The EU Tries To Extend Its ESG Regulatory Reach To The US

European companies are finding it increasingly hard to compete with their American peers, and an increasing number of CEOs are blaming the problem in part on ESG-related regulations by the EU. Nowhere is the competitive disadvantage more apparent than in the energy space, where U.S. companies like ExxonMobil and Chevron are rewarded with consistently stronger market valuations than European competitors due to an ability to allocate more capital to their core business endeavors.

TotalEnergies CEO Patrick Pouyanne put a spotlight on the issue with public remarks earlier this month, specifically pointing to heavy-handed EU rules like the Corporate Sustainability Due Diligence Directive (CSDDD) as forcing a drain on resources that must be dedicated increasingly to activities that are not accretive to the bottom line. The anti-competitive nature of the CSDDD was echoed in an economic report from the European Central Bank that singles it out as being “a major source of regulatory burden” and dragging down the EU’s economic competitiveness.

Under the CSDDD, EU-based companies must adopt and implement a climate transition plan that demonstrates to regulators that their business models and strategies are aligned with the Paris Agreement. Among many other demands, the plan must lay out:

• time-bound targets in line with the EU’s overarching emissions reduction goals set for 2030 and 2050;

• a description of decarbonization levers the company plans to implement;

• an explanation and quantification of investments and funding supporting the implementation of the transition plan; and

• a detailed description of the role of company management in connection with the plan.

In all, the development of this plan requires the collection and disclosure of more than 1,000 data points by EU-based companies.