Apparently, a variety of measures are used to determine a company’s credit score — things like “climate change,” “biodiversity,” “land and water use,” “social justice,” “LGBTQ” causes, and diversity in general.
“How diverse is your board of directors? How diverse is your management team? Like these are the kinds of things that are in these ESG scores,” says Haskins.
Even though the United States doesn’t have a social credit scoring law (most ESG initiatives exist in the private sector), Europe’s CSDDD will nonetheless hugely impact American businesses.
The law “applies to large companies that are based in the European Union” as well as “non-EU companies that do above a certain amount of revenue in the European Union, so for example Apple or McDonald's,” Haskins explains.
Further, these high-earning non-EU companies that fall under the jurisdiction of the CSDDD will be forced to adhere to its policies outside of the EU as well.
“It's not enough for them to change their policies in the EU; they have to change it in America. They have to change it everywhere they do business; that's what the law says, and if they don't, then they can be fined 5% of their total worldwide revenue, so for a company like Apple, if you do the math, that's $19 billion for one violation,” says Haskins, who predicts that “no one's going to violate this law because they can't afford to.”
If that wasn’t extreme enough, the law also applies to “almost all of the businesses that [companies under the CSDDD] work with in their supply chains, upstream and downstream, no matter where they're located or how much business those companies do in the EU.”
Haskins points to Ford as an example. Ford is an American company that does business in the EU and produces enough revenue to fall under the jurisdiction of the CSDDD.
Therefore, “All the businesses that [Ford does] business with in America are also doing these ESG scores,” he says, “so you could be a rubber manufacturer in Ohio that does no business in Europe, but you make rubber for Ford, so you also have to adhere to the EU rule, and Ford is going to be the one that imposes it on you through contractional insurances.”
Naturally, Ford will comply because if the company refuses, “then Ford gets fined 5% of their total worldwide revenue.”
“When you start playing out the ramifications of this, they’re enormous,” Haskins laments, adding that “through this [law], you can transform the entire country because you can transform hiring practices, business practices, the kinds of products that people sell and buy, the commitment to social justice goals,” etc.
“What’s the end goal?” asks Allie.
To hear Haskins' answer, watch the episode above.
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