February 14, 2025 • 7 mins
Environmental, social and governance rules have come under additional pressure since the election of Donald Trump as US President. American businesses have also called for the European Union to roll back its ESG regulations, and France and Germany have indicated they want changes too. But how far will these efforts go? Our Managing Editor for ESG Investing, Tasneem Brogger, joins host Stephen Carroll to discuss.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and
this is Here's Why, where we take one new story
and explain it in just a few minutes with our
experts here at Bloomberg. There are three letters that have
inspired confused and angered. Environmental, social and governance rules are
(00:27):
meant to make the world a better place, but the
concept hasn't always been well defined, and it's become a
political wedge issue. In the United States, I.
Speaker 2 (00:35):
Terminated the ridiculous and incredibly wasteful Green New Deal. I
call it the Green New Scam. I declared a national
energy emergency, and that's so important, national energy emergency toward
lock the liquid gold under our feet. My administration has
also begun the largest deregulation campaign in history, far exceeding
(00:58):
even the record shetting efforts of my last term.
Speaker 1 (01:01):
Europe's approach has been quite different, but regulatory fatigue has
become an issue, with France and Germany indicating that they
want euregulations to be simplified. Will the EU on pick
years of work developing this area. Here's why ESG isn't
dead yet. Our managing editor for ESG Investing, Tuzzanim Broger
joins us now for more tusanin are we seeing a
(01:25):
major shift in attitude from businesses towards ESG regulation.
Speaker 3 (01:30):
So ESG is on life support perhaps, but it's not dead.
As you say. The issue is very different from the
issue in the US, where we've got the anti woke
movement and we've got the Republican Party making very clear
that they have started a campaign against ESG. In Europe,
it's much more of a perhaps rational one could argue,
reaction to just an endless stream of regulations that have
(01:53):
been coming. And so we've reached a point where companies
now are about to have to start reporting undreds of
data points in their annual reports which will start coming
out very soon, and Germany and France complaining that this
has simply gone too far. It's an anti competitive development.
Their economies are obviously struggling and dragging down the whole Eurozone.
(02:14):
So we've got a change in the tone around you
know what is going on with a regulatory burden, especially
when it comes to ESG.
Speaker 1 (02:21):
Tasnin talk us through some of the rules that have
come in for particular criticism in terms of what we've
been hearing recently.
Speaker 3 (02:29):
So the concerns that we've heard have been very closely
tied to the Corporate Sustainability Reporting Directive, which is to
do with requirements for companies in terms of the data
points that they need to start reporting. It's initially for
very big companies, but the original idea is to sort
of have it spread out over smaller companies in the
years to come. Now, the big complaint from Germany and
(02:51):
France especially is that there are simply too many companies
being included in the scope of this regulation, companies that
are actually two small to deal with the costs and
the burden associated with the compliance needed to live up
to this directive. You know, it's a conversation that's gaining
a lot of momentum. We've seen similar comments from Italy,
(03:12):
and so there's a sort of a moment of general
acknowledgment that something needs to change.
Speaker 1 (03:18):
What has the European Union said in response to this criticism.
Speaker 3 (03:22):
The European Union has actually acknowledged that this is a
time to listen. We've got the new Financial Services Commissioner Albuquerque,
who's made the point that yes, there's a need for tweaks,
there's a need for adjustments, but she's also made the
point very clearly that you know, Europe is committed to
its Green Deal, it's committed to the principles of sustainability
that have sort of you know, funder Line has also
(03:44):
made clear are sort of fundamentally part of the European
way of thinking. So she describes that as we need
to make adjustments, but the anchor remains in place, the
anchor of sort of seeing sustainability is crucial to the
way in which one conducts business in Europe.
Speaker 1 (04:00):
It took years of consensus building in Europe to develop
these rules as well, So we're not at a point
where policy makers are going to get rid of these regulations.
Speaker 3 (04:09):
No, that's exactly right, and it is as I said earlier,
it is very different from the dynamic that we're seeing
in the US. The US seems to be much more
driven by ideology and sort of to an extent, even
the degrees of denying that climate change is a thing,
denying the science. That's not what we're seeing in Europe.
We are seeing concern around protecting you know, small and
(04:30):
medium sized businesses. Obviously, these are the companies that are
employing the bulk of labor force in most of the
big economies. So there's simply a desire to make sure
that these drivers of economic growth aren't burdened with too
much of a reporting requirement, that the administrative burden doesn't
become excessive. So I think, you know, there's this process
(04:51):
in place. Now. We've got what's called the omnibus process,
which is where more than one piece of legislation will
be dealt with in one go. That's being put forward
by the European Commission at the of this month, and
that will deal with the CSRD, the Corporate Sustainability Reporting Directive.
