It’s time to make ESG performance a priority has been saved
Perspectives
It’s time to make ESG performance a priority
Many regulators, investors—and customers—demand it.
Company disclosure of environmental, social, and governance (ESG) performance has become mandatory along with ESG metrics for many organizations, stakeholders, investors, and customers are taking notice, demonstrating how climate matters can impact financials—and intangible value. As the regulatory landscape rapidly evolves, those who are proactive may have a greater opportunity to benefit.
Global ESG rules and regulations underway
Given the global reach of certain regulations, companies across the board—public or private, domestic or international—will likely be subject to ESG disclosure. Let’s take a look at regulatory activity by region.
The European Parliament has adopted the Corporate Sustainability Reporting Directive (CSRD) and the accompanying European Sustainability Reporting Standards (ESRS), with reporting set to begin as early as 2024.
ESRS is much more robust than the SEC’s climate disclosure rules and consists of 12 standards across environmental, social, and governance matters. The CSRD also includes a stakeholder-focused double materiality assessment that will require companies to specify how sustainability matters affect the company and how the company’s activities affect people and the environment.
While the majority of listed companies in Europe will be subject to these new disclosure requirements, the CSRD will also apply to companies not established in the European Union but that are listed on EU-regulated markets, as well as EU subsidiaries of non-EU companies. This means that many US-based entities are going to be subject to these requirements; in some cases, under a more accelerated implementation period than the SEC climate disclosure requirements, and with an expanded scope of reporting and assurance requirements.
In the United Kingdom, large companies4 began mandatory ESG reporting in April 2022.5 The reporting requirements are based on recommendations set forth by the Task Force on Climate-related Financial Disclosures (TCFD).6 Hong Kong, Singapore, Japan, and Malaysia have announced their own mandatory climate disclosures in line with TCFD recommendations.
The United Kingdom has also signaled its intention to mandate disclosures aligned with standards set by the International Sustainability Standards Board (ISSB), a sister board to the International Accounting Standards Board. China has revealed plans to adopt ISSB as well. Elsewhere in Asia, the ASEAN Taxonomy Board released the ASEAN Taxonomy for Sustainable Finance to help member states address environmental objectives.
Building an effective ESG program
Most regulated entities in the United States and European Union may be facing fairly aggressive timelines to begin maturing their programs. To meet them, you should understand where your company stands today. To determine what progress may look like, identify which category, below, describes your company’s current state.
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01
Fundamental
In this beginning stage, you’ve likely yet to adopt a guidance framework, publish an ESG report, or complete a materiality assessment.
02
Efficient
Typically, you have governance and data collection in place, and your business has initiated a more efficient approach to ESG.
03
Strategic
At this point, your business starts to identify ESG controls and possesses the operational technology to support the process.
04
Groundbreaking
Generally, your established ESG program includes internal controls that are aligned with internal audit, risk, finance, and sustainability.
The journey to integrated ESG reporting
ESG reporting may seem fragmented and fraught with ambiguity today. But the regulatory landscape is evolving rapidly. We’re seeing consolidation among existing frameworks, with requirements being incorporated rather than retired. And although it’s still early days for ESG reporting, the teams and roles associated with sustainability are starting to become more consistent from one organization to the other. Teams often include people with audit, risk, and sustainability backgrounds.
Some still might ask: Is ESG worth the investment? It seems so. There is a clear trend that more regulation is coming, and it doesn’t appear that customer or investor demand is slowing down. Depending on where you are on your journey, remember that you’re not alone.
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 Evan Harvey |
 Judson Aiken |
Endnotes
1US Securities and Exchange (SEC), “Enhancement and standardization of climate-related disclosures: Final rules,” March 6, 2024.
2US Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA),“Federal acquisition regulation: Disclosure of greenhouse gas emissions and climate-related financial risk,” November 14, 2022.
3Science Based Targets initiative (SBTi) homepage, accessed November 2023.
4Large companies are defined as undertakings that meet at least two of the following criteria on their balance sheet dates:
1) greater than €25 million balance sheet total,
2) greater than €50 million net turnover, or
3) greater than 250 employees.
5UK Department for Business, Energy & Industrial Strategy, Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs: Non-binding guidance, February 2022.
6Task Force on Climate-related Financial Disclosures (TCFD), About, accessed November 2023.
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