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The ESG landscapes in Europe and the US

19 October 2023

Apex assembled a panel of experts from our New York and Amsterdam offices to consider the divergence in ESG regulation between Europe and the United States. Here, we detail the headline differences between the two and the potential for progress.

In the days following the successful Climate Week NYC in September, we invited several of our Environmental, Social, and Governance (“ESG”) experts to come together and discuss the ESG landscapes in Europe and the United States.

The panel on our webinar, The Carbon Catch-up: Comparing ESG landscapes in Europe and the US, considered the climate laws and policies across both continents and discussed how these impacted fund managers and company trends.

In recent years, many countries across the world have begun the process of translating ESG principles into meaningful legislation in a bid to address climate change. Much of this legislation, or proposed legislation, leverages the frameworks provided by both the Task Force on Climate-Related Financial Disclosures (“TCFD”) and the Greenhouse Gas Protocol, which helps nations develop a methodology for carbon accounting.

We have witnessed Europe, and the US take different approaches to carbon reduction, sustainable finance, and corporate sustainability more generally. The EU has already established two sets of rules for fund managers and companies while the US has two in the pipeline.

It is clear that the EU is already ahead in terms of how many climate-related laws and policies it has implemented. In fact, in recent years, climate policy implementation has declined in the States, owing in large part to the Trump administration that shelved many proposed policies and curtailed the effectiveness of the Environmental Protection Agency.

The EU’s Green Deal has three major initiatives to meet the obligations set by the Paris Agreement. These are collectively referred to under the banner of ‘financing the transition’. Two of the three pieces of legislation, the Sustainable Finance Disclosure Regulation (“SFDR”) and EU Taxonomy, apply to financial market participants while the Corporate Sustainability Reporting Directive (“CSRD”) applies to large corporations.

SFDR places a sustainability requirement on financial market participants in both the public and private sectors while the EU taxonomy is a sustainability classification system for economic activities. CSRD requires large and listed companies to report sustainability metrics. The overarching aim of the three policies is to promote sustainability and eliminate greenwashing, the practice of companies making false claims about its environmental impact.

In the US, ESG has been a far more divisive issue than in Europe. This is largely due to political influence and the varying viewpoints and interests of each state, leading to much slower progress at the federal level. The political influence is most acutely illustrated at the state level, where state governments have been enacting their own agendas for ESG, some to support it and others to prohibit it.

Currently, states such as Texas, Florida, and Arizona have either enacted or proposed anti-ESG legislation, while others such as California, New York, and Nevada have gone the opposite direction and implemented (or proposed) ESG policies. It is perhaps worth noting that, at present, the amount of anti-ESG states appear to significantly outweigh those that are more climate positive.

There is room for optimism in the US though. A recent study by the Environmental and Energy Study Institute identified over 1,000 options for carbon reduction within existing or enacted legislation. These include fuel efficiency standards, incorporating renewable gas into transportation and legislation surrounding energy production.

Therefore, the groundwork has been laid in terms of carbon reduction in the US. It is now a case of getting laws and policies passed and enacted, which the Biden administration has appeared more amenable to than his predecessor.

To watch the full webinar on demand and see our expert panel delve deeper into these issues, click on the button below.

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