WEBVTT - Here's Why ESG Isn't Dead Yet

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and

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<v Speaker 1>this is Here's Why, where we take one new story

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<v Speaker 1>and explain it in just a few minutes with our

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<v Speaker 1>experts here at Bloomberg. There are three letters that have

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<v Speaker 1>inspired confused and angered. Environmental, social and governance rules are

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<v Speaker 1>meant to make the world a better place, but the

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<v Speaker 1>concept hasn't always been well defined, and it's become a

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<v Speaker 1>political wedge issue. In the United States, I.

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<v Speaker 2>Terminated the ridiculous and incredibly wasteful Green New Deal. I

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<v Speaker 2>call it the Green New Scam. I declared a national

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<v Speaker 2>energy emergency, and that's so important, national energy emergency toward

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<v Speaker 2>lock the liquid gold under our feet. My administration has

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<v Speaker 2>also begun the largest deregulation campaign in history, far exceeding

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<v Speaker 2>even the record shetting efforts of my last term.

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<v Speaker 1>Europe's approach has been quite different, but regulatory fatigue has

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<v Speaker 1>become an issue, with France and Germany indicating that they

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<v Speaker 1>want euregulations to be simplified. Will the EU on pick

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<v Speaker 1>years of work developing this area. Here's why ESG isn't

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<v Speaker 1>dead yet. Our managing editor for ESG Investing, Tuzzanim Broger

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<v Speaker 1>joins us now for more tusanin are we seeing a

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<v Speaker 1>major shift in attitude from businesses towards ESG regulation.

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<v Speaker 3>So ESG is on life support perhaps, but it's not dead.

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<v Speaker 3>As you say. The issue is very different from the

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<v Speaker 3>issue in the US, where we've got the anti woke

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<v Speaker 3>movement and we've got the Republican Party making very clear

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<v Speaker 3>that they have started a campaign against ESG. In Europe,

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<v Speaker 3>it's much more of a perhaps rational one could argue,

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<v Speaker 3>reaction to just an endless stream of regulations that have

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<v Speaker 3>been coming. And so we've reached a point where companies

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<v Speaker 3>now are about to have to start reporting undreds of

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<v Speaker 3>data points in their annual reports which will start coming

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<v Speaker 3>out very soon, and Germany and France complaining that this

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<v Speaker 3>has simply gone too far. It's an anti competitive development.

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<v Speaker 3>Their economies are obviously struggling and dragging down the whole Eurozone.

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<v Speaker 3>So we've got a change in the tone around you

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<v Speaker 3>know what is going on with a regulatory burden, especially

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<v Speaker 3>when it comes to ESG.

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<v Speaker 1>Tasnin talk us through some of the rules that have

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<v Speaker 1>come in for particular criticism in terms of what we've

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<v Speaker 1>been hearing recently.

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<v Speaker 3>So the concerns that we've heard have been very closely

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<v Speaker 3>tied to the Corporate Sustainability Reporting Directive, which is to

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<v Speaker 3>do with requirements for companies in terms of the data

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<v Speaker 3>points that they need to start reporting. It's initially for

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<v Speaker 3>very big companies, but the original idea is to sort

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<v Speaker 3>of have it spread out over smaller companies in the

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<v Speaker 3>years to come. Now, the big complaint from Germany and

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<v Speaker 3>France especially is that there are simply too many companies

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<v Speaker 3>being included in the scope of this regulation, companies that

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<v Speaker 3>are actually two small to deal with the costs and

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<v Speaker 3>the burden associated with the compliance needed to live up

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<v Speaker 3>to this directive. You know, it's a conversation that's gaining

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<v Speaker 3>a lot of momentum. We've seen similar comments from Italy,

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<v Speaker 3>and so there's a sort of a moment of general

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<v Speaker 3>acknowledgment that something needs to change.

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<v Speaker 1>What has the European Union said in response to this criticism.

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<v Speaker 3>The European Union has actually acknowledged that this is a

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<v Speaker 3>time to listen. We've got the new Financial Services Commissioner Albuquerque,

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<v Speaker 3>who's made the point that yes, there's a need for tweaks,

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<v Speaker 3>there's a need for adjustments, but she's also made the

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<v Speaker 3>point very clearly that you know, Europe is committed to

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<v Speaker 3>its Green Deal, it's committed to the principles of sustainability

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<v Speaker 3>that have sort of you know, funder Line has also

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<v Speaker 3>made clear are sort of fundamentally part of the European

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<v Speaker 3>way of thinking. So she describes that as we need

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<v Speaker 3>to make adjustments, but the anchor remains in place, the

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<v Speaker 3>anchor of sort of seeing sustainability is crucial to the

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<v Speaker 3>way in which one conducts business in Europe.

