April 3, 2025 • 25 mins
The EU has taken an ax to its sustainable reporting regulations. While the bloc is widely considered the global leader for sustainable finance policy, this rollback could limit investors’ access to climate data and their ability to push capital towards the energy transition. With the ramping up of anti-ESG laws in the US, fears over competitiveness lie behind the softening of these EU policies. Yet just as these regions are watering down their requirements, Asia Pacific is stepping up, strengthening its own sustainable finance policies and potentially filling the Western void. On today’s show, Tom Rowlands-Rees is joined by BloombergNEF sustainable finance analysts Maia Mesanger and Jameson McLennan to discuss their recent notes “Sustainable Finance Market Outlook 1H 2025: Back on Track” and “EU Weakens Sustainability Leadership with Rule Rollback: React”.
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com
Links to research notes from this episode:
Sustainable Finance Market Outlook 1H 2025: Back on Track - https://www.bnef.com/insights/35863?context=eyJxIjoic3VzdGFpbmFibGUgZmluYW5jZSIsImNvbnRlbnRUeXBlIjoiaW5zaWdodCIsInJlZ2lvbiI6W10sInNlY3RvciI6W10sImF1dGhvciI6W10sImluc2lnaHQtdHlwZSI6W119
EU Weakens Sustainability Leadership with Rule Rollback: React - https://www.bnef.com/analyst-reactions/ssb4jtdwlu6800
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Tom Rowland's Reese and you're listening to Switched
on the podcast brought to you by BNF, and today
we're here to talk about sustainable finance policy. Having spent
years in development. In February of this year, the European
Union took an act to its sustainable reporting regulations, in
the process limiting investors access to climate data and potentially
limiting their ability to push capital towards the energy transition.
(00:20):
Widely considered the leader for sustainable finance policy, the watering
down of these key regulations has thrown the EU's position
into question. Part of the pressure behind the shift has
been concerned over competitiveness, exacerbated by the new Trump administration
in the United States, which has continued to take aim
at climate regulations. But as Europe stumbles, could a new
leader be found in the form of the Asia Pacific Region,
which during the second half of twenty twenty four introduced
(00:43):
twenty one new sustainable finance policies. To discuss this and more, today,
am joined by b and EF sustainable finance analysts Maya
Messenger and Jamison McLennan, who share findings from their recently
released research notes titled EU weaken sustainable leadership with rule
rollback and Sustainable Finance Marketing Outlook one twenty twenty five,
which B and EF clients can find. BNF go on
(01:04):
the Bloomberg terminal or on BNF dot com. All right,
let's get to talking about sustainable finance policy.
Speaker 2 (01:19):
Welcome to the podcast, Meyer, thank you, thank you Don
for having.
Speaker 1 (01:22):
Me, and welcome Jameson.
Speaker 3 (01:24):
Yeah, thanks great to be here.
Speaker 1 (01:26):
When we last spoke about sustainable finance policy on the
Switched On podcast, Europe was leading the way. Can you
remind everyone why we were saying that and whether the
policies and frameworks that were behind that are still on course.
Speaker 3 (01:41):
So that you has three significant sustainable of finance reporting policies.
The Corporate Sustainability Reporting Directive, which requires companies to report
at a range of environmental social sustainability metrics, The Corporate
Sustainability Due Diligence Directive, which requires companies to report on
the sustainability impacts of their value chain. And the EU Taxonomy,
(02:04):
which works as effectively a classification systems for which economic
activities are considered green within the European Union.
Speaker 1 (02:11):
So how often do they have to report this and
who do they have to report it to.
Speaker 3 (02:15):
So the reporting timelines vary between the regulations, but they're
typically reporting to each of the specific governments within the
European Union that have transposed these regulations into their national law.
These three sort of significant sustainability reporting regulations have been
weakened over the past couple months. So in February February
(02:37):
twenty six, twenty twenty five, the European Union passed their
Sustainability onminnion bus which effectively work to limit the scope
of some of this reporting regulation by reducing the number
of companies that are required to report. For example, under
the CSRD, under the original draft, any company with more
than two hundred and fifty employees within the European Union
(02:58):
would have to report on a range of sustain nobility metrics.
They've now bumped up that requirement so companies with more
than a thousand employees only have to report, So they've
limited that scope by around eighty percent.
Speaker 1 (03:09):
There's just a couple of kind of clarification questions I
have on all of this, because so from what I understand,
the way it works is the EU has a directive
and then national governments transposed that directive into their own laws.
Is there anything to stop national governments from saying, actually,
we like these rules the way that they were or
does this change in the directive require them all to
scale back their requirements?
Speaker 3 (03:30):
It requires them all to scale back their requirements. The
European Commission has gone in and edited the specific directives
for the CSOD and the cs Triple D, and so
member states will have to go back and retranspose the
new regulation.
Speaker 1 (03:44):
So it's not just it's no longer pushing national governments
to put in place a law, it's actually preventing them
from doing so if they wanted to.
Speaker 2 (03:53):
The utexonomy also is a regulation, so it's going to
be like implemented and supervised at the European level. The
two others are there, but I think they can still
like amend. There is a scale back, so it means
that when a directive is then implemented at national level,
members that have some flexibility with regards to the implementation.
(04:14):
But indeed they could strengthen the scope. I don't think
we're going to see it because a lot of this
has happened because of a push from member states to
basically scale back on these directives and regulations. So I
don't think we're going to say so.
Speaker 1 (04:27):
My question is kind of moot in a way that
there isn't a government that wants to go further than
the eregulations.
