A political career is often an immense burden on one’s private life. This is also the case with MEP Ismail Ertug, who is now pulling the ripcord. The transport politician will resign his mandate for the SPD group on July 2 – for family reasons, he told Table.Media. Last week, Ertug had already shut down all social media accounts for this reason.
The mandate is taken over by Thomas Rudner from Regensburg. Within the SPD, Rudner is a political “unknown quantity” and a convinced European, says Ertug about his successor. Rudner was head of the German-Czech youth exchange project Tandem until 2021 and is an expert in German-Israeli cooperation. He is to be officially appointed the day after Ertug steps down.
Before Ertug retires from politics, he still has an open project: One of the four hydrogen centers funded by the German government is located in Pfeffenhausen – Ertug’s constituency. The EU Commission has yet to confirm the funding amount of €20 million. Actually, the Directorate General for Competition should have issued the approval today.
Now, in his last month as an EU parliamentarian, Ertug wants to put pressure on Competition Commissioner Margrethe Vestager and the DG to release the funding as soon as possible.
Rarely does the Commission keep a legislative project as under wraps as the democracy defense package it plans to unveil on June 7. So far, hardly any information is leaking out of the Berlaymont.
This is causing a certain amount of mistrust, especially among civil society. Particularly controversial: the planned directive on the funding of interest representation services (“interest representation services” is the term used by the Commission). Civil society representatives fear a directive along the lines of the NGO report by CDU MEP Markus Pieper, which was overturned in 2017 – or along the lines of the US Foreign Agent Act. In a joint statement three weeks ago, some 200 NGOs warned against a law that could limit civil society’s room for maneuver.
It is not clear to what extent the Commission’s package takes these warnings into account. Only the Call for Evidence, which ran from February to April, offers any insight. According to it, the commission plans to present four initiatives in June:
The Call for Evidence situates the package in the context of the upcoming European elections. The Commission fears, as it did in 2019, the risk of “covert foreign influence in electoral matters”. However, the package comes too late for that, as no directive will have been transposed into national law by the time of the European elections.
The planned law on interest representation services is likely to be above all a response to the scandal over bribe payments by Qatar and Morocco. According to the Commission, it wants to take action against “organizations based in the EU that act as representatives of foreign states“. This suggests that the Commission is very much concerned with legislation in the sense of the US Foreign Agent Act, thus confirming the suspicions of civil society.
Such a law would coincide with the EPP’s demands as a consequence of Qatar-Gate. “We need a European equivalent to the US Foreign Agents Registration Act (FARA). It must not happen that third countries and criminals use NGOs as front organizations to exert a disguised influence on political decision-making processes”, demanded, for example, CDU MEP Monika Hohlmeier in February.
According to information obtained by Table.Media, the Commission President is personally pushing the directive. “We must better protect ourselves from harmful influences”, she also promised during her State of the Union address. Her commissioners, however, are not very enthusiastic about the initiative. Věra Jourová, in particular, is said to have refused to take over the dossier and shifted it to Didier Reynders. Meanwhile, the EEAS around Josep Borrell is also said to have voiced criticism of the planned directive.
It is particularly striking that the Commission does not provide for an impact assessment, as is actually obligatory in the context of better regulation. Instead, the Commission mentions an analytical staff working document in the call for evidence. However, according to Table.Media information, this has not yet been finalized.
“We don’t have enough time. And we don’t have enough data to determine how big the problem of third countries influencing NGOs is. We just know: the problem is serious and we should not be naive”, Jourová said recently. The time aspect can probably be explained on the one hand by the upcoming European elections, as well as by the upcoming Council presidencies: Hungary will take over the presidency in the summer of 2024, followed by Poland.
Andreea Nastase, who researches EU politics and lobbying at Maastricht University, sees the planned law as a threat to the EU’s credibility. That’s because Brussels has always sharply criticized similar laws so far, she said. “The Commission is shooting itself in the foot”.
In 2017, for example, the Commission opened an infringement case against Hungary over a similar law on transparency of organizations receiving foreign funding. The ECJ ruled in 2021 that the law was not compatible with EU law, as it violated both the free movement of capital and fundamental rights, in particular the right to freedom of association.
This is precisely the risk that MEPs see in the planned directive. In a letter, the Greens in particular, but also MEPs from Renew and S&D, called on the Commission to reconsider the proposal and at least carry out an impact assessment. Such a law, especially in the form of a directive, would leave member states with “dangerous discretionary powers“. The letter is intended as a warning shot, Sergey Lagodinsky (Greens) tells Table.Media. “We don’t want to trivialize the danger of foreign interference. But this is, after all, about fundamental rights“.
