiny, and violations of human rights,
Speaker 3: for example, somewhere in the supply chain could expose them
Speaker 3: to legal liability. And then there's also the taxonomy regulation
Speaker 3: which kind of underlies a lot of the other regulations
Speaker 3: in terms of coming up with a vocabulary of definitions
Speaker 3: of all the corners of sustainability. These three huge blocks
Speaker 3: of regulation within ESG in Europe will be given a
Speaker 3: good you know, once over at the end of this month,
Speaker 3: and the expectation is that there will be a rolling back,
Speaker 3: probably in line with what France and Germany you're asking for,
Speaker 3: which is that SMEs in particular will be protected and
Speaker 3: some of the data points potentially will be wound back
Speaker 3: in terms of the complexity of what's being demanded.
Speaker 1: Okay, so we have an idea of where some compromises
Speaker 1: could be found. Just if we're thinking about this from
Speaker 1: a global perspective, You've noted the different approach being taken
Speaker 1: in Europe, but rules made in the European Union do
Speaker 1: tend to have an impact beyond its borders. That's exactly right.
Speaker 3: So part of the issue here is that all of
Speaker 3: these regulations and directors are designed in a way that
Speaker 3: companies and investment firms that target clients and customers in
Speaker 3: the EU will have to comply, not all of them immediately,
Speaker 3: but over sort of a number of years, and that
Speaker 3: has irritated we can say, American companies in particular. We've
Speaker 3: had the American Chamber of Commerce and EU, which includes
Speaker 3: you know, Ford and Amazon and Exxon, sort of really
Speaker 3: big American companies saying that this is the moment of
Speaker 3: regulatory overreach, and they're demanding, you know, a pause in a
Speaker 3: lot of this ESG regulatory rulemaking. They're also trying to
Speaker 3: get exemptions for US companies.
Speaker 1: And we've also.
Speaker 3: Had Howard Lutnik, who's likely to become Commerce Secretary, who's
Speaker 3: specifically single EU ESG regulations as an area that he's
Speaker 3: going to look at, and he's described it as willingness
Speaker 3: to use trade tools. He didn't specify what he means
Speaker 3: by that, but simply indicated that there are levers that
Speaker 3: the US is willing to pull in order to target
Speaker 3: Europe's ESG regulations.
Speaker 1: Thanks to our managing editor for ESG Investing, Tazani and Broger.
Speaker 1: For more explanations like this from our team of three
Speaker 1: thousand journalists and analysts around the world, search for Quick
Speaker 1: Take on the Bloomberg website or Bloomberg Business app. I'm
Speaker 1: Stephen Carol. This is Here's why. I'll be back next
Speaker 1: week with more. Thanks for listening.