Nathan Griffiths: Politics and sustainability

Nathan Griffiths: Politics and sustainability

Rules and Legislation Politics ESG
Nathan Griffiths (foto archief EY) 980x600.jpg

By Nathan Griffiths, Sustainable Finance, EY Netherlands

2024 is the year many countries will go to the ballot box in an already heavily polarized world where nuance has no voice. Perhaps even the Netherlands will go back to the polls.

Across the Western world, at the forefront of the debate, are many of the same issues: immigration, defence, the cost-of-living crisis, and, increasingly, the sustainability agenda, which is set to be heavily influenced by the June European Parliamentary elections.

Europe’s shift to the right

The elections in June are expected to deliver a significant shift to the right, with a hard right group potentially becoming the largest bloc. This will almost certainly see a slowdown in the sustainable regulatory agenda in Europe – if not an outright halt to new EU level regulations in the coming period.

We can already see the impact of the changing political landscape. On March 15, a heavily watered-down Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies to ensure their global suppliers are operating sustainably, was finally approved by the European Council.

The sense of relief from proponents was palpable, despite the significant reduction in scope. However, the Directive still needs to be passed by the European Parliament before the close of the final plenary session of April 22-25. Failure to do so will almost certainly kill the CSDDD (for now), as it will have little chance of being approved after the elections, should they result in a clear right wing and populist shift.

The communication vacuum

In a frenzy of activity during the past five years, European legislators have been focused on the introduction of new regulations, primarily aimed at sustainability disclosures. The underlying presumption has been that there is a huge unmet demand for sustainable products and that consumers will choose the sustainable option when given full information. But along the way policymakers have neglected to sell the story convincingly.

Without explaining the ‘why’, they have left a vacuum that is being seized upon by a populist right wing which is gaining increasing traction by presenting sustainability as a cost imposed on European citizens by an out-of-touch EU elite. This message fits all-too comfortably with the inherent strengths of populist politics: simplistic messaging (sustainability is a cost), exploitation of fear (it will cost jobs and raise costs), and nationalist appeal (sustainability regulations will undermine our sovereignty and traditional way of life and benefit our competitors).

We cannot say that this has come out of the blue. In the US, Republicans have placed an ‘anti-ESG’ message at the centre of their political strategy for the past two years. This has already had an impact in Europe, as financial companies have pulled out of collaborative initiatives because of the threat of legal action.

European policymakers appear to have assumed that public support for sustainability goals was too deeply embedded for this trend to transfer across the Atlantic. Yet in the global information age it was at best naïve to not recognize that the sentiment would extend to European politics. There is an increasing need to bridge the gap by communicating clearly ‘why’ sustainability is important for Europe’s future.

The corporate sector needs help

Corporations understand that the sustainability agenda only works if costs are not simply imposed on their customers. The financial sector is acutely aware of their unspoken social contract and the need for a just transition. Insurance companies, for instance, could accelerate their own climate targets by reducing the number of diesel cars they insure. Yet they understand that only the wealthiest section of society can currently afford electric vehicles and by raising the cost of insuring the most polluting cars they will disproportionately impact those who can least afford higher costs.

Across Europe, the corporate sector is investing heavily to meet regulatory requirements and create new products and services to meet sustainability targets which do not penalize their customers. It is not their responsibility to ensure that the EU’s sustainability goals resonate with the growing number of people who are sceptical. It is time for policymakers to realize that more work needs to be done to capture hearts and minds.

For many people it may not be clear that urgent action is needed today to prevent global temperatures from rising beyond a certain point in 2050. Or why the costs of inaction should matter so much to them. Or whether it is simply an additional cost to be borne without any financial benefits. If policymakers fail to explain, then there are many others who will fill the information gap with their own versions. And they may prove to be successful.