Time to get real on ESG

It did not really come as a shock to this editor that BusinessEurope, the confederation of European business associations, has called on the EU to calm down with its ever-rising raft of rules and regulations, particularly in the field of ESG.

As BusinessEurope makes clear, many European businesses, notably in the SME and middle market, are currently struggling to survive let alone compete on the global stage because of the economic and financial fall-out from the war in Ukraine.

Just as the horror of Covid-19 was abating and the extreme supply chain problems faced during the pandemic appeared to be retreating, Russia invaded Ukraine and presented the global economy with another massive shock.

Europe, as a collection of national states, finds it more difficult than its US and China rivals to rapidly respond to major crises simply because consensus has to be thrashed out among a group of left, centre and right-wing governments with sharply differing opinions.

In the currently highly polarised political environment in Europe and the US, exacerbated by strains brought by the pandemic and then the war, consensus and decisive action is even more difficult to find.

It should come as no surprise then that European businesses are becoming highly frustrated by the EU’s apparent obsession with rules and regulations at a time of economic crisis on a global scale.

Behind closed doors it is clear that businesses are becoming increasingly frustrated by the raft of ESG-related rules and regulations that in Europe, at least, are well-intended but far too often unclear, contradictory and overlapping. Some argue they simply add risk and cost without really achieving any meaningful results for the environment or downtrodden workers/slave labour.

It would be madness to suggest that the effort to tackle climate change or modern slavery should be shelved because of the current crisis. All risk managers know that as soon as the conflict in Ukraine is sorted out another black swan will rear its ugly head, the SVB banking crisis being a case in point.

The effort must be continued and indeed accelerated, but potentially not through a mind-bogglingly confusing patchwork of rules and regulations enacted on a national and regional basis.

As BusinessEurope argues, the EU needs to take a breather, step back and take a long look at its coming swathe of directives and regulations to make sure they achieve their laudable goals efficiently and proportionally.

As with our beloved global programmes, this whole area needs consistency, clarity and certainty to achieve progress and compliance.

It needs globally agreed definitions and taxonomy so that corporations, their investors, their customers and their suppliers all agree on what needs to be done and how it needs to be communicated.

The risk management and insurance community has a leading role to play, hopefully in partnership, in this fast-developing space.

ESG presents another opportunity for risk managers to prove their worth and climb the corporate ladder. Maybe this should be one of the central aims of the International Federation of Insurance & Risk Management Associations (Ifrima) under the coming leadership of Franck Baron. Deliver a global voice to a big global conundrum. A big ask but surely worth a stab.

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