Meanwhile, in the absence of an impact assessment, it remains unclear how big a problem foreign influence on NGOs and other stakeholders actually is. Research by Follow The Money on NGOs in the EU Transparency Register revealed that most money to NGOs comes from the EU budget. Right behind come the US, Germany and the Netherlands.
Among the biggest US funders are philanthropic organizations such as the Bill & Melinda Gates Foundation and George Soros’ Open Society Foundation. These are findings that could play into the hands of conspiracy theorists and rulers like Viktor Orbán in particular.
Precision on the planned package came most recently from the Commission’s adviser on external influence, Ivana Karásková. The planned directive has nothing in common with the American Foreign Agents Act or similar laws, she reassured “Politico”. The directive aims to harmonize national transparency registers in which lobbyists – such as associations, NGOs and consulting firms – register. Sanctions are not envisaged. Nor is it intended to stigmatize organizations as “foreign agents”.
Karásková, however, is not actively working on the planned law; the dossier lies with the Directorate-General for Justice and Consumers (DG Just). At the same time, a directive always leaves member states some leeway in interpreting EU laws, lobbying expert Andreea Nastase also stresses. “Such a law benefits regimes that want to discriminate against certain organizations”.
For Nastase, the harmonization approach makes little sense. “We already have a European transparency register. Why don’t we improve the system we have? The Commission is once again missing an opportunity here to really address the problems“.
The greatest danger posed by foreign influence is targeted disinformation campaigns and corrupted democratic processes. The root cause of Qatar-Gate, she says, lies not with problematic NGOs but with corrupt politicians and commission officials. “Here, however, there seems to be a lack of political will to act”, says the political scientist.
Mr. Philipponnat, ESG ratings assess a company’s performance in the areas of environment (E), social (S) and corporate governance (G). What is your criticism?
ESG investing has two dimensions: There is the financial materiality, i.e. the risk perspective from the outside in (“outside-in”). It describes the financial impact on the company of external risks such as the environment or social problems. And then there is impact materiality, i.e. the impact of a company on the environment and society (“inside-out”). So there are two very different dimensions behind the term ESG investment, which is fine – as long as we know exactly which of the two goals we want to achieve with the investment.
And this is where the ratings lack significance?
There is another problem: The three areas E, S and G are by nature very different. So when I see an ESG rating, it doesn’t tell me clearly whether it refers to E, to S, or to G. In fact, it looks at all three and combines this into a synthetic rating.
What exactly is problematic about this?
Basically, the rating says nothing, or very little. Let’s take the case of a company that has very good social practices and good corporate governance, i.e. treats its employees well and so on – but has a terrible impact on the environment. So it gets a good rating for S and G, and a negative rating for E. That then comes out to an average good rating. And so then you find companies with very negative environmental impacts in ESG portfolios. Again, the average person can’t see that at first glance unless they dig deep into it.
In a recently published report, you call for the different areas of ratings to be separated. What does that mean?
We propose something very simple and logical: ESG rating providers do their work for each individual area anyway. Therefore, they should offer a separate rating for E, S, and G, and each for impact and financial materiality. As a user, I will then be able to use these ratings properly, with a clear idea of what issues I am addressing with my investment.
The sustainability rating agency Morningstar Sustainalytics reacted to this proposal with the objection that the direct users of ESG ratings are not retail investors but experienced professional investors. These would understand that different providers deliver different ratings and appreciate this diversity.
The problem with today’s ESG ratings is not their diversity. Diversity is welcome as long as there is clarity about what is being rated and how it is being rated. The problem with an ESG rating process that lumps E, S, and G together in their dimensions of financial materiality and impact materiality is that it creates confusion by adding apples and oranges – and it creates an unfounded appearance of rigor that is detrimental to the healthy development of ESG investments.
We must also remember that at the end of the chain, the money belongs to the retail investors, even if it is managed by professional investors, and that if the retail investors lose confidence, the whole ESG investing will collapse.
On June 13, the EU Commission plans to present a draft law to regulate ESG ratings and their providers. In addition to the lack of transparency and monitoring of the market, one of your criticisms is the existing conflicts of interest of the rating agencies. What do these consist of?
I expect that the most difficult debate will be the one about separating the consulting business from the rating business. If an ESG rating provider sells consulting services to a company, the rating provider should not also rate the company. Otherwise, he ends up giving a rating on a company from which he receives money.
What do you suggest?
Our proposals here are inspired by the rules for credit rating agencies. We believe that the rules that the EU has adopted for credit rating agencies regarding conflicts of interest will also be largely sufficient for ESG rating agencies. This would also facilitate their introduction.