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<v Speaker 1>It took years of consensus building in Europe to develop

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<v Speaker 1>these rules as well, So we're not at a point

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<v Speaker 1>where policy makers are going to get rid of these regulations.

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<v Speaker 3>No, that's exactly right, and it is as I said earlier,

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<v Speaker 3>it is very different from the dynamic that we're seeing

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<v Speaker 3>in the US. The US seems to be much more

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<v Speaker 3>driven by ideology and sort of to an extent, even

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<v Speaker 3>the degrees of denying that climate change is a thing,

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<v Speaker 3>denying the science. That's not what we're seeing in Europe.

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<v Speaker 3>We are seeing concern around protecting you know, small and

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<v Speaker 3>medium sized businesses. Obviously, these are the companies that are

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<v Speaker 3>employing the bulk of labor force in most of the

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<v Speaker 3>big economies. So there's simply a desire to make sure

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<v Speaker 3>that these drivers of economic growth aren't burdened with too

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<v Speaker 3>much of a reporting requirement, that the administrative burden doesn't

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<v Speaker 3>become excessive. So I think, you know, there's this process

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<v Speaker 3>in place. Now. We've got what's called the omnibus process,

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<v Speaker 3>which is where more than one piece of legislation will

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<v Speaker 3>be dealt with in one go. That's being put forward

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<v Speaker 3>by the European Commission at the of this month, and

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<v Speaker 3>that will deal with the CSRD, the Corporate Sustainability Reporting Directive.

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<v Speaker 3>It will also deal with something called cs triple D,

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<v Speaker 3>which is to do with due diligence. That's also caused

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<v Speaker 3>some complaints because of the extent to which companies value

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<v Speaker 3>chain suddenly come under scrutiny, and violations of human rights,

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<v Speaker 3>for example, somewhere in the supply chain could expose them

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<v Speaker 3>to legal liability. And then there's also the taxonomy regulation

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<v Speaker 3>which kind of underlies a lot of the other regulations

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<v Speaker 3>in terms of coming up with a vocabulary of definitions

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<v Speaker 3>of all the corners of sustainability. These three huge blocks

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<v Speaker 3>of regulation within ESG in Europe will be given a

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<v Speaker 3>good you know, once over at the end of this month,

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<v Speaker 3>and the expectation is that there will be a rolling back,

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<v Speaker 3>probably in line with what France and Germany you're asking for,

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<v Speaker 3>which is that SMEs in particular will be protected and

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<v Speaker 3>some of the data points potentially will be wound back

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<v Speaker 3>in terms of the complexity of what's being demanded.

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<v Speaker 1>Okay, so we have an idea of where some compromises

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<v Speaker 1>could be found. Just if we're thinking about this from

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<v Speaker 1>a global perspective, You've noted the different approach being taken

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<v Speaker 1>in Europe, but rules made in the European Union do

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<v Speaker 1>tend to have an impact beyond its borders. That's exactly right.

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<v Speaker 3>So part of the issue here is that all of

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<v Speaker 3>these regulations and directors are designed in a way that

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<v Speaker 3>companies and investment firms that target clients and customers in

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<v Speaker 3>the EU will have to comply, not all of them immediately,

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<v Speaker 3>but over sort of a number of years, and that

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<v Speaker 3>has irritated we can say, American companies in particular. We've

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<v Speaker 3>had the American Chamber of Commerce and EU, which includes

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<v Speaker 3>you know, Ford and Amazon and Exxon, sort of really

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<v Speaker 3>big American companies saying that this is the moment of

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<v Speaker 3>regulatory overreach, and they're demanding, you know, a pause in a

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<v Speaker 3>lot of this ESG regulatory rulemaking. They're also trying to

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<v Speaker 3>get exemptions for US companies.

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<v Speaker 1>And we've also.

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<v Speaker 3>Had Howard Lutnik, who's likely to become Commerce Secretary, who's

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<v Speaker 3>specifically single EU ESG regulations as an area that he's

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<v Speaker 3>going to look at, and he's described it as willingness

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<v Speaker 3>to use trade tools. He didn't specify what he means

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<v Speaker 3>by that, but simply indicated that there are levers that

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<v Speaker 3>the US is willing to pull in order to target

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<v Speaker 3>Europe's ESG regulations.

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<v Speaker 1>Thanks to our managing editor for ESG Investing, Tazani and Broger.

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<v Speaker 1>For more explanations like this from our team of three

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<v Speaker 1>thousand journalists and analysts around the world, search for Quick

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<v Speaker 1>Take on the Bloomberg website or Bloomberg Business app. I'm

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<v Speaker 1>Stephen Carol. This is Here's why. I'll be back next

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<v Speaker 1>week with more. Thanks for listening.