Europe still values sustainability. US regulators not so much
At Wednesday’s ceremony to award the Baillie Gifford prize for non-fiction, Peter Singlehurst, a senior partner at the firm that sponsors the award, said: “The literary community must either accept us as they find us or not at all.”
So what? Weeks ahead of Donald Trump’s inauguration, the ceremony was the latest sign of efforts in business to balance pressure from climate activists and the conservative backlash against “woke” capitalism.
Baillie Gifford has been in the crosshairs.
- Richard Flanagan, who won the literary prize this week, challenged the sponsor over its ties with fossil fuels.
- This summer the investment firm cancelled its sponsorship of book festivals under pressure over its oil and gas investments (which make up 2 per cent of its assets under management).
- This month it pulled out of Climate Action 100+, which pushes the biggest emitting companies to act on climate change. Baillie Gifford said its membership had become “contested” and risked distracting from core responsibilities.
Pulled two ways. Businesses that operate globally now need to balance an aggressively libertarian government in the US against European authorities that insist on compliance with green regulation.
Ranjita Rajan of Oxford’s Smith School of Enterprise and the Environment says there’s a growing cultural divide between US and European corporate leadership, with Americans more likely to say net zero will have to take a back seat.
One option is to tough it out, as Baillie Gifford appears to be doing, taking a stern line with activists while maintaining large holdings in Trump ally Elon Musk’s businesses Tesla and Space X.
But there are other options:
- Have it both ways. Vanguard, the asset manager, has offered investors a new ‘wealth-focused’ voting option that focuses on maximising shareholder value “without being influenced by political or social agendas”. A voting option that emphasises environmental, social and governance factors remains on the menu.
- Change the subject. Under the first Trump administration, some clean energy companies thrived by emphasising robust measures such as strengthening the resilience of the grid rather than green talk about cutting emissions.
- Shift to a new base. Earlier this year, Boskalis, a Dutch dredging company, established a new regional headquarters in Abu Dhabi, partly out of concern over draft legislation in the Netherlands that imposes more stringent requirements on companies over human rights and the environment. Other European businesses may follow suit.
Investment might flow away from the US too. If Republicans dilute or repeal the Inflation Reduction Act, investment in renewable generation and storage could stall in the US, going to China or Europe instead. Booming demand for electricity and the falling cost of renewables mean this sector will continue to grow. And red states, which have benefited greatly from the IRA, may not welcome a rollback.
The structure of a business will matter. Most obviously, publicly traded companies face different pressures from privately held ones. Smaller partnerships are more likely to speak with one voice, while larger cross-border firms may divide along geographic lines. Either way…
ESG lives. Escaping demands for greater sustainability may not be as simple as quitting one business location for another.
- It’s global. EU sustainability rules that come into operation next year require companies to make disclosures across their supply chain and their customers, drawing in suppliers and users around the world.
- It’s bottom-up. “In consumer-facing businesses such as fashion there is a strong stakeholder expectation to operate in a more sustainable way, changing consumer behaviour and investor requirements,” says Michael Watson of Pinsent Masons.
It’s also good for business. A global survey for Morgan Stanley suggests that for most companies, sustainability is pursued for financial reasons – as a way of creating value – rather than in compliance with regulation or in response to customer expectations.
Long-term, this suggests a return to responsible business practices.
What’s more… There’s scope for benefit from differentiation. The Guardian’s high-profile decision to quit X suggests that some companies – especially liberal media brands – may seek to thrive in opposition to Trump. X’s rival Bluesky is thriving already.