If the EU and the USA have their way, a raw materials club should bring together Western countries and resource-rich countries in Asia, Latin America and Africa to enable raw materials partnerships on an equal footing. Under discussion is whether governments can waive export restrictions or tariffs in mutual trade in mineral resources, and whether common environmental and occupational safety standards can be established for mines or smelters. In short, mutual recognition is to be promoted in the interests of international trade.
In this discussion, the scrap metal trade must be taken into account. Trade in recycled metals is an integral part of establishing green lead markets, as the use of recycled materials is a necessary prerequisite for the production of green products. The use of recycled metals such as aluminum, copper or steel saves energy and greenhouse gas emissions and reduces the consumption of ores.
It is important to emphasize that fair and free trade in scrap should not be the preserve of industrialized countries alone. Emerging countries have the same right to access recycled metals. This access will enable them to build their own sustainable industries and reap the benefits of recycling for their economies and the environment.
At the meeting of the Material Recycling Association of India, the Indian steel minister emphasized that India, as the world’s second-largest steel producer, wanted to become a responsible steel producer and therefore expected scrap use to increase. India sources the material from the USA and the EU, among others.
This brings us to the crucial point. Trade on an equal footing means that we always supply raw materials to where they are needed. Turkey is an important sales market for certain grades of steel scrap, India for certain alloys of aluminum scrap, and the USA for nickel scrap. Conversely, countries like India are important exporters of ferroalloys to the EU, which we need here for steel production.
Trade in metals is not a one-way street. If we want to import raw materials from the global South, we must also export raw materials there. “Close the loop does not mean close the market. Especially not if the necessary processing capacities are lacking in this country to use all the processed metals. The formula for an international circular economy is simple: the more capacity, the more recycling”.
There are already eight billion of us on the planet today. If we want to enable everyone to enjoy a certain level of prosperity, we must include countries like India, Pakistan, Malaysia or Thailand in our trade structures. This means recognizing common environmental and labor standards and thus minimizing import and export restrictions. The EU Waste Shipment Regulation currently under discussion increases trade barriers for scrap metal, something the Association of German Metal Traders and Recyclers criticized as early as 2021.
It is therefore all the more important that future raw material clubs take into account the international markets of the metal recycling industry and maintain and promote mutual market access. Metal scrap belongs “in da club”.
A political career is often an immense burden on one’s private life. This is also the case with MEP Ismail Ertug, who is now pulling the ripcord. The transport politician will resign his mandate for the SPD group on July 2 – for family reasons, he told Table.Media. Last week, Ertug had already shut down all social media accounts for this reason.
The mandate is taken over by Thomas Rudner from Regensburg. Within the SPD, Rudner is a political “unknown quantity” and a convinced European, says Ertug about his successor. Rudner was head of the German-Czech youth exchange project Tandem until 2021 and is an expert in German-Israeli cooperation. He is to be officially appointed the day after Ertug steps down.
Before Ertug retires from politics, he still has an open project: One of the four hydrogen centers funded by the German government is located in Pfeffenhausen – Ertug’s constituency. The EU Commission has yet to confirm the funding amount of €20 million. Actually, the Directorate General for Competition should have issued the approval today.
Now, in his last month as an EU parliamentarian, Ertug wants to put pressure on Competition Commissioner Margrethe Vestager and the DG to release the funding as soon as possible.
Rarely does the Commission keep a legislative project as under wraps as the democracy defense package it plans to unveil on June 7. So far, hardly any information is leaking out of the Berlaymont.
This is causing a certain amount of mistrust, especially among civil society. Particularly controversial: the planned directive on the funding of interest representation services (“interest representation services” is the term used by the Commission). Civil society representatives fear a directive along the lines of the NGO report by CDU MEP Markus Pieper, which was overturned in 2017 – or along the lines of the US Foreign Agent Act. In a joint statement three weeks ago, some 200 NGOs warned against a law that could limit civil society’s room for maneuver.
It is not clear to what extent the Commission’s package takes these warnings into account. Only the Call for Evidence, which ran from February to April, offers any insight. According to it, the commission plans to present four initiatives in June:
The Call for Evidence situates the package in the context of the upcoming European elections. The Commission fears, as it did in 2019, the risk of “covert foreign influence in electoral matters”. However, the package comes too late for that, as no directive will have been transposed into national law by the time of the European elections.
The planned law on interest representation services is likely to be above all a response to the scandal over bribe payments by Qatar and Morocco. According to the Commission, it wants to take action against “organizations based in the EU that act as representatives of foreign states“. This suggests that the Commission is very much concerned with legislation in the sense of the US Foreign Agent Act, thus confirming the suspicions of civil society.