Speaker 2 (04:34):
I mean, to our knowledge, not really. Actually, just today
Member states have agreed to stop the clock rule on
the omnibus, So it means that basically one of the
amendments on these directives was to delay their implementation for
the ces or the end of cs repody in particular,
and members they have just voted on that. So it
(04:54):
feels that there is still a consensus around this topic.
There is not like a one key country that is
being particularly like vocal about not scaling back these policy
and let's just be clear also about something is that
the CSRD, the CES reply and the U Taxonomy had
been passed, and the CSRD and the U Taxonomy they
(05:16):
were already reporting happening against them. It's been two years.
That two years, yeah, two years for the taxonomy, and
this year is the first reporting. The reporting has been
phased in depending on the size of the company, so
the biggest companies have started reporting against the CSRD from
this year onwards. That being said, while it may change
for the taxonomy, most of the company that have started
(05:38):
reporting this year on the CSRD will have to report
in the future, but it might be a question of
they might have to report on less indicators.
Speaker 1 (05:45):
So I mean this kind of leads to the next question.
You know, as you say that, like, the EU was
one place two years ago and two years later it's
changed tack and it seems to be a fairly universal
feeling around it. So what led to this rollback?
Speaker 2 (06:01):
There have been criticisms around sustainable finance regulatory agenda in
the you being overly burdensome, So that was coming from companies,
certain companies, but there also has been an important report
in the in the EU, which is the More Dog
Drugs Report on competitiveness of companies how to bring back
competitiveness from companies in the EU, and one of his
(06:24):
key advice to European regulators was to scale down the
sustainable finance regulatory agenda. In particular, these regulations were targeting
for the first time small and medium enterprises, so SMEs
there were also having a big extra territorial impact, so
a lot of like non EU companies that were trading
(06:46):
in the EU or having some operations in you were
falling in scope for it. So this has all shifted
the you to rethink this rollback, and it feels like
it feels like there is a rollback on sustainable both
finance policy because also this compliance was I always make
this joke, but it's also a geeky one, but it's
always like really everything everywhere or at once, because they
(07:09):
were targeting everyone at the same time, some policies were
coming into places that were not really finished, which is
the case of the CSRD. The taxonomy also has been messy,
so I think it was it was quite expensive for
companies to implement it, but it's also it feels like
a shifting strategy. So the same day that the EU
(07:30):
has published this omnibus regulation, its proposal to scale back everything,
they've also published a Clean Industrial Deal, which basically brings
more subsidies to the energy transition, reassert greenhouse gas emission reduction,
stuff like that. So it feels like it's almost they
moved away from a stick regulation to introduce carrot regulations
(07:52):
and move away from reporting compliance to basically creating real
economy incentives. So it's almost like a change in philosophical approach,
like political approach.
Speaker 1 (08:02):
Yeah, I mean you could also term it as a
change from private sector led transition to public sector led transition.
Speaker 2 (08:10):
True.
Speaker 3 (08:10):
I'd also just add that this is all happening in
the context of the pushback against sustainability reporting in the
US as well. And so we've seen the Securities and
Exchange Commissions sustainability of reporting regulation get rolled back. You've
seen the Trump administration take a pretty aggressive stance actually
against CSRD and cs triple D, and so this this
(08:32):
rollback is kind of happening in context of that as well.
And it also brings into a question about European companies
competing against maybe American companies that aren't held to the
same reporting standard as well.
Speaker 1 (08:44):
I mean, I mean, this was kind of going to
be my next question, and you've kind of already answered
it to some extent. But apart from it, you know,
the sort of the optics of it. The US has
a new administration, it's a lot less friendly towards things
we would broadly term ESG. You kind of mentioned what
sound like they actually have leverage on what the EU does.
What can you just explain a little bit more what
(09:05):
you mean there.
Speaker 3 (09:06):
I don't know if it's specifically leverage, but more a
relative competitive advantage potentially if the American companies aren't required
to report this range of sustainability metrics, whereas European companies
maybe are, and so European companies may be undercut by
by businesses not just in the US as well. I
think that's part of goes back to the original competitiveness
(09:26):
concerns that stems from the DRAG Report.
Speaker 1 (09:29):
A question I have around this competitiveness concern is because
you know, we hear it BNF, we look at the
energy transition and in most areas we say it's a
competitive advantage to be more sustainable in various ways, you know,
in mitigating risk for the future. Is it that that
is just simply wrong at this moment in time or
is it literally the regulatory burden that was on these
(09:51):
companies was the issue, Like just the amount they had
to invest in doing the paperwork, Like what is the
thinking behind it being less competitive having this requirement on you?
Speaker 3 (10:01):
Yeah, so we definitely it's definitely more of a regulatory
burden rather than sustainability being uncompetitive. In some cases, these
companies under the CSRD would be required to report over
one thousand data points, which for smaller medium enterprise can
be incredibly overwhelming. And our view on the Sustainable Finance
team at PNF is that rather than potentially limiting the
(10:23):
scope of companies that are required to report under these regulations,
which is what has happened, the change in regulations could
have focused on limiting the number of metrics that are
required to report to just the key ones that investors.
Speaker 1 (10:35):
Are much so it is like maybe over complex.
Speaker 2 (10:38):
Yeah, yes, and I think like the backlash we're seeing
this regulatory push and everything. I completely agree with everything
Jameson is saying. But on top of this, and I
think we agree with Jameson on that is like there
is going to be, in any case, a heightened urge
from companies to prove that the sustainability choices that they
make companies and financial institutions are being financially profitable, that
(11:02):
they are being made for the competitiveness of the business.
And in particular in the US, I think there's going
to be more and more of an urge to prove
that sustainability is actually the good financial decision for companies.
