Dear Readers,
“Environmental, Social and Governance” (“ESG”) is a broad term used for policies to promote social and environmental goals. While initially dismissed as a buzzword, such policies are increasingly being adopted or promoted by legislation, NGOs, and in binding commitments by private entities themselves. Due to their broad-ranging goals, such policies inevitably overlap with other regulatory priorities, including notably the application of antitrust rules. Private companies have long had to navigate the tension between their own economic incentives, legal requirements imposed by governments, and the expectations of their own consumers. Once seen as corporate window-dressing, ESG is now a potent addition to this mix.
The scope for tension between ESG and antitrust rules is an obvious risk, particularly where cooperation between firms to achieve goals such as “net zero” carbon emissions may involve the sharing of sensitive information, coordination on targets, or more. In addition to these new risks, firms are increasingly subject to ESG reporting requirements under EU and U.S. SEC rules, among others. The contributions to this Chronicle address these and various other issues raised by ESG.
Focusing on the much vaunted goal to reach “Net Zero” climate goals, Justin Stewart-Teitelbaum, Martin McElwee, Sarah Jensen, Justin Chen & Donna Faye Imadi open with a discussion of different approaches to spur innovative technologies to achieve that goal. Despite some level of public consensus about the need to act on climate change and other environmental and social issues, there is ongoing debate on how antitrust rules should deal with competitor collaborations to promote ESG initiatives. The authors observe divergent approaches from antitrust authorities across the globe in the face of divided public opinion and political polarization. The presents a brief overview of the current treatment of ESG collaborations under antitrust rules in the EU, UK, and the U.S. and suggests possible approaches for policymakers and regulators.
Turning to the EU specifically, Michael Mencher & Emma Bichet discuss the Corporate Sustainability Reporting Directive (“CSRD”), passed this year. The CSRD will require thousands of companies, both inside and outside the EU, to report on their sustainability credentials. As the authors note, the CSRD attracted far less controversy than its U.S. counterpart, the proposed SEC. climate rules. This is surprising given that the CSRD is far more expansive in scope. The authors explain who will need to comply with the CSRD, what it requires, and contrast it with the upcoming U.S. climate reporting initiatives. The authors conclude that the EU rules are likely to have a significantly greater impact on market practice than their SEC equivalents.
In a similar vein, Angela Lucas & Maria Folque discuss other aspects of the EU legal framework relevant to ESG. In particular, they discuss the EU’s Corporate Sustainability Reporting Directive (“CSRD”), which is a central piece in the growing set of regulations to operationalise the “European Green Deal.” They also discuss the fundamental role of finance as a driver for sustainability, which is why the EU enacted the Sustainable Finance Disclosure Regulation (“SFDR”). In short, the authors underline that companies should take a holistic approach to this novel legal framework to effectively tackle and manage their ESG risks while making the best of its opportunities.
Christian Ritz, Benedikt Weiß & Tim Büttner zero in on the interplay between ESG and competition law. This interaction poses significant legal, economic, and public policy questions that make both enforcement and compliance a true challenge. Therefore, companies, enforcers and legislators alike are turning their attention towards these issues. But what exactly are these challenges and how can the somewhat conflicting interests of ESG and competition law be aligned? This article sheds some light on these issues and points out what to look out for in times where compliance with ESG and competition law has become particularly challenging.
Finally, from an investment perspective, Cary Krosinsky & Sahil Mulji discuss the potential impact of ESG policies and laws for investors seeking to maximize returns. In the authors’ view, despite uncertainties on the market, opportunities nonetheless exist for investors to target both financial gains and sustainability and impact improvement. Investors ought to fully consider sustainability issues across all of their asset classes, so that these become embedded into their financial decision making. Based on their review of available data, the outperformance of investments in sustainable businesses suggests that this strategy is sustainable.
As always, many thanks to our great panel of authors.
Sincerely,
CPI Team