Such a law would coincide with the EPP’s demands as a consequence of Qatar-Gate. “We need a European equivalent to the US Foreign Agents Registration Act (FARA). It must not happen that third countries and criminals use NGOs as front organizations to exert a disguised influence on political decision-making processes”, demanded, for example, CDU MEP Monika Hohlmeier in February.
According to information obtained by Table.Media, the Commission President is personally pushing the directive. “We must better protect ourselves from harmful influences”, she also promised during her State of the Union address. Her commissioners, however, are not very enthusiastic about the initiative. Věra Jourová, in particular, is said to have refused to take over the dossier and shifted it to Didier Reynders. Meanwhile, the EEAS around Josep Borrell is also said to have voiced criticism of the planned directive.
It is particularly striking that the Commission does not provide for an impact assessment, as is actually obligatory in the context of better regulation. Instead, the Commission mentions an analytical staff working document in the call for evidence. However, according to Table.Media information, this has not yet been finalized.
“We don’t have enough time. And we don’t have enough data to determine how big the problem of third countries influencing NGOs is. We just know: the problem is serious and we should not be naive”, Jourová said recently. The time aspect can probably be explained on the one hand by the upcoming European elections, as well as by the upcoming Council presidencies: Hungary will take over the presidency in the summer of 2024, followed by Poland.
Andreea Nastase, who researches EU politics and lobbying at Maastricht University, sees the planned law as a threat to the EU’s credibility. That’s because Brussels has always sharply criticized similar laws so far, she said. “The Commission is shooting itself in the foot”.
In 2017, for example, the Commission opened an infringement case against Hungary over a similar law on transparency of organizations receiving foreign funding. The ECJ ruled in 2021 that the law was not compatible with EU law, as it violated both the free movement of capital and fundamental rights, in particular the right to freedom of association.
This is precisely the risk that MEPs see in the planned directive. In a letter, the Greens in particular, but also MEPs from Renew and S&D, called on the Commission to reconsider the proposal and at least carry out an impact assessment. Such a law, especially in the form of a directive, would leave member states with “dangerous discretionary powers“. The letter is intended as a warning shot, Sergey Lagodinsky (Greens) tells Table.Media. “We don’t want to trivialize the danger of foreign interference. But this is, after all, about fundamental rights“.
Meanwhile, in the absence of an impact assessment, it remains unclear how big a problem foreign influence on NGOs and other stakeholders actually is. Research by Follow The Money on NGOs in the EU Transparency Register revealed that most money to NGOs comes from the EU budget. Right behind come the US, Germany and the Netherlands.
Among the biggest US funders are philanthropic organizations such as the Bill & Melinda Gates Foundation and George Soros’ Open Society Foundation. These are findings that could play into the hands of conspiracy theorists and rulers like Viktor Orbán in particular.
Precision on the planned package came most recently from the Commission’s adviser on external influence, Ivana Karásková. The planned directive has nothing in common with the American Foreign Agents Act or similar laws, she reassured “Politico”. The directive aims to harmonize national transparency registers in which lobbyists – such as associations, NGOs and consulting firms – register. Sanctions are not envisaged. Nor is it intended to stigmatize organizations as “foreign agents”.
Karásková, however, is not actively working on the planned law; the dossier lies with the Directorate-General for Justice and Consumers (DG Just). At the same time, a directive always leaves member states some leeway in interpreting EU laws, lobbying expert Andreea Nastase also stresses. “Such a law benefits regimes that want to discriminate against certain organizations”.
For Nastase, the harmonization approach makes little sense. “We already have a European transparency register. Why don’t we improve the system we have? The Commission is once again missing an opportunity here to really address the problems“.
The greatest danger posed by foreign influence is targeted disinformation campaigns and corrupted democratic processes. The root cause of Qatar-Gate, she says, lies not with problematic NGOs but with corrupt politicians and commission officials. “Here, however, there seems to be a lack of political will to act”, says the political scientist.
Mr. Philipponnat, ESG ratings assess a company’s performance in the areas of environment (E), social (S) and corporate governance (G). What is your criticism?
ESG investing has two dimensions: There is the financial materiality, i.e. the risk perspective from the outside in (“outside-in”). It describes the financial impact on the company of external risks such as the environment or social problems. And then there is impact materiality, i.e. the impact of a company on the environment and society (“inside-out”). So there are two very different dimensions behind the term ESG investment, which is fine – as long as we know exactly which of the two goals we want to achieve with the investment.
And this is where the ratings lack significance?
