Yahoo Finance The anti-ESG backlash is not just an American phenomenon as Europe waters down its sustainability agenda
A wave of discontent over sustainability policies is sweeping across the Atlantic, making green growth harder and putting the leaders and financiers who are fighting to implement environmental, social, and governance (ESG) policies under pressure. And the upcoming U.S. election will not make life any easier for the companies that are navigating the powerful currents of anti-ESG lobbies.
In Europe, the ardor for ESG regulations has somewhat cooled. The strong polarization around ESG criteria has not waited for the result of the U.S. election. It is lurking in the undertones of financial and standardization talks. The dynamism of U.S. President Joe Biden’s Inflation Reduction Act is still having ripple effects and unforeseen consequences as the IRA compels Brussels to adapt. This trend can be seen in the significant changes in July to the last draft of the new European Sustainability Reporting Standards (ESRS). One of the major changes made by the EU Commission to the European Financial Reporting Advisory Group’s (EFRAG) proposals was to align the ESRS standards with the International Financial Reporting Standards (IFRS) to ensure international interoperability. The die is close to being cast in the European battle over accounting standards–in favor of the ISSB's softer financial philosophy.
The prospect that truly sustainable finance may be unable to preserve itself looms large over 2024. The idea of a comprehensive fair transition of the economy seems to be morphing into a niche approach to sustainable finance.
Poorly devised communications around ESG investing have contributed to weakening the movement toward a responsible and forward-looking economy. Faced with angry farmer protests, the EU has given up on its goal of halving pesticide use by 2040. Financially illiterate environmental activism is also having a chilling effect on companies. For example, a parliamentary inquiry in France is scrutinizing the environmental commitments of energy giant TotalEnergies. With accusations of “greenhushing,” “greenwashing,” and "woke capitalism," the three letters "ESG" have become synonymous with backlash.
The rhetoric is simple if one wishes to undermine economic decisions that encourage ethical behavior as a primary concern. It plays upon the fears of Western democratic public opinion amidst growing disquiet in the face of deepening inequality and the fragmentation of the world. Essentially, this rhetoric benefits from the misfortunes of the population. For example, in France and Germany, the far right is cynically capitalizing on the anger of the farmers who have to contend with European Green Deal policies as well as the increase in energy prices. All of this is happening because farmers are being caught up in the middle of the geopolitical reality of an exporting industry with a short-term high exposure to the green transition.
In the long term, however, Europe’s companies, economy, and people will be the ones paying a high price for the policies of cynicism that have no set agendas or tangible projects for the future.
Nevertheless, the green breeze is still blowing gently across Europe. At Davos, French President Emmanuel Macron used his trump card: "at the same time." It's a reference to the Paris Agreement formula, “for people and planet,” and the IRA’s philosophy. Indeed, a united Europe can achieve growth and decarbonization “at the same time.” By providing renewed hope for the middle classes and with the help of a sustainability agenda that encourages investments in Europe, Brussels can bolster its mandate.
As the hustle and bustle of the upcoming U.S. elections continues to captivate and sway the opinions of European political leaders, companies in Europe that have always remained neutral in the past, following the customs of the Old Continent, might have to change their way of doing business. They must be more vocal–or 2024 may be the year in which they find themselves trapped by the politics of cynicism.
Camille Fumard is a special advisor on strategic affairs to C-suite executives at European boutique communications agency JIN and the author of a book on leadership in the XXIst century.
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