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How Can European Regulation on ESG Impact Business Globally?

Author

Listed:
  • Rocío Redondo Alamillos

    (School of International and Public Affairs, Columbia University, New York, NY 10027, USA)

  • Frédéric de Mariz

    (School of International and Public Affairs, Columbia University, New York, NY 10027, USA)

Abstract

The European Union (EU) has impacted regulation worldwide in areas ranging from data protection to trade or antitrust. In select fields, it has defined stringent standards and has had an impact on global business because of the size of its market and the price of participating in it. The purpose of this paper is to analyze the main provisions of the EU regulation on Environmental, Social, and Governance (ESG) and determine whether and how it will have an impact on business globally, including regulations around disclosure for companies, taxonomy for the asset management sector, supply chain due diligence requirements, new mechanisms such as carbon markets, or non-tariffs restrictions on international trade. For this, our analysis includes an in-depth review of the literature on EU regulation of the past 20 years, complemented with interviews with experts in the field, in order to understand the main tools used by European policymakers in ESG regulations to understand their effect. The analysis adds to the body of research pertaining to the impact of regulation on business and the growing body of research on sustainable finance. We find that the new ESG regulation impacts countries outside of the EU, influencing regulation worldwide, and raising the question of possible regulatory arbitrage.

Suggested Citation

  • Rocío Redondo Alamillos & Frédéric de Mariz, 2022. "How Can European Regulation on ESG Impact Business Globally?," JRFM, MDPI, vol. 15(7), pages 1-19, June.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:7:p:291-:d:853255
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    References listed on IDEAS

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    1. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    2. Sabri Boubaker & Duc Khuong Nguyen (ed.), 2019. "Corporate Social Responsibility, Ethics and Sustainable Prosperity," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 11460, August.
    3. Cornett, Marcia Millon & Erhemjamts, Otgontsetseg & Tehranian, Hassan, 2016. "Greed or good deeds: An examination of the relation between corporate social responsibility and the financial performance of U.S. commercial banks around the financial crisis," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 137-159.
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    Cited by:

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    2. Ion FRECAUTAN & Andreea NITA (DANILA), 2022. "Who Is Going To Win: The Eu Esg Regulation Or The Rest Of The World? €“ A Critical Review," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 2(2), pages 109-120, December.
    3. Ann Susan Thomas & Ambili Jayachandran & Ajithakumari Vijayappan Nair Biju, 2024. "Strategic mapping of the environmental social governance landscape in finance – A bibliometric exploration through concepts and themes," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4428-4453, September.
    4. Xueying Yuan & Lixia Shang & Jinhua Xu, 2024. "Green Financial Policy, Resource Allocation and Corporate Environmental Responsibility," Sustainability, MDPI, vol. 16(15), pages 1-29, July.
    5. Edna Aparecida Greggio Possebon & Felippe Aparecido Cippiciani & José Roberto Ferreira Savoia & Frédéric de Mariz, 2024. "ESG Scores and Performance in Brazilian Public Companies," Sustainability, MDPI, vol. 16(13), pages 1-18, July.
    6. Ian Berk & Massimo Guidolin & Monia Magnani, 2023. "Strong vs. Stable: The Impact of ESG Ratings Momentum and their Volatility on the Cost of Equity Capital," BAFFI CAREFIN Working Papers 23202, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Attila Jámbor & Anett Zanócz, 2023. "The Diversity of Environmental, Social, and Governance Aspects in Sustainability: A Systematic Literature Review," Sustainability, MDPI, vol. 15(18), pages 1-15, September.

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