It will also deal with something called cs triple D,
which is to do with due diligence. That's also caused
(05:11):
some complaints because of the extent to which companies value
chain suddenly come under scrutiny, and violations of human rights,
for example, somewhere in the supply chain could expose them
to legal liability. And then there's also the taxonomy regulation
which kind of underlies a lot of the other regulations
in terms of coming up with a vocabulary of definitions
(05:31):
of all the corners of sustainability. These three huge blocks
of regulation within ESG in Europe will be given a
good you know, once over at the end of this month,
and the expectation is that there will be a rolling back,
probably in line with what France and Germany you're asking for,
which is that SMEs in particular will be protected and
(05:52):
some of the data points potentially will be wound back
in terms of the complexity of what's being demanded.
Speaker 1 (05:57):
Okay, so we have an idea of where some compromises
could be found. Just if we're thinking about this from
a global perspective, You've noted the different approach being taken
in Europe, but rules made in the European Union do
tend to have an impact beyond its borders. That's exactly right.
Speaker 3 (06:14):
So part of the issue here is that all of
these regulations and directors are designed in a way that
companies and investment firms that target clients and customers in
the EU will have to comply, not all of them immediately,
but over sort of a number of years, and that
has irritated we can say, American companies in particular. We've
had the American Chamber of Commerce and EU, which includes
(06:36):
you know, Ford and Amazon and Exxon, sort of really
big American companies saying that this is the moment of
regulatory overreach, and they're demanding, you know, a pause in a
lot of this ESG regulatory rulemaking. They're also trying to
get exemptions for US companies.
Speaker 1 (06:53):
And we've also.
Speaker 3 (06:54):
Had Howard Lutnik, who's likely to become Commerce Secretary, who's
specifically single EU ESG regulations as an area that he's
going to look at, and he's described it as willingness
to use trade tools. He didn't specify what he means
by that, but simply indicated that there are levers that
the US is willing to pull in order to target
(07:15):
Europe's ESG regulations.
Speaker 1 (07:17):
Thanks to our managing editor for ESG Investing, Tazani and Broger.
For more explanations like this from our team of three
thousand journalists and analysts around the world, search for Quick
Take on the Bloomberg website or Bloomberg Business app. I'm
Stephen Carol. This is Here's why. I'll be back next
week with more. Thanks for listening.
Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and
this is Here's Why, where we take one new story
and explain it in just a few minutes with our
experts here at Bloomberg. There are three letters that have
inspired confused and angered. Environmental, social and governance rules are
(00:27):
meant to make the world a better place, but the
concept hasn't always been well defined, and it's become a
political wedge issue. In the United States, I.
Speaker 2 (00:35):
Terminated the ridiculous and incredibly wasteful Green New Deal. I
call it the Green New Scam. I declared a national
energy emergency, and that's so important, national energy emergency toward
lock the liquid gold under our feet. My administration has
also begun the largest deregulation campaign in history, far exceeding
(00:58):
even the record shetting efforts of my last term.
Speaker 1 (01:01):
Europe's approach has been quite different, but regulatory fatigue has
become an issue, with France and Germany indicating that they
want euregulations to be simplified. Will the EU on pick
years of work developing this area. Here's why ESG isn't
dead yet. Our managing editor for ESG Investing, Tuzzanim Broger
joins us now for more tusanin are we seeing a
(01:25):
major shift in attitude from businesses towards ESG regulation.
Speaker 3 (01:30):
So ESG is on life support perhaps, but it's not dead.
As you say. The issue is very different from the
issue in the US, where we've got the anti woke
movement and we've got the Republican Party making very clear
that they have started a campaign against ESG. In Europe,
it's much more of a perhaps rational one could argue,
reaction to just an endless stream of regulations that have
(01:53):
been coming. And so we've reached a point where companies
now are about to have to start reporting undreds of
data points in their annual reports which will start coming
out very soon, and Germany and France complaining that this
has simply gone too far. It's an anti competitive development.
Their economies are obviously struggling and dragging down the whole Eurozone.
(02:14):
So we've got a change in the tone around you
know what is going on with a regulatory burden, especially
when it comes to ESG.
Speaker 1 (02:21):
Tasnin talk us through some of the rules that have
come in for particular criticism in terms of what we've
been hearing recently.
