Gas vs. ESG: How pressure from energy companies is forcing Europe to change its policies

The European Union, a global leader in pursuing the green agenda, is having to scale back some of its initiatives under pressure from major gas suppliers and its own politicians. But despite this political reversal, the technological transition to a greener economy is accelerating, and the stock market is showing that there is money to be made in sustainable development.

ESG (environmental, social, governance) became very popular in the late 2010s and early 2020s. Management companies created ESG investment funds, corporations and banks made commitments to build their business in accordance with the principles of sustainable development, politicians and regulators prepared relevant laws and reporting standards.

In Europe, ESG compliance is a legal requirement, including in the Sustainability Due Diligence Directive (CSDDD), adopted in spring 2024. It requires companies operating in the EU to address human rights violations and environmental pollution throughout the supply chain. That is, to be held accountable even for actions outside Europe. Violations are threatened with a fine of 5% of their global revenue. According to the plan, EU members should implement the directive in their legislation by the end of July 2026.

The document has sparked a dispute between EU leaders and energy giants: Exxon Mobil and QatarEnergy executives, who are among Europe's largest gas suppliers, have warned that they may stop working with the EU unless it relaxes the directive's requirements.

In its current form, the CSDDD would have "catastrophic consequences," Darren Woods, CEO of ExxonMobil, told Reuters in early November. Woods was not shy: if the EU "starts trying to enforce its harmful legislation in every country in the world where we do business, it will be impossible to stay there [in the Ma]," he said.

Qatar's Energy Minister and QatarEnergy CEO Saad al-Qaabi warned that the company may stop supplying Europe with liquefied natural gas. QatarEnergy will not be able to do business in the EU unless it changes or repeals the directive, he told an energy conference in Abu Dhabi: "I think Europe has to realize that it needs gas from Qatar. It needs gas from the United States. It needs gas from many places around the world ... it's very important that it takes this very seriously."

In late October, al-Kaabi, in an open letter with U.S. Energy Secretary Chris Wright, also called for the CSDDD to be repealed or substantially amended. That the directive, despite softening some provisions, retains the principle of extraterritoriality, allowing companies to be penalized for actions outside the EU, is of "grave concern," said Paul Atkins, chairman of the U.S. Securities and Exchange Commission. And the attorneys general of 16 states have sent letters to major companies demanding they ignore the European rules.

The US accounted for about 50% of EU gas imports last year, and ExxonMobil was one of the largest suppliers. Qatar's share is 12-14% since 2022, when Europe had to replace Gazprom's gas with fuel from other sources.

Representatives of the financial sector, in turn, opposed the new reporting rules, also related to ESG. This is about another European directive, the Corporate Sustainability Reporting Directive (CSRD), which requires companies to disclose information about their environmental and social impact.

Hedge funds, backed by the Alternative Investment Managers Association (AIMA), an association of $4 trillion asset managers, have secured an exemption from the CSRD and are hoping for the same relief in the UK. ESG regulations require companies to submit long-term climate plans, but many hedge funds engage in short-term trades.

Adam Jacobs-Dean, global director of markets at AIMA, told Bloomberg that the association is "not opposed" to the idea of using the financial industry to address climate change. Many hedge funds realize it needs to be considered when assessing risk for investments, and that's what investors want as well. But many countries where funds invest don't require such plans, he said, and it's hard to see how they themselves intend to participate in the green transition.

The European Parliament has already agreed to negotiate further changes to the legislation, and the EU plans to approve the final versions of the directives early next year.

Obviously, as the European Union, we retain regulatory autonomy," European Commissioner for Economic Affairs Valdis Dombrovskis told Bloomberg. - On the other hand, of course, we also have to listen to and acknowledge the concerns of partners around the world and analyze their implications.

CSRD and CSDDD are part of a broader package of measures adopted by the EU in recent years based on ESG principles, including the transition to a green economy and ensuring human rights in corporate supply chains. But the union is well aware of U.S. and Qatari concerns, so it has already "tangibly improved and simplified" the new requirements, Dombrovskis said: now only a small fraction of the companies originally subject to them will have to comply.

