Are the wheels falling off Sustainable Growth?
The EU's Omnibus has rolled up: three flagship regulations delayed or watered down. With Trump's assault on climate and DE&I, it's time to ask: are the wheels falling off sustainable growth?
Sustainable business was once the engine of green growth. Today's EU proposal weakens rules on reporting, taxonomies and due diligence - labelling them "red tape" that's bad for competitiveness. Ever since Draghi branded them a "burden", there's been furious lobbying. Many are cheering the changes - just as Trump's arrival has seen some abandon diversity programmes and scrap climate targets.
Trump has shattered the consensus that tackling climate and global inequalities, consumer protections, anti-corruption and a tolerant workforce are good for prosperity. Yesterday's cuts to UK aid followed the Chancellor suggesting growth is more important than net zero. Gone are the days when politicians would say they're not in conflict.
Make no mistake: a dramatic shift in the landscape is underway. The EU proposal enshrines new responsibilities for large corporates - but even the press conference labelled them "very burdensome".
For over a decade, sustainable business was fuelled by a promise of commercial benefits. Companies could cut costs, innovate revenues, enhance reputation and anticipate risks - particularly from regulations on disclosure, due diligence, taxonomies, subsidies or a carbon price. The business case hinged on staying ahead of the competition before it became mandatory.
The EU's sustainable finance plan was launched in 2020 with a promise of "more growth and jobs". That year, Blackrock declared “climate risk is investment risk". But if you’d bought their flagship Clean Energy ETF in 2021, you’d be nursing a 60% loss.
War, inflation and interest rates are partly to blame. But in truth, the investment rationale was always fragile.
The business case is case specific. It works well for specific firms in certain contexts. As the regulatory rollback shows, many responsible practices - like paying decent wages, protecting human rights and adhering to pollution and disclosure laws - cost money. Externalities only hit the bottom line when they are internalised.
The speed limiter is our model of shareholder primacy. We need space for new models, like public benefit corporations, as well as new mindsets, like ethical decision-making.
If the wheels are wobbling, can we tighten the other bolts? Civil society has a critical role in championing transparency, employee voice and shareholder activism. NGOs can create risks through campaigns and direct action - and costs through litigation. Philanthropists can fund the mechanisms and innovations that raise the costs of short-term harm and lower the bill for doing the right thing. As employees, consumers, savers and voters we can each make choices. By shifting the economic system, we must bend the arc of shareholder capitalism towards a sustainable future - whilst awaiting the regulatory repair kit.