And that's probably also why we're seeing this situation where
the US saying, Okay, you know what, we're moving away
(11:23):
from reporting, and we were talking to corporations that hired
or now use dozens and dozens of people just to
do a CSRD report, for instance, and to say, Okay,
maybe this is money that could go to actually investing
in the energy transition or developing the technology we need
for it. And so I think that's why we're seeing
(11:44):
this shift on the U side. On the US side,
there is still a lot to be discussed. We're probably
not the best ones to answer the question around like
subsidies to clean energy and the rest of these technologies.
But on the sustainable finance front, I think also one
of the things is that this necessity to prove profitability
and competitiveness is going to become extremely serious in the
(12:04):
coming years.
Speaker 1 (12:05):
So I want to move on to talking about what
impact this might have on investment. And I'm going to
use an analogy here. So I'm vegan, and so when
you're vegan, you sometimes go into a restaurant or into
the grocery store and there's little v signs that tell
you that there are things that are good for you,
and you don't have to do the work to figure
(12:26):
out whether something is you know, legit for you to
invest your veganism in and sometimes that isn't there, and
then you have to, like if you're in the grocery store,
like read the list of ingredients, or if you're in
a restaurant, you have to ask lots of annoying questions.
So the existence of the little green VS. The impact
of it is it shifts the emphasis on you having
to do the homework to the providers of the food
(12:49):
to do the homework. Now, there isn't a government requirement
for little vs. Everywhere, and there are actually third party
organizations that have created these frameworks. The reason't they use
this analogy is this, This hasn't changed whether or not
I'm going to be vegan, but it certainly streamlines my veganism.
So I hope the analogy where I'm going with this
is clear is some of these requirements is like a
(13:10):
requirement for the equivalent of a little V next to
certain companies, to certain investments, for investors that have an
appetite to put money into green causes. So I guess
a couple of questions, is it going to actually change
the appetite for this investment or is it just going
to make it a little bit harder and put the
onus onto the burden of the work on the investors.
And then second question is their scope for as is
(13:31):
the case with vegan and vegetarian labels, that actually there's
third parties that might come in and have their own assessments,
you know, whether it's NGOs or someone else.
Speaker 3 (13:41):
I think the goal with these sustainability reporting policies kind
of what you're kind of saying. I think it helps
to investors streamline their decisions. It provides a raft of
standardized data points that they can specifically point to and
evaluate for their sustainability and climate performance. I do think
think the reporting does lower barriers to entry for investors
(14:04):
that may have interesting sustainability or some sort of sustainability
concerns without having the resources to actually go through and
perform this due diligence themselves. There's forms of voluntary reporting
and third party reporting, but the fact that it's coming
from sort of government regulation side, I think ensures that
kind of the universe is as standardized as possible.
Speaker 2 (14:26):
As well, I agree with jameson there is that angle
the standardized way, the fact is like government stabled and
all of that. But I would want to add on
two points. Indeed, We don't think that slashing down reporting
will re question the whole investment in clean energy and
in the transition. I agree with everything Jameson has said,
(14:47):
but indeed remove the barrier to entry to have these
regulations and not having them might make it more difficult.
That being said, I think that there are some indicators
that are becoming increasingly necessary to make the right decision.
And in particular, the taxonomy was answering the question of, Okay,
how much a company is investing in the transition by
(15:07):
reporting green capex, how much the company has already transitioned
to low carbon economy by looking at the percentage of
green revenues. These are key indicators that also force companies
to disclose revenue segmentation, that are key to any decision maker,
whether you are an impact investment fund, an ESG fund,
(15:28):
which is a fund that takes into account environmental, social
and governance factors, or just a random fund that tries
to mitigate their explosure to climate risk. And instead of
reworking the taxonomy, which is heavily flowed because it's a
massive it's a massive piece of work and I know
because I've worked on it in the past, instead of
(15:48):
reworking it, aligning it with accounting standard. The EU has
decided to just cut down the number of companies that
are reporting against it and make it voluntary, and we
know that voluntary taxonomy most companies don't report against them,
so that could actually impact beyond the investment to clean energy,
at least the capacity from investors and lenders to mitigate
(16:09):
their exposure to climate risk. And the second thing is
Jamison has talked about the anti ESG backlash we're seeing
in the US through the lens of regulation, and amongst
all the anti ESG lows we're seeing at US state level,
we are seeing a lot of boycott laws or laws
and anti esglows that boycott prevents certain financial transitions from
(16:31):
making business in a certain state because they are too
heavily involved in sustainability. And antire ESG to take into
account any factor that is not pecuniary, so it needs
a factor that is not financially material in their decision
making process. This can affect not the energy transition that
is already profitable, not the wind, the solar, the evs.
(16:52):
It's going to affect the clean technology that are not
necessarily financially profitable, but that still people want to see
in their investment fund if they are interested in sustainability,
so carbon capture and storage, hydrogen investment, these emerging technologies.
So in this sense, I think we really need to
nuance this. In this sense, I completely agree with Jameson's point,
(17:15):
and I would add on top of this, So revamping
the EU taxonomy was a necessity because it was burdensome,
but it could have been done differently to drive a
better impact. Second one is the nuance that we need
to see in the US because it might dempen a
certain sort of investment, but not all of them, and
(17:35):
also not the whole energy transition investment is at stake
just because of this backlash, I.
Speaker 1 (17:40):
Really want to understand, you know, because I just want
to pick up on one thing you said, which was
that now companies aren't getting the information they actually need,
which going back to my metaphor about veganism, it's not
just that the little v's are being taken away. Are
you saying that actually the ingredient list on the back
of the packet is getting taken away? Is that even
if companies want to invest the effort to up they
(18:00):
actually don't have the information they need.
