Is Europe poised to reassess the environmental, social, and governance (ESG) movement? An American business group in Europe, representing major multinational corporations, claims the European Union’s ESG rules make trading with the 27-member union difficult.
The American Chamber of Commerce (AmCham) based in the European Union faults three ESG regulations—the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the Taxonomy Regulation. Some notable AmCham members include 3M, Amazon, Apple, Chevron, Citibank, Exxon Mobil, and the Walt Disney Company.
AmCham specifically singled out the CSRD and the CSDDD. The former requires companies doing business in the EU to compile hundreds of ESG data points, while the latter says companies will be liable for alleged ESG violations that occur across their supply chain.
AmCham, with 84% of its members doing business in the EU, says ESG rules are “a primary barrier” to trade. Europe maintains 80% of the world’s ESG fund assets.
“The EU should immediately stop the clock on the transposition of the CSDDD and delay the implementation of the CSRD,” AmCham said in a statement.
Maria Luis Albuquerque, EU’s new commissioner for financial services, said ESG rules need to be tweaked and not deregulated. The EU’s strategy, she said, is about “adjusting the pace” while “maintaining the anchor.”
AmCham’s criticism of ESG, however, fell short of abandoning the flawed investment strategy. The group added, “At the same time, businesses need to be sure that their substantial compliance investments and commitments to transforming their business models haven’t been made in vain.”
AmCham, as of this writing, remains committed to the Paris Climate Agreement to achieve net-zero carbon emissions by 2050. The EU is also bound to the Green Deal that legally obliges the 27-member bloc to achieve decarbonization by 2050. Despite their climate commitments, the EU has pledged to import more American liquified natural gas (LNG) to wean themselves off of Russian oil and gas.
ESG and its derivatives—investment practices, reporting, carbon offsets, and political posturing—have come under scrutiny here in the U.S. and even in Europe.
ESG funds consistently report a low return on investment compared to non-ESG funds. In the most recent Morningstar report on 2024 Quarter 4 global sustainable fund flows, inflows into ESG (sustainable) funds “shrank in half” compared to 2023—well below $100 billion. Sustainable funds reached their peak in 2021 at $645 billion, but have majorly declined since due to U.S.-led backlash to ESG.
Recently, Amazon founder Jeff Bezos’ $10 billion Earth Fund suspended its relationship with the Science-Based Targets Initiative (SBTi). As I noted here at IWF, SBTi was recently mired in controversy last spring for its controversial carbon credit plan:
The Science-Based Targets Initiative (SBTi), a climate action organization that sets targets for corporations to achieve carbon neutrality by 2050, is in damage control for embracing, then walking back on, a carbon credit plan. SBTi has acted as the de facto carbon credit verification organization for corporate climate plans.
A document from the company, however, revealed carbon offsetting practices encouraging the sale of carbon credits “are ineffective in delivering emissions reductions.” Despite this push, the carbon credit market is only valued at $2 billion—nowhere near the projected goal of $250 billion by 2050. This poor return led forecasters to downgrade the carbon credit market.
It’s impossible and burdensome to demand companies specializing in carbon-intensive goods and services to track upstream and downstream emissions. That’s why the Securities and Exchange Commission (SEC) is likely to repeal its “Enhanced and Standardization of Climate-Related Disclosures for Investors” scope 3 emissions rule during Trump’s second term in office. Biden’s SEC voluntarily “stayed” the final rule last April.
Major banks are also scaling down their commitment to net-zero financial commitments, with the Net-Zero Asset Managers Initiative suspending its activities and financial institutions exiting with the Net-Zero Banking Alliance.
If ESG rules imperil trade relations between the EU and the U.S., Brussels will be forced to reassess regulations.
To learn about ESG backlash, go HERE.