EU Reaches Peak Sustainability?

The EU has long been the leading edge of sustainability policy - though some might quibble with their approach. But in recent months, European ESG policy has encountered growing opposition and may have just reached its peak.

This week, one of the EU’s most comprehensive sustainability regulations, The Corporate Sustainability Due Diligence Directive (CSDDD), failed to pass after several attempts. The policy would require companies to identify environmental and social issues in their value chains and take steps to improve them.

A last-minute French proposal to change the threshold from companies with over 500 employees to over 5,000 employees would have reduced the burden by more than 80% but still did not sway the vote. Germany, Italy, and 11 other EU member states abstained, and one voted no, effectively killing the policy.

Campaigners called the lack of support “deplorable,” Uku Lillev?li , of the WWF’s European Policy Office said, “EU governments’ last-minute sabotaging and postponement of this new rulebook not only disregards the lives, communities, and ecosystems affected by destructive business practices but also deals a blow to the EU’s credibility as a legislator.”

The current EU presidency (Belgium) has two weeks to rescue the policy, after which it cannot be resuscitated until after the June election and will likely die of natural causes. The Belgian presidency said, “We now have to consider the state of play and will see if it’s possible to address the concerns put forward by member states, in consultation with the European Parliament.”

A watered-down nature restoration law did pass despite farmer protests and a last-minute attempt from right-wingers to sink it. The rule aims to restore at least 20% of Europe’s land and air by 2030. However, this rule still needs to go through a round of voting in the EU Council, where the CSDDD failed.

The failure of the CSDDD and the softening of the nature restoration law point to regulatory fatigue setting in amongst Europeans. The farmer protests, which raged in Brussels this week and tied up traffic in Paris in past weeks, add to concerns that the upcoming June elections in the EU will slow down or turn back the EU’s Green Deal.?

SEC Climate Rule to be Finalized March 6th

Last week, we shared that March would finally mark the end of the two-year wait for the SEC’s climate disclosure rule. Now we have a definite date. March 6th will be the day the SEC’s five commissioners vote on (and likely approve by a 3-2 vote) the final rule. The details of the final version will be made public on Wednesday after the vote, which you will be able to watch live here at 9:45 ET.

Reputable sources have indicated that the final rule will not require Scope 3 reporting, and Scope 1 and 2 emissions disclosure will be subject to a financial materiality threshold. SEC Chair Gary Gensler has made statements indicating that the final rule will be hardened against the inevitable legal challenges. Travis Cushman , a representative of the Farm Bureau (one of the groups that threatened litigation), said they “would have no opposition to a final rule that removes Scope 3.”

Climate Action 100+ Fights Back

Since last week’s announcement that multiple financial institutions left Climate Action 100+ after GOP lawmakers alleged the group was “collusive,” the group has clapped back. In a statement on Monday, they said the climate crisis poses “an ever-increasing financial risk to long-term shareholder value and the broader economy, and we can’t afford to take a step back now.”

One of the group's founders, Betty Yee , pointed out that the group still has over 700 members who are all committed to their goals. Yee said, “There is clear evidence of demonstrable progress that we all can be proud of.”

In support of Climate Action 100+, US climate envoy John Kerry said asset managers are “turning away from science” and are “on the wrong side of history” for scaling back climate action.?

The Oracle of Omaha’s Climate Contradictions

Annual letters from the world’s largest moneymen have generated buzz for years. BlackRock CEO Larry Fink’s annual letters were required reading for the ESG crowd before they peaked in 2021 when Mr. Fink and his company were targeted by the anti-woke campaign. This week, Warren Buffet raised eyebrows with his annual letter, which was both bullish for oil and gas and worried about the threat of climate risks on utilities.?

The climate contradictions ran through his letter, revealing a disconnect between profiting from oil and gas while worrying about climate risks affecting his portfolio. For example, Berkshire Energy's PacifiCorp faces tens of billions of dollars in civil liability for its alleged role in multiple wildfires in California and Oregon. Dan Bakal of Ceres said, “There could be some very considerable disconnects on the level of risk they (Berkshire Hathaway) face.”

Singapore’s Mandatory Climate Reporting Rule

Singapore will begin mandatory ISSB-aligned climate reporting for listed and large non-listed companies starting in 2025.?

The rules will be phased in, beginning with Scope 1 and 2 reporting for listed companies in 2025 and Scope 3 the following year. Large non-listed companies, defined as those with at least $1 billion in revenue and $500 million in assets, will have to start Scope 1 and 2 reporting in 2027 and Scope 3 reporting in 2029.?

A Worrying Sea Change

Climate scientists are deeply concerned about increasing heat in the oceans. In both the Northern and Southern hemispheres, ocean temperatures have been breaking records by large margins for over a year. Scientists are bewildered by how ocean water can be so hot. Marine scientist Rob Larter said, “It’s quite scary, partly because I’m not hearing any scientists that have a convincing explanation of why it is we’ve got such a departure.”

The knock-on effects of ocean heating include reducing sea ice, slowing ocean circulation, and more severe hurricanes - all of which have massive impacts. New research also revealed the implications of warming oceans for marine life, like whales. For example, the 2016 ocean heatwave reduced humpback whale populations by as much as 20%.?

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Other Notable News:

• The cost of “fast fashion” brands like Shein on the environment is huge. Now, as we move into a new era of technology-driven “instant fashion,” the environmental costs could increase again. Check out the implications of instant fashion and what it could mean for sustainability in this HBR deep dive from Ken Pucker .?
• New research reveals the power of carbon accounting assurance. The study found that companies disclosing emissions assured by a third party reported 10% more emissions than those that did not. Assured companies also reduced emissions by an average of 3.3%, while non-assured had no change.
• The second-largest wildfire in Texas history is currently ripping through its panhandle. The 500,000-acre fire has already caused damage to businesses and residential properties and is still burning.?
• A new global treaty, including cities like Edinburgh, Los Angeles, and Amsterdam, aims to encourage citizens to choose less emissions-intensive foods and “eat more veggies.”
• In Chicago, it's summer in February. Temperatures reached up to the mid-70s in Chicago this week, during a time that is usually filled with ice and snow.?
• Record investment and installation of wind farms in the EU in 2023 have raised optimism about the bloc meeting its clean energy goals.
• Farmer protests against climate regulations have now moved across the channel, with Welsh farmers demonstrating against policies they say will wreck the industry.

Notable Podcasts:?

• The most recent episode of the Harvard Business Reviews podcast, The Climate Rising, was the first episode in their adaptation series. Host Mike Toffel sits down with Spencer Glendon and Alison Smart from the climate adaptation company Probable Futures. They discuss educating decision-makers to better understand how their organizations will experience climate change.?
• In this most recent episode of the Outrage and Optimism podcast, host Christiana Figueres , Tom Rivett-Carnac , and Paul Dickinson are joined by climate scientist Michael Mann , fresh off of his precedent-setting defamation case. As well as his well-publicized case, they discuss the recent news that the last 12 months were above 1.5 and the implications of that.