Welcome to The Dispatch, a weekly look at monetary and fiscal climate issues.
The US is threatening Europe again, this time over its green reporting rules.
While the EU’s climate reporting rules are nothing new, and have, in fact, been drastically watered down, that didn’t stop the US ambassador to the EU, Andrew Puzder, from going on the offensive.
Although there had been some “positive” changes to the bloc’s climate reporting rules, the EU had “failed to fully address US concerns,” he wrote, adding it “will take any actions necessary to address unreasonable burdens on US commerce”.
“It’s time for the EU to deliver,” he added on X, referencing a trade agreement the EU made with the US that he says ensured the climate reporting rules "do not pose undue restrictions on transatlantic trade."
The two EU directives in question — the corporate sustainability due diligence directive (CSDDD) and corporate sustainability reporting directive (CSRD) — require large companies operating in the EU to report emissions data and address any human rights or environmental harms from their operations.
While the scope has been reduced to just the largest companies that operate or do business in the EU, it has not sheltered US companies from having to report if they conduct business in the bloc, which is what the US wants.
Europeans aren’t impressed.
“There is really no reason why US companies should receive special treatment compared with other non-EU nations,” Andreas Rasche, a professor at Copenhagen Business School, wrote.
A European Commission spokesperson told Politico that while it was willing to cooperate with the US to increase trade, it would not change its regulations due to US pressure.
“We have been very clear and consistent on the fact that neither our rules framework nor our regulatory autonomy are up for negotiation,” the spokesperson said.
The timing of the renewed pressure wasn’t out of the blue. It was also the deadline for comments on the commission's CSDDD implementation guidelines.
What happens now? The commission will begin to work on the practical guidance, which is how companies will actually have to implement the CSDDD.
Meanwhile, the sustainability rules that back up the CSRD — the European sustainability reporting standards (ESRS) — are also up for consultation for non-EU companies.
As GCB correspondent Claudia De Meulemeester reported, the regulatory body in charge of these rules has warned that the amended changes do not create a level playing field between EU entities and their international peers, as it significantly reduces the reporting required by non-EU companies.
Something I am sure Andrew Puzder would be thrilled to hear.
Water availability in the UK could soon become a national security issue, experts have warned, as the country faces increased water stress, from flooding to drought. And climate change is only making it worse. Annual flood damage already costs the UK economy £3.3bn per year, while water scarcity currently causes direct economic losses of roughly £3.8bn annually.
The EU has decided to step back from a joint global taxonomy initiative with Singapore and China, saying there is little evidence of demand and it requires a lot of resources. The move marks a clear retreat by Brussels to improve interoperability between major markets.
Canada is in a big debate about whether or not to include oil and gas projects in a proposed sustainable finance taxonomy. While the taxonomy planning council says its needed to channel money into emissions cuts in high-emitting sectors, critics say it undermines the taxonomy and risks extending oil and gas infrastructure.
In our latest roundup, UK’s Nest pension fund wants to understand climate tipping points, the African Development Bank warns a “super El Niño” could cost affected African nations up to US$20bn, while Australia begins to explore expanding its green taxonomy to include climate adaptation.
“Insurers and governments will need to work out how they can continue to insure increasingly large areas, with many communities and businesses at risk.”
Ben Carey-Evans, senior insurance analyst at GlobalData, on the mounting pressure from climate change on the insurance industry, as insurers grapple with how to absorb losses from the summer’s wildfires.
Simon Nixon writes that the devastating wildfires in Europe this summer should be a wakeup call for investors to rethink their recent scepticism of ESG investing. - The Financial Times
Can a river be its own legal entity? A group of activists is trying to get the Loire legal status to protect it from environmental degradation. - Mediapart
The potential climate benefits from AI use could actually be outweighed by its boost in fossil fuels, a new study finds. - The Guardian
The Swiss government has rejected calls to ban fossil fuel financing, saying some of the aspects of the public initiative are already covered by other climate and finance policies. - Responsible Investor
German ministers want to enshrine climate protection in the country’s constitution, but several politicians have pushed back, arguing it would be too expensive. - France24
Climate change could be the next hit to Europe’s public finances. The bloc is already facing strains to its finances due to an ageing population and increased defence funding. Now, as the region heats up, that could cause public deficits to grow further. - Reuters
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The compound effect: heat, water, and the new risk landscape
Moody’s
Heat and water risk are no longer separate lines that need to be taken into account but are two risks that can compound when they overlap, this research report from Moody’s finds. They also pose systemic economic risk to regions, as water and heat stress can cause disruptions in many key industries.
The legal landscape for banks after the EU climate backlash
Carbon and Climate Law Review
Martina Menegat, policy fellow at the Centre for Economic Policy Transition Expertise (Cetex) at the London School of Economics, highlights the impact of a backlash in climate policies on climate litigation. While banks may see the shift in policy as a signal that these issues are no longer relevant, Menegat argues that it will actually create an atmosphere of legal uncertainty and is all the more reason for banks to identify and mitigate potential legal climate risks.
Stress testing European banks’ transition risk and lending behaviour
Banque de France
This research paper finds that euro area banks subject to the ECB’s climate stress tests do in fact change their behaviour by shifting new lending away from carbon-intensive companies and applying a more carbon-sensitive price to assets leaving or entering their portfolios. This suggests that climate stress tests can influence bank lending behaviour even without a capital surcharge for carbon-intensive assets.
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