Some EU members also oppose the tightening of environmental regulations if they have a negative impact on business. For example, when discussing interim targets for reducing carbon dioxide emissions, due to the opposition of a group of countries led by Poland, the EU agreed to postpone the introduction of a system of payments for carbon dioxide emissions in the real estate and transportation sectors for a year, until 2028.

Under pressure from France, European lawmakers included in the decision to reduce net emissions by 90% by 2040 (compared to 1990) a provision that 5% of this reduction could be achieved by buying emission quotas from countries outside the bloc. They could not agree on a single target for 2035, promising to reduce emissions by 66.25-72.5%.

The EU is "staying the course" on combating climate change, but "it would be foolish to use recipes from the past" and not take into account political and economic realities (high energy costs, the rise of right-wing populists, deindustrialization) that have intensified criticism of the green agenda, European climate commissioner Vopke Hoekstra told Politico. He characterized the agreement as a new phase of pragmatic climate policy that takes into account the views of traditionally resistant countries rather than ignoring them.

The term ESG has recently caused negative reactions, both among politicians and in the corporate world. The new U.S. presidential administration has abandoned it altogether. In a 2024 PitchBook (part of Morningstar) survey of wealth managers and owners, the majority of those who do not apply ESG principles to their investments called it "useless virtue signaling"

However, 64% of those surveyed (that's more than 1,000 investment, venture capital, hedge funds, private equity and family offices around the world) said they apply these principles.

Another thing is that many people interpret them differently, and some advise to abandon the term altogether. "The name ESG is too hackneyed," "we can change it if the [current] political environment hinders progress," "let's call it responsible investing," are just a few examples of comments from survey participants.

"There's an old climate joke: 'You may not believe in climate change, but your insurance company does,'" writes Bloomberg columnist Mark Gongloff, suggesting that, based on current events, the joke should be updated to "You may not believe in climate change, but the stock market does."

After a meteoric rise at the end of the last decade, shares of companies associated with the green transition have fallen dramatically in recent years. But in 2025, the situation has changed radically: despite Donald Trump's "anti-green" policies, the renewable energy sector has become one of the world's highest-yielding sectors.

The S&P Global Clean Energy Index has added about 50% this year, strongly outperforming both the S&P 500, Nasdaq 100 and MSCI World.

Aniket Shah, managing director of Jefferies Financial Group, characterized the resurgence of green investments as the coming of "glory days," "We are at that wonderful moment when both the capital markets and the real economy are stepping up efforts on sustainability and energy transition."

The Bloomberg Prepare and Repair index has performed admirably, Gongloff notes, even over a longer period. It includes stocks of more than 100 companies that are helping to adapt to and benefit from climate change, including manufacturers and sellers of building materials, insurers, and waste management companies. From October 2015 through October 2025, the index more than quadrupled and outperformed the S&P 500 at an average annualized rate of 6.5%.

The main goal of the 2015 Paris climate agreement is to keep the increase in global temperatures to within 2 degrees Celsius of pre-industrial levels by the end of the century and to make efforts to limit the increase to 1.5 degrees. A more ambitious target could not be met, with some estimates suggesting a 1.5-degree increase as early as 2024.

But over the past 10 years, global investments in energy transition have totaled $10.3 trillion, according to calculations by Bloomberg New Energy Finance (BNEF). Last year, they reached $2.1 trillion (Jefferies' Shah called it an "insane figure") - double that in 2020. And this year's figure could be higher.

Investment in renewable energy grew 10% in the first half of the year compared to the same period in 2024, reaching $386 billion, according to BNEF calculations.

For every dollar lost to climate disasters in 2024, $1.47 was invested in the energy transition, even though only 12 cents was spent 20 years ago, according to BNEF.

Shah points to a number of factors associated with sustainable development, including the rapid growth of China's green economy and the export of clean technology to developing countries, as well as the huge demand for electricity from tech giants developing artificial intelligence. It can be met by low-cost alternative energy sources.

However, Alex Monk, portfolio manager at Schroders, cautions that if the bubble associated with the rapid development of AI bursts, it could pull alternative energy stocks with it.

This article was AI-translated and verified by a human editor