{"id":10237,"date":"2023-03-07T10:19:59","date_gmt":"2023-03-07T10:19:59","guid":{"rendered":"https:\/\/fintech.global\/esgfintech100\/?p=10237"},"modified":"2023-03-07T10:19:59","modified_gmt":"2023-03-07T10:19:59","slug":"is-esg-the-next-big-legislative-battleground","status":"publish","type":"post","link":"https:\/\/fintech.global\/esgfintech100\/is-esg-the-next-big-legislative-battleground\/","title":{"rendered":"Is ESG the next big legislative battleground?"},"content":{"rendered":"

Despite coming into the corporate lexicon in 2004, ESG remained fairly invisible for over a decade. With the fight for the climate heating up, ESG has become a huge part of the climate change discussion.<\/strong><\/p>\n

\u201cESG has become a huge industry\u201d, said\u00a0Regnology<\/a>\u00a0SVP of product management Bodo Windm\u00f6ller. \u201cConsidering the rapid growth of ESG-labelled funds launched by asset managers in the last 3-5 years, national financial regulators have begun to assess a range of practices related to forms of sustainable finance, focusing primarily on ESG taxonomies, approaches and marketing to investors.\u201d<\/p>\n

According to Investopedia, Environmental, Social, and Governance (ESG) investing refers to a set of standards for a company\u2019s behaviour used by socially conscious investors to screen potential investments. While many companies have used ESG to make their businesses more sustainable in all of these areas, the biggest pushback on ESG has come from politicians.<\/p>\n

Florida Governor Ron DeSantis recently made a big splash when he barred fund managers for state and local entities in the state from\u00a0considering ESG factors<\/a>\u00a0in investment decisions. Meanwhile, 25 US states were\u00a0recently detailed<\/a>\u00a0to be planning to ban ESG in retirement plans.<\/p>\n

\u201cESG is one policy that appears to follow political party lines closely,\u201d said Cathy Vasilev, co-founder and COO of\u00a0Red Oak Compliance Solutions<\/a>. \u201cExpectations indicate that several Republican state attorney generals and Republicans in Congress will attack the proposed ESG legislation.<\/p>\n

\u201cOne of their biggest concerns is that ESG is part of a more significant Democratic effort to prioritise climate change and other societal issues to the detriment of the fossil-fuel industry. I expect the fossil fuel industry will be generous in backing any Republican candidate willing to fight the ESG initiatives. We have yet to hear the last of this, and I wonder if the SEC will be able to effectively roll this out in 2023.\u201d<\/p>\n

Vasilev noted that the SEC is funded by Congress, and several Republicans in Congress have made ESG a top issue. \u201cIn fact, the House Financial Services Committee has already made it clear that they plan to call the SEC chairman Gary Gensler to testify on the agency\u2019s ESG initiatives\u201d.<\/p>\n

Representative Beth Van Duyne (R-TX) has recently proposed a bill that would stop the SEC from following through on its pending climate-disclosure rule, preventing the agency from using its authority under the 1934 Securities Exchange Act. \u2018Without congressional support, the SEC will have an uphill battle to pass the ESG initiatives,\u2019 concluded Vasilev.<\/p>\n

Meanwhile,\u00a0Arctic Intelligence<\/a>\u00a0CEO Anthony Quinn remarked that pushback on regulatory change from companies and politicians is nothing new \u2013 and should not understate the importance of ESG.<\/p>\n

He explained, \u201cThere is always going to be pushback from companies and politicians (especially those that are paid lobbyists for companies pushing back) on regulatory change but it is hard to see this having a huge legislative reaction simply because ESG initiatives are designed to reduce the harm individuals and organisations in the public and private sector may cause to the environment.<\/p>\n

\u201cIt is hard to argue against why holding people more accountable for environmental or social impacts caused by their activities makes for bad governance. \u00a0ESG is hugely important to the human race and one companies, politicians and individuals should openly embrace\u201d.<\/p>\n

The area of ESG has developed substantially since its earlier days, with Erik Becker \u2013 product director at Regnology \u2013 explaining that regulators and legislators have made progress to strengthen sustainable finance guidance and practice in a number of ways.<\/p>\n

Some of these ways include taxonomies to clarify meaning, disclosure of material aspects in economic and social design as well as governance, ESG fund product disclosures and ESG disclosures by rating agencies and benchmarks.<\/p>\n

According to Becker, ESG has always been a fuzzy topic where a lot of different goals have been subsumed under. A part of this fuzziness is driven by the fact the world of ESG reporting is complex \u2013 there is over 600 ESG frameworks and standards globally currently.<\/p>\n

The best-known ESG standards worldwide are the Global Reporting Initative, the International Sustainability Standards Board and the Task Force on Climate-Related Financial Disclosures.<\/p>\n

Becker said, \u201cPolicy development across Europe, US and Japan offer some examples of distinct ways in which steps are being considered to make ESG practices more transparency, consistent and resilient.<\/p>\n

\u201cBut even if these are (for the most part) consistent with the global ESG standards mentioned, there are still differences respectively possible divergences that will make it difficult to compare companies across jurisdictions in the future.\u201d<\/p>\n

One example, Becker claims, is the understand of materiality. \u201cWhile the ISSB uses the so-called financial materiality as a basis, the European Financial Reporting Advisory Group (EFRAG) defines the double materiality, i.e., the effect of companies on society and the effect of society on companies in the Corporate Sustainability Reporting Directive (CSRD).<\/p>\n

\u201cThis approach was already laid out at the European level in the non-binding guidelines for the NFRD (Non-Financial Reporting Directive) and has now been defined in detail by EFRAG. The SEC (Securities and Exchange Commission) follows the ISSB guidelines.\u201d<\/p>\n

ESG divergence<\/strong><\/p>\n

With all the ongoing controversy seen in the ESG space, what will this mean long term for the industry?<\/p>\n

Both Windm\u00f6ller and Becker explained, \u2018Given the vast and diverse nature of the topic it is of course natural that different political interest across the world pursue differing agendas and of course also question the overall endeavor.<\/p>\n

\u201cWe at Regnology assume that this will however not mean a de-regulation of the topic but rather a maturing of the different regulations and most probably not a harmonization of the ESG regulation but rather further divergence.\u201d<\/p>\n

According to the two, there is no signals in the EU for a major change in direction, with it seeming more like European regulators are trying to fashion like GDPR set ESG standards that will have implications for international firms even beyond their operations in Europe.<\/p>\n

Becker and Windm\u00f6ller concluded, \u201cOverall, the likely divergence in policies across the world will make it harder for global companies to set their own \u201cESG-agenda\u201d while complying with the various local regulations. It remains to be seen how far the European initiatives will force a convergence and a de-facto standard for multinationals.\u201d<\/p>\n

This story was originally published on FinTech Global<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Despite coming into the corporate lexicon in 2004, ESG remained fairly invisible for over a decade. With the fight for the climate heating up, ESG has become a huge part of the climate change discussion. \u201cESG has become a huge industry\u201d, said\u00a0Regnology\u00a0SVP of product management Bodo Windm\u00f6ller. \u201cConsidering the rapid growth of ESG-labelled funds launched […]<\/p>\n","protected":false},"author":5,"featured_media":10238,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"yoast_head":"\nIs ESG the next big legislative battleground? - ESGFinTech100<\/title>\n<meta name=\"description\" content=\"Despite coming into the corporate lexicon in 2004, ESG remained fairly invisible for over a decade. 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