COVID-19 pandemic is finally getting wrestled down, and it is time to get businesses back on track. This effort to get back is coming with new demands and pressure for businesses from different stakeholders. It is true that we are all yearning to get businesses, local and global economies back to full operations, but this has to be done more responsibly.
ESG sustainability reporting has become an important driver of the new business world, helping to define both internal and external processes. Keep reading as we look at the developments that are likely to impact companies, including the most important things to watch for.
Europe and the UK
Today, the most advanced policies on ESG disclosures are in Europe, and it appears they are about to raise the bar even higher. As the EU targets a total overhaul of financial legislation, the effects are expected in the financial sector and the entire corporate arena. The new requirements are targeted at improving transparency, channel more capital to climate-related solutions, and sweep out greenwashing. Let’s dig deeper into some of these requirements:
- The EU’s Taxonomy Regulation is setting a wide framework referred to as Taxonomy that shareholders and investors can use to determine whether an activity is sustainable. Initially, it was intended to target climate-related activities only but has been extended to social and governance considerations.
- EU Taxonomy is expected to underpin other legislations on the bloc. As a result, companies are expected to disclose their information against the Taxonomy in line with the Corporate Sustainability Reporting Directive (CSRD). CSRD stretches the previous requirements, especially for large companies that were outlined in the Non-Financial Reporting Directive (NFRD). Enterprises that are covered under CSRD include listed SMEs, non-EU businesses, EU subsidiary companies, and large companies.
- The EU Commission is also looking at the proposal put forward for regulations on Green Bond Standard. The proposal is being considered alongside communication on a renewed sustainable finance strategy that covers a number of areas, from capital bank requirements to progressive work on EU Taxonomy.
The United States
In the US, one of the most notable developments is the recent directive to the Financial Stability Oversight Council to improve on ESG disclosures. The Biden’s administration is moving with speed to install a regulatory framework that will set the guidelines for new disclosures.
Like the EU, the US federal administration wants to see more capital and efforts directed towards fighting climate change and the promotion of green industries. The ultimate goal is to use ESG sustainability reporting to achieve net-zero emission goals by 2050. Notably, this is the same goal set by the Paris Climate Agreement.
- SEC targets to accelerate investor access to crucial ESG drivers, measurements and intensify pressure on listed companies to step up commitment to sustainability.
- Already, the US House of Representatives has passed legislation that mandates new ESG reporting for all listed companies. Although some resistance was reported from the Senate, SEC has indicated that it has the authority to push through the new requirements even if congress does not approve them.
- SEC is moving a step further and is planning to require all public companies to provide enough capital disclosures. These include hiring policies, compensations, diversity, inclusion, turnover rates, and work metrics on gender.
In this post, we only highlighted the EU and the US efforts on ESG disclosures, but almost every regional block and country is adrift towards building a better planet. If you have a company or are planning to open one, it is important to start preparing for comprehensive ESG sustainability reporting because it is about to become the new norm.
Remember that ESG reporting can be complex because of the different components that are involved, multiple frameworks, and stakeholder requirements. However, you can simplify the process by working with appropriate sustainability reporting software. Visit Diginex today to get the best programs for ESG reporting.
