How America’s sustainability backlash is causing a transatlantic divide

Some of Europe’s largest companies, such as Siemens and IKEA, are powering ahead on sustainability despite the backlash and slowdown in the U.S. It is indicative of a diverging mindset between European and American companies that could greatly affect future global competitiveness.

That’s my conclusion from an eventful month of March, which saw the publication of the Securities and Exchange Commission’s long-awaited climate disclosure rules and further backlash against environmental, social, and governance (ESG) investing in the U.S.—but also several new initiatives from Europe’s companies such as Siemens and IKEA that advance sustainability practices.

In the U.S., there is no question that the ongoing backlash against ESG has set back the corporate sustainability agenda.

The SEC’s long-awaited rule, published earlier this month, solidified the ongoing trend by not requiring companies to disclose the emissions along their value chain, or those emanating from their product’s use by customers. And the SEC requirements will go into effect between 2027 and 2033, two to four years after similar reporting starts in the EU.

There is no doubt what caused this trend: Republican lawmakers and donors continue to fight against anything related to sustainability and ESG. Just this past week, the state of Texas withdrew $8.5 billion from BlackRock’s ESG funds, continuing a practice that started roughly two years ago that has led the investment manager to significantly scale back its touting of ESG.

In that light, it is even more remarkable that across the Atlantic, the exact opposite seems to be happening. Europe’s companies, investors, and policymakers are doubling down on the sustainability agenda, betting that its train has left the station and that early compliance and the introduction of new business models will help rather than hurt them.

Consider the latest initiative from Siemens, Europe’s largest industrial company. It announced this month the launch of its Ecotech label of products. Those products are all made with 100% renewable energy, disclose to their buyers their full sustainability footprint (including the CO2 emissions from their production and use), and reduce the environmental impact of their use.

Judith Wiese, Siemens’s chief sustainability officer, told me why her company introduced the label: “We are convinced that sustainability is becoming more and more of a competitive edge,” she said. The reason, she added, is that more and more companies have sustainability targets, and the introduction of new EU regulations requires transparency and data assurance.

In the first instance, about 5% of Siemens products will include the Ecotech label. But over time, the company expects that its whole range of products will evolve towards carrying the label, because of its competitive edge: As Ecotech products help customers decrease their CO2 and energy footprint, they are a value-based offering, as well as a regulation-driven one.

Nor is Siemens the only large European company to double down on its sustainability agenda. IKEA, the world’s favorite Swedish furniture company, this month announced its ambitions for RetourMatras, the mattress recycling company it has invested in. For one, the company, which had its start in the Netherlands, is expanding to several other major European markets.

But IKEA also uses RetourMatras to make a policy play: The group behind IKEA, Ingka Group, “is proactively engaging with policy makers around the world advocating for removing policy barriers to enable a more circular economy,” the company said during its March event. It is, in other words, lobbying for regulation that enhances its competitiveness through sustainability.

The writing on the wall from these examples is that American and European companies are likely to diverge further in the next five years concerning sustainability. While U.S. companies are largely disincentivized from pursuing ambitious sustainability credentials, the opposite is true in Europe, where sustainability is becoming a selling point as well as a regulatory necessity.

The results of this divergence will soon become apparent. My bet is that a focus on sustainability will pay off. But I sympathize with U.S. management teams that believe this to be the case but face an unwelcoming investor and regulatory environment.

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Peter Vanham
peter.vanham@fortune.com

This story was originally featured on Fortune.com