The dilemma of a duality between economic benefits and responsible activities in the context of climate change is becoming more and more visible in the new European’s Union political playground. The position of progressive and moral advocate for climate change programs enforcement begins to smell deceptively and forged. EU with its brave guidelines, helping to cut 9-headed carbon emission dragon, didn’t notice when managed to grow up its own cunning and pragmatic dragon head.
Just recently EU presented a “green” classification system called taxonomy. It’s suited to list and to assess on environmentally sustainable activities and business entities. Implementation of public reporting in compliance to a taxonomy will have a big footprint in corporate level, by providing non-financial statements, as well will be integrated into the agenda of financial market participants, by disclosing compositions of financial products in the taxonomy frame, and EU member states, by setting public standards and labels for green bonds and investments.
Such a wide range of interests of new and green EU regulations makes this accord an important tool for setting up future guidelines for sustainable business activities in all continent. It will influence not only the activities and entities “labeling”, though mostly importantly the distribution of billions of EU funding, trillions worth of financial industry activities and billions of separate governments investments. The taxonomy will conduct and new ways of all foreign direct investment in EU and outside EU. Material and non-material impact of the document will play a very important role now and even greater in the future.
However many climate experts and organizations walked away from the discussions with the European Commission because of the financial compromises the Commission is implementing to make the taxonomy signed in all EU states. NGOs as Transport&Environment, WWF European Policy Office, BirdLife Europe and Central Asia, consumers group BEUC, eco-standards advocates ECOS are demanding to overlook EU new green standard. Luca Bonaccorsi, director of sustainable finance at Transport&Environment, said: “The taxonomy law was supposed to be the gold standard of sustainable finance. But the result has been the greenwashing of dirty cargo ships, gas buses, and logging and burning trees. Environmentalists will not come back to the process until the Commission comes back to science.”
Deep shortcomings are related with a production of electricity. The taxonomy is defining that biomass, basically trees, natural gas, one of the mostly used fossil fuel, and nuclear power are sustainable resources for power planets and for any type of goods manufacturer. Moreover, manufacturing of plastic in primary forms or public transport, undependable on fuel selection, are also assigned to the list of climate change friendly activities.
It’s hard to tell why this situation is so poorly escalated. Seems like EU politicians are more afraid of admitting a wrong doing than acknowledging the reality of dependency on power and plastic as it is. It’s convenient to try to tackle the only measure of CO2 instead of the whole problem with a really high level of complexity. Consensus between all 27 members of EU can be reached just with a compromising approach in general, however when the compromise breaches scientific definitions, we probably shouldn’t aim to preach it as a new age testament and make it a tool for a general judgment.
Current trend of “green” business is booming. Including financing opportunities, customers attitude, favorable publicity and potential business growth. However biggest parts of the compliance are voluntary and sometimes are deeply fragmentary and very pragmatic. As for example, most of the banks perfectly fits together issuance of green bonds together with oil drilling or gas pipelines financing. Power plants operators with the joy are adapting facilities for the natural gas fuel, what is now in EU called – green energy.
Along with political swift to sustainability comes an important regulatory area for sustainable corporate activities – corporate ESG rankings. There are many ESG ratings providers around the globe such as MCSI, Sustainalytics, FTSERussell, S&P Global and many others. Nowadays it’s the business where every rating agency and not only is trying to have a footprint as it’s a totally new area of income and could be a question of improving reputation.
With an ESG assessment one saying comes to my mind: the devil is in the details. ESG combines environmental, social and governance areas of the business. Valuation criteria list is very extended, covering all possible and tiny areas of the business model. However, giving the weight to so many aspects of the business operations might eventually underweight essential ones.
Taking one example from a widely used Sustainalytics.com ESG rating we might be surprised. The most known shipping company of the world A.P. Moller-Maersk, forasmuch as ships are the most polluting transportation carriers, has roughly the same ESG risk rating as most of pharmaceutical companies. It’s obvious that paradoxical situations, when comparing apples with oranges, occur as well with a corporate assessment of the climate change.
Even though, ESG rating combines areas of practices related with environment, social and corporate governance of the companies. The example clearly indicates the power of compensation by the broader view. Adding more components to ESG valuation, we can end up with very favorable results even for biggest transportation polluters of the planet.
When real financial or political needs exist, we can be sure that compromises will be found and avoidance miracles will happen. We have seen an unprecedented COVID-19 epidemic crisis, that made the economic engine of all planet to stop for a while. Might be that we will face a climate caused mass crisis, forcing to stop all the humanity, and maybe just then we will make the climate change agenda uncompromising.