Speaker 2 (18:03):
Well in the EU right now, there's going to be so,
as I said today, one of the amendment has gone
through the Council because you know, like the EU legislative
process is very complicated. Even after like five or six
years in this just doing research about it, it's still
quite complicated to me. But basically all these amendments so
that omnibus package will have to go through Council and Parliament.
(18:26):
One of the amendment, which was to delay reporting, has
gone through Council already today, so it has to go
through Parliament. Is going to go through Parliament on the
first of April. There has been like urge to get
this through the delay bit because otherwise some companies were
well in scope as early as next year for reporting,
and you know you don't prepare reporting on in December
(18:48):
or April. So that's the first thing. The other thing
is there is intense consultation with a lot of like
industrial societies representing civilians, companies and stuff like that, which
is one of the big criticism that has been made
to the EU, which is the fact that it built
all these regulation a bit too much behind closed doors
(19:10):
rather than involving everyone. So that might help as well.
And then I think Tom, there could be questions around
will this shift and strategy continue, you know, like maybe
we'll see a scale back on regulatory front around disclosure,
but we might see more incentives around real economy incentives
and investing in all of that and strengthening being more
(19:33):
like a closer to the economy rather than just around
the reporting.
Speaker 1 (19:37):
Got it. So, if the EU isn't going to be
taking the same leadership role on this front that it
has done in the past, does that create an opportunity
for another region of the world or another country to
step up and seize the initiative.
Speaker 3 (19:51):
The EU putting the brakes on some of it sustainability
reporting regulation. There's a concern here that it pulls momentum
from sustainability reporting regular globally. CS Triple D is still
the first of its kind in terms of regulation, and
we don't really see a comparable version globally yet. However,
as they potentially step back, we start to see regulation
(20:13):
in Asia Pacific region, specifically in China as well, start
to become closer to comparable to the EU's regulatory framework.
With twenty one sustainable finance policy developments in the second
half of twenty twenty four, and it was definitely the
busiest region globally, so we're starting to see some strong
policy growth there as well. I'd also point to Brazil
(20:33):
and the UK are both looking to potentially develop a
mandatory taxonomy after the EU's mandatory taxonomy, and if the
EU continues to weaken or weakens there reporting against their taxonomy,
either of these markets might end up leading in that sense.
Speaker 1 (20:48):
What is the outlook overall? I mean, we've seen scaling
back in the EU, We've seen progress maybe happening in Asia,
the UK and Brazil, as you've just mentioned, maybe moving
forward with certain things as a bit of a question
of where leadership will come from. But what is the
future in your view and say the next five years
or so of this type of framework for supporting investment
(21:11):
in the energy transition.
Speaker 2 (21:12):
Well, I mean the first thing to say is that
if we had been asked this question just six months ago,
we would have never predicted the omnibus. The EU had
spent so much money, effort time into developing the Sustainable
Finance Agenda, and it feels that they were convinced they
were fighting the right fight. So I think it's that's
(21:34):
one of the things that financial institutions and companies are
effectively criticizing and being vocal about is to say, unfortunately,
the policy agenda is too uncertain, too inconsistent. They need
clearer guidance, clearer roadmaps about what's going to happen in
the coming years. Because companies hire sustainability teams to do
(21:56):
the reporting and then get told that actually they might
not even have to do it in the future. They
get asked for reporting, and then investors say that it
is not necessarily what they want, they want something else.
So I think clarity is going to be really important
in the coming years, like having these clear agenda both
in EMEA, Europe and APEC. And the second thing is
(22:17):
we haven't tooked at all about the International Sustainability Standards Board,
the iss B framework, and we think that it's going
to be one of the key framework that's going to
impose itself around the globe.
Speaker 3 (22:29):
I'd agree with everything that you've said so far. I
will just add a little bit of the US perspective
and that with the Trump administration, we've started to see
some more antiesg policies being passed at the state level
and federal level. Sustainability reporting, either through the SEC rules
or the adoption of the International Sustainability Standards Board standards
(22:51):
are not particularly likely as well. We do see some
positive state developments, but while we've unfortunately seen a bit
of a rollback in the EU, the US is definitely
very far behind on the sustainability of reporting front.
Speaker 1 (23:03):
Well, one thing I was going to ask is you know,
to your point that you has invested so much time
and effort into this and then supposedly rolled it back.
Is there maybe an argument that they're just putting it
on ice for now and that all of that work
and everything that has been learned is still there ready
to be taken back off the shelf.
Speaker 2 (23:22):
That's an amazing question, thank you. Yeah. No, I think
it's a really good question because I think they are
hoping that it might be picked up as a voluntary standard.
So they might think that because it's the more companies
are going to use it, or that it may influence
other regions in the world and stuff like that. That
being said, I still think that there is a need
(23:45):
for a revamp of some of these regulations. Jameson explained it.
The CSRD requires with a caveat, you need to prove
that it's fine, like its material to your business and whatever.
But like it lists on two hundred indicators quantitative and qualitative.
This is too much. This is too many. And the
(24:05):
taxonomy is also a lot of work to do a
taxonomy reporting. So there could be work to be done
on the essence of these laws. And I'm not saying
this as the x filos of her that I was,
but like there is something to be done about the
core of these policies and maybe they could use it
in the future. Maybe it's just a question of timing.
Speaker 1 (24:25):
Maybe to borrow from your language, Maya. Maybe it's not adieux,
but it's au revoir.
Speaker 2 (24:32):
Oh yes, yes, exactly. Maybe it's just amaya.
Speaker 1 (24:36):
Thank you so much for joining us today.
Speaker 2 (24:38):
Thanks Domin, thanks for allowing us to bring a lot
of nuance to this topic.
Speaker 1 (24:41):
And Jamison, thank you also. Thanks.
Speaker 3 (24:43):
There is great to be here.
