ESG reporting regulations are here. What is your next move?
Investors and advocacy groups have been increasingly pushing the importance of greater transparency into companies’ environmental, social, and governance (ESG) impacts in recent years. While investor demand continues to far outpace regulatory efforts, global regulatory bodies are beginning to introduce ESG-focused requirements that are reshaping the disclosure landscape going forward, acknowledging the overlap between sustainable practices and their influence on brand reputation and risk mitigation.
Regulations on the horizon
New ESG disclosure regulations are expected to begin taking effect over the next two years if not already in effect. To name a few:
The U.S. Securities and Exchange Commission’s proposal
The SEC’s proposed climate rule for public companies would require the disclosure of Scope 1 and 2 emissions, in addition to Scope 3 emissions in certain instances.
The Climate Corporate Data Accountability Act (CA SB 253)
Requires companies with revenues of $1B+ doing business in California to disclose their greenhouse emissions. When fully enacted, it will cover not only direct (Scope 1 and 2) emissions, but also any indirect emissions created along the value chain (Scope 3 emissions). As a result, this bill would also affect smaller subcontractors and suppliers that do business with those corporations.
California Climate-Related Financial Risk Act (CA SB 261)
Requires companies in California with revenues of $500M+ to make a climate-related financial risk report available to the public.
Corporate Sustainability Reporting Directive (CSRD)
Once in effect, CSRD will require a broad range of European companies, as well as international companies with substantial European operations, to report annually on their ESG activities and performance.
When addressing ESG issues, knowing where to begin can be tough. Here are some considerations to help get you started.
- Develop your strategy: Understand your company’s mission and values, and develop a pathway for improvement. Identify which regulatory requirements (such as CSRD or CA SB 253) may affect your company and which voluntary frameworks and guidelines are most applicable.
- Know your risks: Identify ESG-related challenges that may affect your long-term success, reputation, or legal compliance, and make a plan to mitigate them.
- Engage your stakeholders: Talk to your investors, employees, customers, and communities to understand their ESG expectations and concerns. Knowing what they care about can help determine the metrics most relevant for your business.
- Integrate ESG into your operations: Make ESG a daily thought—consider how it affects supply chain management, product development, and decision making.
- Right-size your approach: With an eye for where you are in your disclosure journey, it’s important to find an approach that works for you. That means finding a partner that works side-by-side with you, leaning on proven strategies, systems, and programs that can stand up to regulator and investor scrutiny.
Whether you’re ready or not, ESG disclosure is fast becoming a critical component of corporate reporting. Clearsulting’s alliance with HXE Partners, a Morrow Sodali Company brings the best of both worlds: A focus on global ESG strategy advisory through the right technology, processes, and people—leveling up your business performance while finding a comprehensive solution that reduces compliance risk.
Curious how we can help? Drop us a line.