That’s my conclusion from an eventful month of March, which saw the publication of the Securities and Exchange Commission’s long-awaited climate disclosure rules and further backlash against environmental, social, and governance (ESG) investing in the U.S.—but also several new initiatives from Europe’s companies such as Siemens and IKEA that advance sustainability practices.

In the U.S., there is no question that the ongoing backlash against ESG has set back the corporate sustainability agenda.

The SEC’s long-awaited rule, published earlier this month, solidified the ongoing trend by not requiring companies to disclose the emissions along their value chain, or those emanating from their product’s use by customers. And the SEC requirements will go into effect between 2027 and 2033, two to four years after similar reporting starts in the EU.

There is no doubt what caused this trend: Republican lawmakers and donors continue to fight against anything related to sustainability and ESG. Just this past week, the state of Texas withdrew $8.5 billion from BlackRock’s ESG funds, continuing a practice that started roughly two years ago that has led the investment manager to significantly scale back its touting of ESG.

In that light, it is even more remarkable that across the Atlantic, the exact opposite seems to be happening. Europe’s companies, investors, and policymakers are doubling down on the sustainability agenda, betting that its train has left the station and that early compliance and the introduction of new business models will help rather than hurt them.

Consider the latest initiative from Siemens, Europe’s largest industrial company. It announced this month the launch of its Ecotech label of products. Those products are all made with 100% renewable energy, disclose to their buyers their full sustainability footprint (including the CO2 emissions from their production and use), and reduce the environmental impact of their use.

Judith Wiese, Siemens’s chief sustainability officer, told me why her company introduced the label: “We are convinced that sustainability is becoming more and more of a competitive edge,” she said. The reason, she added, is that more and more companies have sustainability targets, and the introduction of new EU regulations requires transparency and data assurance.

In the first instance, about 5% of Siemens products will include the Ecotech label. But over time, the company expects that its whole range of products will evolve towards carrying the label, because of its competitive edge: As Ecotech products help customers decrease their CO2 and energy footprint, they are a value-based offering, as well as a regulation-driven one.

Nor is Siemens the only large European company to double down on its sustainability agenda. IKEA, the world’s favorite Swedish furniture company, this month announced its ambitions for RetourMatras, the mattress recycling company it has invested in. For one, the company, which had its start in the Netherlands, is expanding to several other major European markets.

But IKEA also uses RetourMatras to make a policy play: The group behind IKEA, Ingka Group, “is proactively engaging with policy makers around the world advocating for removing policy barriers to enable a more circular economy,” the company said during its March event. It is, in other words, lobbying for regulation that enhances its competitiveness through sustainability.

The writing on the wall from these examples is that American and European companies are likely to diverge further in the next five years concerning sustainability. While U.S. companies are largely disincentivized from pursuing ambitious sustainability credentials, the opposite is true in Europe, where sustainability is becoming a selling point as well as a regulatory necessity.

The results of this divergence will soon become apparent. My bet is that a focus on sustainability will pay off. But I sympathize with U.S. management teams that believe this to be the case but face an unwelcoming investor and regulatory environment.

More news below.

Peter Vanham
peter.vanham@fortune.com

ON OUR RADAR

Commentary: The backlash against the SEC’s new mandate is a mistake (Fortune)

Leading the low-carbon economy requires building a financial system that can manage the risks and opportunities of climate change and the energy transition, researchers Edmund Downie (Princeton), Erica Downs, and Yushan Lou (Columbia) write in a Fortune commentary piece this week. The good news, they say, is that "regulators around the world are pushing ahead to build that system—including in China," and "the SEC’s mandate helps the U.S. keep pace." But there is bad news, too. The pressures to water down or delay the SEC's climate disclosure rules endanger U.S. companies' position in this transition. "Overturning [the rules] would set us back," they warn.

In Larry Fink's latest letter, "sustainability" almost seems as much a faux pas as "ESG" (BlackRock)

BlackRock's Larry Fink this week published his annual letter to investors, homing in on the looming retirement crisis. It is on brand for BlackRock, whose investment products are a de facto retirement plan for millions of its investors. But more remarkable than the focus on retirement, in my opinion, was the downplaying of BlackRock's sustainability strategy.

In 2020, Fink became the poster child of ESG and sustainability investing, with an annual letter entitled Sustainability as BlackRock’s New Standard for Investing. ESG was—logically—an integral part of that new standard, and was mentioned no less than 26 times in the letter. Four years and an ESG backlash later, ESG has disappeared from Fink's vocabulary, and the new letter mentions sustainability just once.

Fink's new watchwords are "energy security" and "energy pragmatism." My take: Understandably, Fink and BlackRock reacted to the intense anti-ESG campaign they encountered. But if they continue to disavow sustainability to the extent they do now, it wouldn't surprise me if they encountered similar scrutiny from people and organizations that unconditionally advocate for sustainable investing.