Speaker 2 (24:53):
Today's episode of Switched On was produced by cam Gray
with production assistance from Kamala Shelling.
Speaker 1 (24:59):
Bloomber NIF is a service provided by Bloomberg Finance LP
and its affiliates. This recording does not constitute, nor should
it be construed as investment advice investment recommendations, or a
recommendation as to an investment or other strategy.
Speaker 2 (25:12):
Bloomberg aniff should not be considered as information sufficient upon
which to base an investment decision. Neither Bloomberg Finance LP
Nor any of its affiliates makes any representation or warranty
as to the accuracy or completeness of the information contained
in this recording, and any liability as a result of
this recording is expressly disclaimed
This is Tom Rowland's Reese and you're listening to Switched
on the podcast brought to you by BNF, and today
we're here to talk about sustainable finance policy. Having spent
years in development. In February of this year, the European
Union took an act to its sustainable reporting regulations, in
the process limiting investors access to climate data and potentially
limiting their ability to push capital towards the energy transition.
(00:20):
Widely considered the leader for sustainable finance policy, the watering
down of these key regulations has thrown the EU's position
into question. Part of the pressure behind the shift has
been concerned over competitiveness, exacerbated by the new Trump administration
in the United States, which has continued to take aim
at climate regulations. But as Europe stumbles, could a new
leader be found in the form of the Asia Pacific Region,
which during the second half of twenty twenty four introduced
(00:43):
twenty one new sustainable finance policies. To discuss this and more, today,
am joined by b and EF sustainable finance analysts Maya
Messenger and Jamison McLennan, who share findings from their recently
released research notes titled EU weaken sustainable leadership with rule
rollback and Sustainable Finance Marketing Outlook one twenty twenty five,
which B and EF clients can find. BNF go on
(01:04):
the Bloomberg terminal or on BNF dot com. All right,
let's get to talking about sustainable finance policy.
Speaker 2 (01:19):
Welcome to the podcast, Meyer, thank you, thank you Don
for having.
Speaker 1 (01:22):
Me, and welcome Jameson.
Speaker 3 (01:24):
Yeah, thanks great to be here.
Speaker 1 (01:26):
When we last spoke about sustainable finance policy on the
Switched On podcast, Europe was leading the way. Can you
remind everyone why we were saying that and whether the
policies and frameworks that were behind that are still on course.
Speaker 3 (01:41):
So that you has three significant sustainable of finance reporting policies.
The Corporate Sustainability Reporting Directive, which requires companies to report
at a range of environmental social sustainability metrics, The Corporate
Sustainability Due Diligence Directive, which requires companies to report on
the sustainability impacts of their value chain. And the EU Taxonomy,
(02:04):
which works as effectively a classification systems for which economic
activities are considered green within the European Union.
Speaker 1 (02:11):
So how often do they have to report this and
who do they have to report it to.
Speaker 3 (02:15):
So the reporting timelines vary between the regulations, but they're
typically reporting to each of the specific governments within the
European Union that have transposed these regulations into their national law.
These three sort of significant sustainability reporting regulations have been
weakened over the past couple months. So in February February
(02:37):
twenty six, twenty twenty five, the European Union passed their
Sustainability onminnion bus which effectively work to limit the scope
of some of this reporting regulation by reducing the number
of companies that are required to report. For example, under
the CSRD, under the original draft, any company with more
than two hundred and fifty employees within the European Union
(02:58):
would have to report on a range of sustain nobility metrics.
They've now bumped up that requirement so companies with more
than a thousand employees only have to report, So they've
limited that scope by around eighty percent.
Speaker 1 (03:09):
There's just a couple of kind of clarification questions I
have on all of this, because so from what I understand,
the way it works is the EU has a directive
and then national governments transposed that directive into their own laws.
Is there anything to stop national governments from saying, actually,
we like these rules the way that they were or
does this change in the directive require them all to
scale back their requirements?
Speaker 3 (03:30):
It requires them all to scale back their requirements. The
European Commission has gone in and edited the specific directives
for the CSOD and the cs Triple D, and so
member states will have to go back and retranspose the
new regulation.
Speaker 1 (03:44):
So it's not just it's no longer pushing national governments
to put in place a law, it's actually preventing them
from doing so if they wanted to.
Speaker 2 (03:53):
The utexonomy also is a regulation, so it's going to
be like implemented and supervised at the European level. The
two others are there, but I think they can still
like amend. There is a scale back, so it means
that when a directive is then implemented at national level,
members that have some flexibility with regards to the implementation.
(04:14):
But indeed they could strengthen the scope. I don't think
we're going to see it because a lot of this
has happened because of a push from member states to
basically scale back on these directives and regulations. So I
don't think we're going to say so.
Speaker 1 (04:27):
My question is kind of moot in a way that
there isn't a government that wants to go further than
the eregulations.
Speaker 2 (04:34):
I mean, to our knowledge, not really. Actually, just today
Member states have agreed to stop the clock rule on
the omnibus, So it means that basically one of the
amendments on these directives was to delay their implementation for
the ces or the end of cs repody in particular,
and members they have just voted on that. So it
(04:54):
feels that there is still a consensus around this topic.
There is not like a one key country that is
being particularly like vocal about not scaling back these policy
and let's just be clear also about something is that
the CSRD, the CES reply and the U Taxonomy had
been passed, and the CSRD and the U Taxonomy they
(05:16):
were already reporting happening against them. It's been two years.
That two years, yeah, two years for the taxonomy, and
this year is the first reporting. The reporting has been
phased in depending on the size of the company, so
the biggest companies have started reporting against the CSRD from
this year onwards. That being said, while it may change
for the taxonomy, most of the company that have started
(05:38):
reporting this year on the CSRD will have to report
in the future, but it might be a question of
they might have to report on less indicators.
