Circulo De Empresarios Warns Of The Risk Of Hyper-Regulation In ESG

“We surely live in the best of all possible worlds, in the European Union, but it has a huge tendency to overregulate , in my personal opinion,” said Francisco Román, president of the ESG Working Group of the Círculo de Empresarios on Tuesday. . Visit the specialized portal elEconomista Sustainable investment and ESG.

“Companies face a risk of hyper-regulation, because Europe has generated an enormous machinery, tremendously effective in regulating many aspects, but which has both sides,” he said. On the face of it, this regulation “fuels transformation, encourages all companies, large or small, to be aligned in the same direction,” she explained. On the other hand, “we all know that digesting all that regulation sometimes causes excessive costs . ” Román recalled that Europe “competes with lighter regions in these aspects; you have to ask yourself what price you are willing to pay”, he pointed out.

“Europe has a certain excess of regulatory vocation and that can weigh us down,” he emphasized. That is why “we recommend that we be pragmatic, so as not to overcharge” companies. Particularly, in a country whose productive fabric includes “many small companies for which this can be done more uphill.” This type of “ballast” reduces “competitiveness, ” she added.

Francisco Román made these statements during the presentation of the report Challenges of the Spanish company in the face of a European growth model based on sustainability (ESG) and lines of progress to overcome them , prepared by EY. One of the main conclusions of this study is that “the general level of Spain in relation to the main international instruments of sustainability can be improved”.

Best in ‘E’ for ESG
The level of preparation of the Spanish company to respond to this regulatory challenge and change in the economic model “is not homogeneous for the three ESG dimensions,” says the study. Where this country is best positioned is in the E of the acronym : “In environmental matters, the starting position of Spain could be qualified with a score of 4 out of 5”, it is pointed out.

This statement is based on several strengths: “It occupies position 14 out of 180 in the Environmental Performance Index(2020); Greenhouse Gas (GHG) emissions are lower than the EU 27 average (2019); in renewable energies, it is the country that invested the most (7,394 million euros in 2019), and 21.2% of the country’s total energy comes from renewable sources (2020).” It is also highlighted that, in installed capacity for storage of gas, represents a third of the EU’s total Liquefied Natural Gas (LNG) import capacity by sea and that dependence on Russian gas is minimal However, there are still opportunities for improvement, especially as regards to the clarification of the regulation related to renewable energies and in the connection of gas infrastructures with Europe.

In social matters , Spain’s starting position could be classified as 2 points out of 5. “In terms of corporate health and safety policies, 41% of European companies (including those from the United Kingdom) and 26% of those from the rest of the world consulted by the United Nations Global Compact that declare to incorporate these policies are Spanish (2020); in terms of equality, and from the point of view of equal rights in the legal system, Spain is one of the 12 countries in the world 100% egalitarian; in terms of disability, 72% of active people with disabilities have a job”. However, there are still very important areas for improvement, “especially those relating to the youth unemployment rate (38.3%, which places us at the head of the EU) and total unemployment (15.5%, the second highest in the EU and far from the average of 6.83%).

In terms of governance , Spain’s starting position could be rated 2.5 out of 5. 79% of the Ibex 35 state that they include ESG metrics in their Long-Term Incentives and 29% include them in short-term ones, ” which positions Spain above the EU average”; the presence of women on the boards continued to increase, standing at 26.1% (23.4% in 2019) in listed companies and 31.3% in the Ibex 35 “. Most recent data from the CNMV, which has analyzed The corporate governance reports of the Spanish listed companies reveal that the figure for the Spanish market as a whole is already 29.3%, and exceeds 34% on the Ibex .

“However, there are still important lines of improvement , especially in aspects related to Spain’s position in the democratic quality indices (in 2021 Spanish democracy went from being a full democracy to an imperfect democracy) and in the Perception of Democracy indices. Corruption (Spain occupies position 32 out of a total of 180 countries, with 62 points).

Regarding the Sustainable Development Goals (SDGs), in 2021 Spain was in twentieth position (among 165) with a score of 79.46 out of 100. On the other hand, 81% of Spanish companies are aware of the SDGs and a 86% have established some measure to help achieve them. 70% of companies are unable to meet ESG demands.

Taxonomy: opportunity and challenge
The report also refers to the European taxonomy for green financial activities , which establishes what kind of economic activities fit with the EU’s climate objectives. “On the one hand, banks and investors have to publish from March 2021 what part of their assets are invested in ESG and how this affects their risks (Sfrd); on the other hand, companies will have to explain in their sustainability reports what part of the company’s activity is eligible according to taxonomy criteria (Csrd)”. Also read: 24% of Spanish investment funds already include ESG criteria.

In this framework, “the main opportunity for Spanish companies is to access financing for which there is enormous market appetite.” And the main challenge “will be to transform the company’s balance sheet into green, determining what percentage of its Opex, Capex and Ebitda is eligible” according to the taxonomy.

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