Speaker 3 (02:29):
So the concerns that we've heard have been very closely
tied to the Corporate Sustainability Reporting Directive, which is to
do with requirements for companies in terms of the data
points that they need to start reporting. It's initially for
very big companies, but the original idea is to sort
of have it spread out over smaller companies in the
years to come. Now, the big complaint from Germany and
(02:51):
France especially is that there are simply too many companies
being included in the scope of this regulation, companies that
are actually two small to deal with the costs and
the burden associated with the compliance needed to live up
to this directive. You know, it's a conversation that's gaining
a lot of momentum. We've seen similar comments from Italy,
(03:12):
and so there's a sort of a moment of general
acknowledgment that something needs to change.
Speaker 1 (03:18):
What has the European Union said in response to this criticism.
Speaker 3 (03:22):
The European Union has actually acknowledged that this is a
time to listen. We've got the new Financial Services Commissioner Albuquerque,
who's made the point that yes, there's a need for tweaks,
there's a need for adjustments, but she's also made the
point very clearly that you know, Europe is committed to
its Green Deal, it's committed to the principles of sustainability
that have sort of you know, funder Line has also
(03:44):
made clear are sort of fundamentally part of the European
way of thinking. So she describes that as we need
to make adjustments, but the anchor remains in place, the
anchor of sort of seeing sustainability is crucial to the
way in which one conducts business in Europe.
Speaker 1 (04:00):
It took years of consensus building in Europe to develop
these rules as well, So we're not at a point
where policy makers are going to get rid of these regulations.
Speaker 3 (04:09):
No, that's exactly right, and it is as I said earlier,
it is very different from the dynamic that we're seeing
in the US. The US seems to be much more
driven by ideology and sort of to an extent, even
the degrees of denying that climate change is a thing,
denying the science. That's not what we're seeing in Europe.
We are seeing concern around protecting you know, small and
(04:30):
medium sized businesses. Obviously, these are the companies that are
employing the bulk of labor force in most of the
big economies. So there's simply a desire to make sure
that these drivers of economic growth aren't burdened with too
much of a reporting requirement, that the administrative burden doesn't
become excessive. So I think, you know, there's this process
(04:51):
in place. Now. We've got what's called the omnibus process,
which is where more than one piece of legislation will
be dealt with in one go. That's being put forward
by the European Commission at the of this month, and
that will deal with the CSRD, the Corporate Sustainability Reporting Directive.
It will also deal with something called cs triple D,
which is to do with due diligence. That's also caused
(05:11):
some complaints because of the extent to which companies value
chain suddenly come under scrutiny, and violations of human rights,
for example, somewhere in the supply chain could expose them
to legal liability. And then there's also the taxonomy regulation
which kind of underlies a lot of the other regulations
in terms of coming up with a vocabulary of definitions
(05:31):
of all the corners of sustainability. These three huge blocks
of regulation within ESG in Europe will be given a
good you know, once over at the end of this month,
and the expectation is that there will be a rolling back,
probably in line with what France and Germany you're asking for,
which is that SMEs in particular will be protected and
(05:52):
some of the data points potentially will be wound back
in terms of the complexity of what's being demanded.
Speaker 1 (05:57):
Okay, so we have an idea of where some compromises
could be found. Just if we're thinking about this from
a global perspective, You've noted the different approach being taken
in Europe, but rules made in the European Union do
tend to have an impact beyond its borders. That's exactly right.
Speaker 3 (06:14):
So part of the issue here is that all of
these regulations and directors are designed in a way that
companies and investment firms that target clients and customers in
the EU will have to comply, not all of them immediately,
but over sort of a number of years, and that
has irritated we can say, American companies in particular. We've
had the American Chamber of Commerce and EU, which includes
(06:36):
you know, Ford and Amazon and Exxon, sort of really
big American companies saying that this is the moment of
regulatory overreach, and they're demanding, you know, a pause in a
lot of this ESG regulatory rulemaking. They're also trying to
get exemptions for US companies.
Speaker 1 (06:53):
And we've also.
Speaker 3 (06:54):
Had Howard Lutnik, who's likely to become Commerce Secretary, who's
specifically single EU ESG regulations as an area that he's
going to look at, and he's described it as willingness
to use trade tools. He didn't specify what he means
by that, but simply indicated that there are levers that
the US is willing to pull in order to target
(07:15):
Europe's ESG regulations.
Speaker 1 (07:17):
Thanks to our managing editor for ESG Investing, Tazani and Broger.
For more explanations like this from our team of three
thousand journalists and analysts around the world, search for Quick
Take on the Bloomberg website or Bloomberg Business app. I'm
Stephen Carol. This is Here's why. I'll be back next
week with more. Thanks for listening.
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