Speaker 1 (05:45):
So I mean this kind of leads to the next question.
You know, as you say that, like, the EU was
one place two years ago and two years later it's
changed tack and it seems to be a fairly universal
feeling around it. So what led to this rollback?
Speaker 2 (06:01):
There have been criticisms around sustainable finance regulatory agenda in
the you being overly burdensome, So that was coming from companies,
certain companies, but there also has been an important report
in the in the EU, which is the More Dog
Drugs Report on competitiveness of companies how to bring back
competitiveness from companies in the EU, and one of his
(06:24):
key advice to European regulators was to scale down the
sustainable finance regulatory agenda. In particular, these regulations were targeting
for the first time small and medium enterprises, so SMEs
there were also having a big extra territorial impact, so
a lot of like non EU companies that were trading
(06:46):
in the EU or having some operations in you were
falling in scope for it. So this has all shifted
the you to rethink this rollback, and it feels like
it feels like there is a rollback on sustainable both
finance policy because also this compliance was I always make
this joke, but it's also a geeky one, but it's
always like really everything everywhere or at once, because they
(07:09):
were targeting everyone at the same time, some policies were
coming into places that were not really finished, which is
the case of the CSRD. The taxonomy also has been messy,
so I think it was it was quite expensive for
companies to implement it, but it's also it feels like
a shifting strategy. So the same day that the EU
(07:30):
has published this omnibus regulation, its proposal to scale back everything,
they've also published a Clean Industrial Deal, which basically brings
more subsidies to the energy transition, reassert greenhouse gas emission reduction,
stuff like that. So it feels like it's almost they
moved away from a stick regulation to introduce carrot regulations
(07:52):
and move away from reporting compliance to basically creating real
economy incentives. So it's almost like a change in philosophical approach,
like political approach.
Speaker 1 (08:02):
Yeah, I mean you could also term it as a
change from private sector led transition to public sector led transition.
Speaker 2 (08:10):
True.
Speaker 3 (08:10):
I'd also just add that this is all happening in
the context of the pushback against sustainability reporting in the
US as well. And so we've seen the Securities and
Exchange Commissions sustainability of reporting regulation get rolled back. You've
seen the Trump administration take a pretty aggressive stance actually
against CSRD and cs triple D, and so this this
(08:32):
rollback is kind of happening in context of that as well.
And it also brings into a question about European companies
competing against maybe American companies that aren't held to the
same reporting standard as well.
Speaker 1 (08:44):
I mean, I mean, this was kind of going to
be my next question, and you've kind of already answered
it to some extent. But apart from it, you know,
the sort of the optics of it. The US has
a new administration, it's a lot less friendly towards things
we would broadly term ESG. You kind of mentioned what
sound like they actually have leverage on what the EU does.
What can you just explain a little bit more what
(09:05):
you mean there.
Speaker 3 (09:06):
I don't know if it's specifically leverage, but more a
relative competitive advantage potentially if the American companies aren't required
to report this range of sustainability metrics, whereas European companies
maybe are, and so European companies may be undercut by
by businesses not just in the US as well. I
think that's part of goes back to the original competitiveness
(09:26):
concerns that stems from the DRAG Report.
Speaker 1 (09:29):
A question I have around this competitiveness concern is because
you know, we hear it BNF, we look at the
energy transition and in most areas we say it's a
competitive advantage to be more sustainable in various ways, you know,
in mitigating risk for the future. Is it that that
is just simply wrong at this moment in time or
is it literally the regulatory burden that was on these
(09:51):
companies was the issue, Like just the amount they had
to invest in doing the paperwork, Like what is the
thinking behind it being less competitive having this requirement on you?
Speaker 3 (10:01):
Yeah, so we definitely it's definitely more of a regulatory
burden rather than sustainability being uncompetitive. In some cases, these
companies under the CSRD would be required to report over
one thousand data points, which for smaller medium enterprise can
be incredibly overwhelming. And our view on the Sustainable Finance
team at PNF is that rather than potentially limiting the
(10:23):
scope of companies that are required to report under these regulations,
which is what has happened, the change in regulations could
have focused on limiting the number of metrics that are
required to report to just the key ones that investors.
Speaker 1 (10:35):
Are much so it is like maybe over complex.
Speaker 2 (10:38):
Yeah, yes, and I think like the backlash we're seeing
this regulatory push and everything. I completely agree with everything
Jameson is saying. But on top of this, and I
think we agree with Jameson on that is like there
is going to be, in any case, a heightened urge
from companies to prove that the sustainability choices that they
make companies and financial institutions are being financially profitable, that
(11:02):
they are being made for the competitiveness of the business.
And in particular in the US, I think there's going
to be more and more of an urge to prove
that sustainability is actually the good financial decision for companies.
And that's probably also why we're seeing this situation where
the US saying, Okay, you know what, we're moving away
(11:23):
from reporting, and we were talking to corporations that hired
or now use dozens and dozens of people just to
do a CSRD report, for instance, and to say, Okay,
maybe this is money that could go to actually investing
in the energy transition or developing the technology we need
for it. And so I think that's why we're seeing
(11:44):
this shift on the U side. On the US side,
there is still a lot to be discussed. We're probably
not the best ones to answer the question around like
subsidies to clean energy and the rest of these technologies.
But on the sustainable finance front, I think also one
of the things is that this necessity to prove profitability
and competitiveness is going to become extremely serious in the
(12:04):
coming years.
