ESG compliance: Navigating sustainability-related regulations

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October 12, 2023 - Globally, organizations are sensing the urgency surrounding environmental, social, and governance (ESG) compliance planning. In the US, the Securities and Exchange Commission (SEC) 2022 announcement on its proposed climate-related reporting regulations has initiated mounting pressure. In the EU, the Corporate Sustainability Reporting Directive (CRSD) places similar demands on companies to disclose their impacts.

These new reporting regulations indicate that current voluntary disclosures are not enough to meet the UN Intergovernmental Panel on Climate Change (IPCC) 2030 goal of reducing greenhouse gas (GHG) emissions by at least 45 percent, and ultimately achieving net zero by 2050.

The regulations also demonstrate an awareness of the increasing concern among investors regarding the potential consequences of climate-related risks on businesses, prompting them to seek additional information to enhance the quality of their investment choices. The rules intend to enhance and standardize climate-risk impact reporting and disclosures to offer transparency and address investor needs. A strong, supported, and fully onboarded ESG plan, will make sustainability reporting that much easier.

Best practices for ESG and sustainability reporting include:

  • Identify material ESG issues: Identify ESG issues that are material to business operations and stakeholders. Materiality assessment involves identifying ESG issues that have a significant impact on the company's long-term financial performance and the well-being of stakeholders.
  • Follow reporting standards: Follow established ESG reporting standards such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD). These standards provide guidance on what to report and how, and what metrics to use.
  • Engage stakeholders: Engage with stakeholders to identify any sustainability concerns and expectations. Stakeholder engagement can help companies identify material ESG issues and develop strategies to address them.
  • Use relevant metrics: Use relevant ESG metrics to measure performance and progress. Metrics should align with the company's material ESG issues and reporting standards.
  • Ensure accuracy and transparency: Ensure that ESG and sustainability reporting is accurate, complete, and transparent. Organizations should disclose methodologies, assumptions, and limitations, and ensure that reports are independently verified.

Following the suggestions above will positively impact both your organization’s bottom line, but also overall company culture. ESG and sustainability reporting can:

  • Enhance reputation: By demonstrating an organization’s commitment to sustainability. Reporting also improves relationships with stakeholders, including customers, employees, investors, and regulators.
  • Attract investors: Helps attract investors who prioritize sustainability and social responsibility. For example, in 2020 sustainable investing assets grew by 15 percent to $35.3 trillion.
  • Identify risks and opportunities around ESG: For example, climate change can create physical risks from extreme weather events to regulatory, such as carbon pricing. It can also create opportunities for companies that offer solutions to address climate change, such as renewable energy.
  • Improve performance: Improve sustainability performance by setting targets, measuring progress, and identifying areas for improvement.

If an organization does not adopt a corporate ESG program or follow through with sustainability reporting, there can be several short and long-term negative consequences:

  • Reputational damage: If an organization is not seen as taking environmental and social issues seriously, it can damage the organization's reputation and erode stakeholder trust.
  • Legal and regulatory risks: Many other jurisdictions around the world have introduced laws that require companies to report on their sustainability practices and performance. Failure to comply with these regulations can result in costly legal penalties and fines.
  • Financial risks: Investors and lenders are becoming more focused on ESG factors when making investment decisions. Organizations without clear reporting may be perceived as higher risk, impacting their ability to secure financing or attract investors.
  • Operational risks: Operational risks, such as supply chain disruptions or increased costs associated with waste disposal, pollution control, and compliance may be faced.
  • Lost business opportunities: Organizations may miss out on business opportunities that require a commitment to sustainability. This can include contracts with environmentally conscious clients or partnership opportunities.
  • Decreased morale: Employees are increasingly looking for organizations that are committed to sustainability and ESG practices. Failure to prioritize these issues can lead to decreased employee morale and engagement, which can impact productivity and an ability to attract and retain top talent.

Meeting the new regulations while answering the expectations of stakeholders is going to be a hefty lift for many companies and is not something to be ignored. Adopting a corporate ESG program or following through with sustainability reporting must become a top priority to ensure long-term sustainability success.

This article was originally published by The National Association for EHS&S Management (NAEM) on September 7, 2023 under Corporate ESG and Sustainability Reporting Go Hand in Hand. Read more from Ryan in Future of work: The role of ESG regulations.

Register for the first webinar of the EU CSRD Webinar Series: Introduction to CSRD and Double Materiality for an overview of what is required to conduct a Double Materiality assessment, and observations on best practices related to disclosure topics throughout the European Sustainability Reporting Standards (ESRS).   

Follow along with more sustainability-focused content and other topics that should be at the top of your list at BSI’s Experts Corner.

Ryan Lynch

Ryan Lynch, Practice Director of Sustainability, works with organizations across multiple regions and industries to design creative solutions to drive organizational improvement, improve upon social/environmental impacts, and mitigate and remedy risks.

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