European banking firms are beginning to sound alarm bells over what they believe is a divergence between how ESG reporting rules are being applied on their home turf versus in the US.
Regulators in Brussels are increasingly adopting a tough stance not only on ESG reporting and risk declaration by the financial services sector, but counterparts at US-listed businesses can overlook similar stipulations, according to European Banking Federation comments this week that were picked up by Bloomberg and The Banker.
While it’s an imbalance that was always likely to attract criticism from sectors disadvantaged by different rules for different regions, it again underlines the tension that the politicisation of ESG continues to create for large businesses.
This also came into sharp focus this week when West Virginia added four financial services companies, including Citi and HSBC, to a list of firms that may be blocked from state business because of their stance and policies on ESG.
In another signal from this side of the Atlantic that Europe will turn the environmental screw in particular, the European Court of Human Rights ruled that governmental failure to reduce greenhouse gas emissions could be considered a breach of citizens’ rights. The landmark decision now leaves the door wide open for future similar action from individuals and pressure groups. The Swiss government was not sanctioned in the case, but the ability to bring similar motions against nations breaks new ground.
Yet there was also one big, unknown factor raised by the Financial Times, which could be nearer on the horizon than many of us may think. A major long-read piece projected the impact that the prospect of the world beginning to reduce rather than increase global emissions – at point that we may reach next year – would have. “Some analysts think that the politics, psychology and even the financing of climate action could shift profoundly,” it said. Just one aspect of ESG, but surely the biggest.
In lieu of that, banks - or at least, a financial services trade association - may be starting to fire off shots about the inter-regional disparities in ESG rules and how they’re applied. But while it has broader ramifications, this specific issue is a banking one.
More broadly, there’s a sense that large firms are seeking to rise above the detail and the scuffles, and stay focused on the longer road ahead. A Wall Street Journal article this week summarised that “marketers are attempting to sidestep political brawls over concepts like brand purpose, ESG and diversity by softening language and avoiding related messages, but they aren’t giving up on such efforts.”
There may be much more scrutiny, and a need to be hyper-sensitive to the external environment on commitments and language - and in fact, the words used to describe positive change continue to have many companies in a tangle.
But while wanting to stay a little below the radar, CMOs are helping many firms to navigate the politicisation of ESG by gaining a broader frame of reference around all of the stakeholders concerned, and are better able to do so if their role is board-level, the piece outlined.
Despite that, we can expect more of a war of words at the sharp end of ESG-related investment and finance, and it will be interesting to see how that transatlantic battleground may set precedents for the (more) even application of cross-sector regulation.
The ESG News Review is written by Steve Earl, a Partner at PR agency BOLDT.