Speaker 1 (12:05):
So I want to move on to talking about what
impact this might have on investment. And I'm going to
use an analogy here. So I'm vegan, and so when
you're vegan, you sometimes go into a restaurant or into
the grocery store and there's little v signs that tell
you that there are things that are good for you,
and you don't have to do the work to figure
(12:26):
out whether something is you know, legit for you to
invest your veganism in and sometimes that isn't there, and
then you have to, like if you're in the grocery store,
like read the list of ingredients, or if you're in
a restaurant, you have to ask lots of annoying questions.
So the existence of the little green VS. The impact
of it is it shifts the emphasis on you having
to do the homework to the providers of the food
(12:49):
to do the homework. Now, there isn't a government requirement
for little vs. Everywhere, and there are actually third party
organizations that have created these frameworks. The reason't they use
this analogy is this, This hasn't changed whether or not
I'm going to be vegan, but it certainly streamlines my veganism.
So I hope the analogy where I'm going with this
is clear is some of these requirements is like a
(13:10):
requirement for the equivalent of a little V next to
certain companies, to certain investments, for investors that have an
appetite to put money into green causes. So I guess
a couple of questions, is it going to actually change
the appetite for this investment or is it just going
to make it a little bit harder and put the
onus onto the burden of the work on the investors.
And then second question is their scope for as is
(13:31):
the case with vegan and vegetarian labels, that actually there's
third parties that might come in and have their own assessments,
you know, whether it's NGOs or someone else.
Speaker 3 (13:41):
I think the goal with these sustainability reporting policies kind
of what you're kind of saying. I think it helps
to investors streamline their decisions. It provides a raft of
standardized data points that they can specifically point to and
evaluate for their sustainability and climate performance. I do think
think the reporting does lower barriers to entry for investors
(14:04):
that may have interesting sustainability or some sort of sustainability
concerns without having the resources to actually go through and
perform this due diligence themselves. There's forms of voluntary reporting
and third party reporting, but the fact that it's coming
from sort of government regulation side, I think ensures that
kind of the universe is as standardized as possible.
Speaker 2 (14:26):
As well, I agree with jameson there is that angle
the standardized way, the fact is like government stabled and
all of that. But I would want to add on
two points. Indeed, We don't think that slashing down reporting
will re question the whole investment in clean energy and
in the transition. I agree with everything Jameson has said,
(14:47):
but indeed remove the barrier to entry to have these
regulations and not having them might make it more difficult.
That being said, I think that there are some indicators
that are becoming increasingly necessary to make the right decision.
And in particular, the taxonomy was answering the question of, Okay,
how much a company is investing in the transition by
(15:07):
reporting green capex, how much the company has already transitioned
to low carbon economy by looking at the percentage of
green revenues. These are key indicators that also force companies
to disclose revenue segmentation, that are key to any decision maker,
whether you are an impact investment fund, an ESG fund,
(15:28):
which is a fund that takes into account environmental, social
and governance factors, or just a random fund that tries
to mitigate their explosure to climate risk. And instead of
reworking the taxonomy, which is heavily flowed because it's a
massive it's a massive piece of work and I know
because I've worked on it in the past, instead of
(15:48):
reworking it, aligning it with accounting standard. The EU has
decided to just cut down the number of companies that
are reporting against it and make it voluntary, and we
know that voluntary taxonomy most companies don't report against them,
so that could actually impact beyond the investment to clean energy,
at least the capacity from investors and lenders to mitigate
(16:09):
their exposure to climate risk. And the second thing is
Jamison has talked about the anti ESG backlash we're seeing
in the US through the lens of regulation, and amongst
all the anti ESG lows we're seeing at US state level,
we are seeing a lot of boycott laws or laws
and anti esglows that boycott prevents certain financial transitions from
(16:31):
making business in a certain state because they are too
heavily involved in sustainability. And antire ESG to take into
account any factor that is not pecuniary, so it needs
a factor that is not financially material in their decision
making process. This can affect not the energy transition that
is already profitable, not the wind, the solar, the evs.
(16:52):
It's going to affect the clean technology that are not
necessarily financially profitable, but that still people want to see
in their investment fund if they are interested in sustainability,
so carbon capture and storage, hydrogen investment, these emerging technologies.
So in this sense, I think we really need to
nuance this. In this sense, I completely agree with Jameson's point,
(17:15):
and I would add on top of this, So revamping
the EU taxonomy was a necessity because it was burdensome,
but it could have been done differently to drive a
better impact. Second one is the nuance that we need
to see in the US because it might dempen a
certain sort of investment, but not all of them, and
(17:35):
also not the whole energy transition investment is at stake
just because of this backlash, I.
Speaker 1 (17:40):
Really want to understand, you know, because I just want
to pick up on one thing you said, which was
that now companies aren't getting the information they actually need,
which going back to my metaphor about veganism, it's not
just that the little v's are being taken away. Are
you saying that actually the ingredient list on the back
of the packet is getting taken away? Is that even
if companies want to invest the effort to up they
(18:00):
actually don't have the information they need.
Speaker 2 (18:03):
Well in the EU right now, there's going to be so,
as I said today, one of the amendment has gone
through the Council because you know, like the EU legislative
process is very complicated. Even after like five or six
years in this just doing research about it, it's still
quite complicated to me. But basically all these amendments so
that omnibus package will have to go through Council and Parliament.
(18:26):
One of the amendment, which was to delay reporting, has
gone through Council already today, so it has to go
through Parliament. Is going to go through Parliament on the
first of April. There has been like urge to get
this through the delay bit because otherwise some companies were
well in scope as early as next year for reporting,
and you know you don't prepare reporting on in December
(18:48):
or April. So that's the first thing. The other thing
is there is intense consultation with a lot of like
industrial societies representing civilians, companies and stuff like that, which
is one of the big criticism that has been made
to the EU, which is the fact that it built
all these regulation a bit too much behind closed doors
(19:10):
rather than involving everyone. So that might help as well.
