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The ESG Review: EU’s ESG regulatory stance points to growing US gap

Any chance that the European Union would broadly soften its stance on ESG regulation - particularly around investment - was scotched this week by a clear signal that sustained corporate transformation was not an option.

In a thunderous interview with Bloomberg, EU Financial Services Commissioner Mairead McGuinness said that companies which don’t change have no future in the bloc.

The Commission has already put forward an extensive sustainable finance package that will seek to regulate ESG-related investment through moves that would force far greater transparency by businesses and effectively hamstring them for not delivering change.

Last month, the body added more aspects to the applicable EU Taxonomy and proposed new, tighter rules for ESG ratings providers.

As it put it, the package “aims also to make the sustainable finance framework easier to use, thereby continuing to contribute effectively to the European Green Deal objectives.”

The Commissioner, who the Irish Times pointed out is in the throes of seeking re-election for a second term, gave her sharpest rebuke yet to “laggard” companies not committed to ESG-led change and that have essentially taken a fast-and-loose approach to investment in lieu of firmer rules.

It sets a very different tone to the loud noises that have come from the US market in recent weeks, with the head of BlackRock declaring the term ESG as no longer fit-for-purpose and an ongoing, severe right-wing backlash over so-called ‘woke capitalism’.

Once Brussels returns from its summer break, we can only expect the heat to continue to increase, and the gulf too.

As another Irish Times story put it this week, there may be few signs that companies are climbing down from ESG commitments, but equally those with US interests and investors are having to keep a close eye on the toxic battle there.

Many firms are choosing their words even more carefully, the piece said, with references to “sustainability” and “diversity, equity and inclusion” down sharply.

With pressure mounting from regulators, politicians of all colours and shareholders, the way ESG credentials and change are communicated will be even more under the microscope.

The ESG News Review is taking a summer break and will return in a few weeks.

The ESG News Review is written by Steve Earl, a Partner at BOLDT.

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