Nathan Griffiths: Truth, lies, and the sustainability struggle

28 januari 2025

By Nathan Griffiths, Sustainable Finance, EY Netherlands

In a world plagued by misinformation, sustainability faces mounting resistance. Policymakers must rethink messaging and highlight economic benefits to counteract false narratives and foster climate action.

The trouble with lying and deceiving is that their efficiency depends entirely upon a clear notion of the truth that the liar and deceiver wishes to hide.

                   - Hannah Arendt

2025 is shaping up to be an annus horribilis for sustainability advocates. The Trump administration wasted little time withdrawing the US from the Paris Agreement, and halted funding of the Inflation Reduction Act. With one of the campaign mottos being ‘drill, baby, drill’, it would be foolish to expect climate action to have any place in the policies of the Federal government in the coming four years.

The Omnibus and its discontents

Confronted by a changed political environment within Europe, combined with a deep economic malaise, the European Commission in December formally launched the Omnibus simplification package, ostensibly to streamline the three pillars of European Union corporate sustainability regulations of the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy and the Corporate Sustainability Due Diligence Directive (CSDDD).

With a lack of clarity about the scope and intentions of the Omnibus – no doubt also within the European Commission – multiple parties are pushing for a significant retrenchment of the sustainability agenda. Both the German and French governments are now calling for delays in the extension of the CSRD reporting requirements and a more indefinite postponement of the CSDDD.

At the core of this resistance is the idea that stringent sustainability regulations could further undermine Europe’s competitiveness. In part, there is some validity to this argument, particularly regarding the excessive disclosure requirements, where the investment of time, resources, and money often outweighs the anticipated benefits. A re-evaluation of sustainability disclosures, grounded in a clear cost-benefit analysis aligned with stated objectives, is essential.

Evolving narratives

Equally important however is the need to evolve the narrative surrounding sustainability. The US elections of 2024, along with the Dutch elections the previous year, have shown us that a populace increasingly disillusioned with mainstream political parties is more susceptible to misinformation and the distortion of truth. False narratives gain traction when genuine concerns remain unaddressed, leading to a mutable understanding of truth.

If policymakers and sustainability leaders continue to repeat the same messages, they will have ever-diminishing impact. How resonant for example is Net Zero to people? It was always an abstract concept for many even if in 2021 it was unchallenged. But now it is seized upon by opportunists as a dogma that is driving European economies into the ground. The message needs to adapt with the evolving political and financial reality.

The perception that decarbonization policies erode Europe’s competitiveness is gaining momentum, largely because it remains unchallenged. Policymakers and sustainability advocates are silent whereas they should focus on articulating the economic benefits more clearly. This is especially true given the challenging growth outlook and prevailing political headwinds.

Europe’s energy problem

Europe is fundamentally different to the US. Not simply because of cultural and political differences. Europe is resource poor. And, especially, energy poor. It has very limited fossil fuel energy sources, in contrast to North America. In particular, Europe’s natural gas requirements are met through expensive liquified natural gas (LNG) imports. Europe imports more than 120 billion cubic metres of gas per annum. And inexorably, the cost of importing LNG will rise over time. Each new major gas field is typically more expensive than the last. Europe is unquestionably vulnerable to movements in global energy markets.

However, wind and solar energy now meet approximately 25% of Europe’s energy needs. In the absence of this capacity, LNG imports would be as much as five times higher. Current spare capacity in the global gas market would meet only a small proportion of those needs and Europe is in competition with other regions. Commodity prices do not move in a linear manner and accelerate sharply with reduced spare capacity. The reality is that the LNG price – and with it, energy prices in Europe – would be significantly higher. Europe is undeniably in a better economic position than would otherwise be the case.

The same principles apply at the corporate level. Reducing energy and resource usage, ceteris paribus, improves the financial competitiveness of each company. In aggregate, this will also further reduce the energy needs across Europe and, in turn, reinforce the positive impact of rising renewables capacity.

The financial gains of sustainability

Most rational people acknowledge that fossil fuels will remain a part of our energy mix for many years to come. Yet reducing this dependence in a considered manner is crucial not only for addressing climate change, but also for ensuring the long-term competitiveness of the European economy. This holds as true for the heavy industrial sectors as it does for the data-driven (and energy hungry) technology industries of the 21st century.

Although some criticisms of sustainability regulations are valid and warrant a reassessment of the reporting burdens placed on companies, it is time for policymakers and sustainability advocates to emphasize where there are clear financial imperatives – and gains – of sustainability policies. Because it is not all bad news for the economy.