REDD Insight: ESG is alive and kicking in context of energy independence
- Impact Boards EM
- 6 days ago
- 3 min read
“High energy prices are damaging our ability to compete. We pay 2-3 times more for our energy in our industries in Europe than our competitors in the US and China do,”
– Dan Jorgensen, European Commissioner for Energy and Housing.
The "ESG" label may be on its last legs, but de facto ESG practices in Europe are alive and kicking.
Considering the headlines around the political environment in the US under President Donald Trump, one could be forgiven for assuming that environmental, social, and governance (ESG) initiatives are being pulled back.
In Europe, this is being amplified by news that US investment managers are becoming increasingly influential by managing more funds in the region and winning more mandates from European managers, who are struggling to retain a competitive edge.
But when it comes to energy independence, the recent political environment in the US is also contributing to initiatives in the ESG space. A world of higher tariffs and greater conflict means companies and economies need to protect themselves against commodity price spikes, for example.
One investment adviser suggested that the old ESG is dead, and the acronym should now stand for "Energy, Sustainability and Good Economic activity". “At the company level, we are beginning to realize that we need to separate financial risk, which is important for profits and investor returns and focus on the economic activity which is being financed,” Mike Clark, founder director at Ario Advisory said.
At the same time, while the focus used to be around climate change and emissions, it has become more nuanced around energy mix planning and ensuring it is done affordably, allowing for energy security and sovereignty, said Georgia Hall, ESG & Investment director at Maple-Brown Abbott Global Listed Infrastructure, a major shareholder in several infrastructure-focused listed companies for clients including pension plans.
"We are hearing a lot about a so-called pullback on ESG and much of this is being driven by the political environment in the US,” she said. "But when you actually meet with companies, clients, or at least asset owners, the ESG conversation has never been more apparent or pertinent... A lot of that is driven by energy security and sovereignty needs in conjunction with defense.” The geopolitical instability with the Russia-Ukraine war has made discussions about increasing energy security in the EU more prevalent, with energy commissioner Dan Jorgensen in a 26 February speech saying the region needs “to be independent of fossil fuel from Russia,” as reported.
“In Europe, greater energy independence will only strengthen countries and also improve affordability in the long term because you are eliminating some of the commodity risks and spikes from the import of gas from Russia or in the case of a trade war,” Hall said. Meanwhile, EU regulations are in limbo. This can be a hurdle for investments related to ESG. A new ‘omnibus’ package is being adopted, which aims to cut bureaucracy by simplifying sustainability reporting obligations for the largest companies. At the same time, the Sustainable Finance Disclosure Regulation, which requires financial market participants to disclose ESG factors, is under review.
In addition to debating aspects of the energy mix in the context of energy independence and security, power grid infrastructure is also in desperate need of attention so that electricity can be transferred across regions effectively, Hall added. Regulation is key there.
The REDD Insight is a market comment produced by senior members of the REDD Intelligence newsrooms. The views expressed in this report are solely those of the author(s) and are not necessarily shared or endorsed by REDD.