There is another problem: The three areas E, S and G are by nature very different. So when I see an ESG rating, it doesn’t tell me clearly whether it refers to E, to S, or to G. In fact, it looks at all three and combines this into a synthetic rating.
What exactly is problematic about this?
Basically, the rating says nothing, or very little. Let’s take the case of a company that has very good social practices and good corporate governance, i.e. treats its employees well and so on – but has a terrible impact on the environment. So it gets a good rating for S and G, and a negative rating for E. That then comes out to an average good rating. And so then you find companies with very negative environmental impacts in ESG portfolios. Again, the average person can’t see that at first glance unless they dig deep into it.
In a recently published report, you call for the different areas of ratings to be separated. What does that mean?
We propose something very simple and logical: ESG rating providers do their work for each individual area anyway. Therefore, they should offer a separate rating for E, S, and G, and each for impact and financial materiality. As a user, I will then be able to use these ratings properly, with a clear idea of what issues I am addressing with my investment.
The sustainability rating agency Morningstar Sustainalytics reacted to this proposal with the objection that the direct users of ESG ratings are not retail investors but experienced professional investors. These would understand that different providers deliver different ratings and appreciate this diversity.
The problem with today’s ESG ratings is not their diversity. Diversity is welcome as long as there is clarity about what is being rated and how it is being rated. The problem with an ESG rating process that lumps E, S, and G together in their dimensions of financial materiality and impact materiality is that it creates confusion by adding apples and oranges – and it creates an unfounded appearance of rigor that is detrimental to the healthy development of ESG investments.
We must also remember that at the end of the chain, the money belongs to the retail investors, even if it is managed by professional investors, and that if the retail investors lose confidence, the whole ESG investing will collapse.
On June 13, the EU Commission plans to present a draft law to regulate ESG ratings and their providers. In addition to the lack of transparency and monitoring of the market, one of your criticisms is the existing conflicts of interest of the rating agencies. What do these consist of?
I expect that the most difficult debate will be the one about separating the consulting business from the rating business. If an ESG rating provider sells consulting services to a company, the rating provider should not also rate the company. Otherwise, he ends up giving a rating on a company from which he receives money.
What do you suggest?
Our proposals here are inspired by the rules for credit rating agencies. We believe that the rules that the EU has adopted for credit rating agencies regarding conflicts of interest will also be largely sufficient for ESG rating agencies. This would also facilitate their introduction.
If the EU and the USA have their way, a raw materials club should bring together Western countries and resource-rich countries in Asia, Latin America and Africa to enable raw materials partnerships on an equal footing. Under discussion is whether governments can waive export restrictions or tariffs in mutual trade in mineral resources, and whether common environmental and occupational safety standards can be established for mines or smelters. In short, mutual recognition is to be promoted in the interests of international trade.
In this discussion, the scrap metal trade must be taken into account. Trade in recycled metals is an integral part of establishing green lead markets, as the use of recycled materials is a necessary prerequisite for the production of green products. The use of recycled metals such as aluminum, copper or steel saves energy and greenhouse gas emissions and reduces the consumption of ores.
It is important to emphasize that fair and free trade in scrap should not be the preserve of industrialized countries alone. Emerging countries have the same right to access recycled metals. This access will enable them to build their own sustainable industries and reap the benefits of recycling for their economies and the environment.
At the meeting of the Material Recycling Association of India, the Indian steel minister emphasized that India, as the world’s second-largest steel producer, wanted to become a responsible steel producer and therefore expected scrap use to increase. India sources the material from the USA and the EU, among others.
This brings us to the crucial point. Trade on an equal footing means that we always supply raw materials to where they are needed. Turkey is an important sales market for certain grades of steel scrap, India for certain alloys of aluminum scrap, and the USA for nickel scrap. Conversely, countries like India are important exporters of ferroalloys to the EU, which we need here for steel production.
Trade in metals is not a one-way street. If we want to import raw materials from the global South, we must also export raw materials there. “Close the loop does not mean close the market. Especially not if the necessary processing capacities are lacking in this country to use all the processed metals. The formula for an international circular economy is simple: the more capacity, the more recycling”.
There are already eight billion of us on the planet today. If we want to enable everyone to enjoy a certain level of prosperity, we must include countries like India, Pakistan, Malaysia or Thailand in our trade structures. This means recognizing common environmental and labor standards and thus minimizing import and export restrictions. The EU Waste Shipment Regulation currently under discussion increases trade barriers for scrap metal, something the Association of German Metal Traders and Recyclers criticized as early as 2021.
It is therefore all the more important that future raw material clubs take into account the international markets of the metal recycling industry and maintain and promote mutual market access. Metal scrap belongs “in da club”.
