As the importance of Environmental, Social, and Governance factors continues to rise in the corporate landscape, the regulatory framework surrounding them is undergoing rapid evolution. In 2024, companies face a dynamic environment where staying informed about these regulations and their reporting requirements is crucial for ensuring compliance and harnessing the benefits of responsible business practices. This report aims to provide a comprehensive overview of key ESG regulations, reporting standards, and practical steps for companies to navigate this complex terrain.
European Union: Pioneering ESG reporting standards
Corporate Sustainability Reporting Directive (CSRD)
CSRD applies to: Large EU companies (over 250 employees) and listed SMEs.
Reporting Requirements:
- Extensive information on environmental impact, including greenhouse gas emissions and resource use.
- Detailed reporting on social impact, encompassing labour practices and human rights.
- In-depth disclosure of governance practices, such as board diversity and executive compensation.
- Mandatory double assurance for listed companies, involving both internal controls and external audit of reported ESG data.
Sustainability Finance Disclosure Regulation (SFDR)
SFDR applies to: Financial market participants in the EU, including asset managers, insurers, and investment advisors.
Reporting Requirements:
- Disclosure of sustainable investment strategies.
- Integration of sustainability risks into investment decisions.
- Transparency in providing information on the environmental and social characteristics of financial products offered to clients.
EU taxonomy applies to: Companies in the EU using the “green” label for financial products or activities.
Reporting Requirements:
- Demonstration of how economic activities align with the EU’s six environmental objectives, including climate change mitigation and pollution prevention.
- Technical screening criteria provide detailed guidelines for specific industries to determine their “greenness.”
German Supply Chain Due Diligence Act (LkSG)
Applies to: German companies with more than 2,000 employees or €400 million in annual turnover.
Reporting Requirements:
- Identification and management of environmental and human rights risks in their supply chains.
- Risk management plan outlining measures to prevent and mitigate identified risks.
Other regions: A global perspective on ESG reporting
U.S. Securities and Exchange Commission (SEC)
Proposed Rule: Mandatory climate-related disclosures for publicly traded companies.
Reporting Requirements (Proposed):
- Climate-related risks and their financial impact.
- Governance of climate risks.
- Greenhouse gas emissions.
- Climate-related financial statement metrics.
- Timeline: Proposed rule under consideration, finalization, and implementation date uncertain.
Global Plastic Treaty
Potential Agreement in 2024: Sets global standards for plastic production, consumption, and waste management.
Reporting Requirements (Anticipated):
- Information on plastic footprint.
- Reduction targets.
- Implementation of plastic pollution prevention measures.
Beyond specific regulations: Industry-wide dynamics
Increased Stakeholder Pressure
Expectations:
- Growing scrutiny from investors, consumers, and non-governmental organisations (NGOs) regarding ESG performance.
- Transparency and accountability will be pivotal for building trust.
Development of International Standards
Initiative:
- Ongoing efforts to establish comprehensive, global ESG reporting standards.
- Aims to provide a unified framework for companies, ensuring a level playing field.
Staying ahead of the curve: Practical steps for companies
To effectively navigate the evolving ESG landscape, companies are advised to:
- Monitor Regulatory Developments: Regularly track changes in relevant regulations and reporting requirements.
- Conduct Gap Analysis: Assess current practices against applicable regulations to identify areas for improvement.
- Develop Robust ESG Reporting Systems: Implement systems for collecting, analysing, and reporting ESG data accurately.
- Integrate ESG into Business Strategy: Align ESG principles with core business objectives for long-term sustainability.
- Engage with Stakeholders: Communicate progress on ESG goals and address stakeholder concerns proactively.
Proactive adherence to ESG regulations and stakeholder expectations positions companies to build trust, mitigate risks, and unlock opportunities for sustainable growth in 2024 and beyond. Given the complexity and dynamic nature of this field, seeking guidance from professional advisors specialised in ESG reporting is highly recommended for specific compliance and best practices.
Discover how Permutable AI can provide crucial data to highlight ESG and supply chain risks, preventing potential compliance issues. Navigate the dynamic regulatory landscape with confidence. Reach out via the form below to discuss how our data can help ensure your compliance and strengthen your ESG practices.