And then I think Tom, there could be questions around
will this shift and strategy continue, you know, like maybe
we'll see a scale back on regulatory front around disclosure,
but we might see more incentives around real economy incentives
and investing in all of that and strengthening being more
(19:33):
like a closer to the economy rather than just around
the reporting.
Speaker 1 (19:37):
Got it. So, if the EU isn't going to be
taking the same leadership role on this front that it
has done in the past, does that create an opportunity
for another region of the world or another country to
step up and seize the initiative.
Speaker 3 (19:51):
The EU putting the brakes on some of it sustainability
reporting regulation. There's a concern here that it pulls momentum
from sustainability reporting regular globally. CS Triple D is still
the first of its kind in terms of regulation, and
we don't really see a comparable version globally yet. However,
as they potentially step back, we start to see regulation
(20:13):
in Asia Pacific region, specifically in China as well, start
to become closer to comparable to the EU's regulatory framework.
With twenty one sustainable finance policy developments in the second
half of twenty twenty four, and it was definitely the
busiest region globally, so we're starting to see some strong
policy growth there as well. I'd also point to Brazil
(20:33):
and the UK are both looking to potentially develop a
mandatory taxonomy after the EU's mandatory taxonomy, and if the
EU continues to weaken or weakens there reporting against their taxonomy,
either of these markets might end up leading in that sense.
Speaker 1 (20:48):
What is the outlook overall? I mean, we've seen scaling
back in the EU, We've seen progress maybe happening in Asia,
the UK and Brazil, as you've just mentioned, maybe moving
forward with certain things as a bit of a question
of where leadership will come from. But what is the
future in your view and say the next five years
or so of this type of framework for supporting investment
(21:11):
in the energy transition.
Speaker 2 (21:12):
Well, I mean the first thing to say is that
if we had been asked this question just six months ago,
we would have never predicted the omnibus. The EU had
spent so much money, effort time into developing the Sustainable
Finance Agenda, and it feels that they were convinced they
were fighting the right fight. So I think it's that's
(21:34):
one of the things that financial institutions and companies are
effectively criticizing and being vocal about is to say, unfortunately,
the policy agenda is too uncertain, too inconsistent. They need
clearer guidance, clearer roadmaps about what's going to happen in
the coming years. Because companies hire sustainability teams to do
(21:56):
the reporting and then get told that actually they might
not even have to do it in the future. They
get asked for reporting, and then investors say that it
is not necessarily what they want, they want something else.
So I think clarity is going to be really important
in the coming years, like having these clear agenda both
in EMEA, Europe and APEC. And the second thing is
(22:17):
we haven't tooked at all about the International Sustainability Standards Board,
the iss B framework, and we think that it's going
to be one of the key framework that's going to
impose itself around the globe.
Speaker 3 (22:29):
I'd agree with everything that you've said so far. I
will just add a little bit of the US perspective
and that with the Trump administration, we've started to see
some more antiesg policies being passed at the state level
and federal level. Sustainability reporting, either through the SEC rules
or the adoption of the International Sustainability Standards Board standards
(22:51):
are not particularly likely as well. We do see some
positive state developments, but while we've unfortunately seen a bit
of a rollback in the EU, the US is definitely
very far behind on the sustainability of reporting front.
Speaker 1 (23:03):
Well, one thing I was going to ask is you know,
to your point that you has invested so much time
and effort into this and then supposedly rolled it back.
Is there maybe an argument that they're just putting it
on ice for now and that all of that work
and everything that has been learned is still there ready
to be taken back off the shelf.
Speaker 2 (23:22):
That's an amazing question, thank you. Yeah. No, I think
it's a really good question because I think they are
hoping that it might be picked up as a voluntary standard.
So they might think that because it's the more companies
are going to use it, or that it may influence
other regions in the world and stuff like that. That
being said, I still think that there is a need
(23:45):
for a revamp of some of these regulations. Jameson explained it.
The CSRD requires with a caveat, you need to prove
that it's fine, like its material to your business and whatever.
But like it lists on two hundred indicators quantitative and qualitative.
This is too much. This is too many. And the
(24:05):
taxonomy is also a lot of work to do a
taxonomy reporting. So there could be work to be done
on the essence of these laws. And I'm not saying
this as the x filos of her that I was,
but like there is something to be done about the
core of these policies and maybe they could use it
in the future. Maybe it's just a question of timing.
Speaker 1 (24:25):
Maybe to borrow from your language, Maya. Maybe it's not adieux,
but it's au revoir.
Speaker 2 (24:32):
Oh yes, yes, exactly. Maybe it's just amaya.
Speaker 1 (24:36):
Thank you so much for joining us today.
Speaker 2 (24:38):
Thanks Domin, thanks for allowing us to bring a lot
of nuance to this topic.
Speaker 1 (24:41):
And Jamison, thank you also. Thanks.
Speaker 3 (24:43):
There is great to be here.
Speaker 2 (24:53):
Today's episode of Switched On was produced by cam Gray
with production assistance from Kamala Shelling.
Speaker 1 (24:59):
Bloomber NIF is a service provided by Bloomberg Finance LP
and its affiliates. This recording does not constitute, nor should
it be construed as investment advice investment recommendations, or a
recommendation as to an investment or other strategy.
Speaker 2 (25:12):
Bloomberg aniff should not be considered as information sufficient upon
which to base an investment decision. Neither Bloomberg Finance LP
Nor any of its affiliates makes any representation or warranty
as to the accuracy or completeness of the information contained
in this recording, and any liability as a result of
this recording is expressly disclaimed
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