ESG Compliance is Complicated, but Growing in Importance
Environmental, Social, and Governance (ESG) compliance is starting to emerge as a key strategic area for many businesses. However, the current regulatory landscape is complicated – with a mix of both mandatory and voluntary disclosures.
Key legislation from around the world include the EU’s Non-Financial Reporting Directive (NFRD), and the EU Climate Benchmarks Regulation. In the US, the Security and Exchanges Committee (SEC) has signaled increased focus on disclosures related to climate, human capital management, and other ESG issues.
As it relates to third parties, especially supply chains, businesses need to be monitoring compliance according to US Dodd-Frank Section 1502, EU Conflict Minerals Regulation, and Modern Slavery Acts – required in the UK and Australia, amongst others.
Voluntary disclosure frameworks, such as the Sustainability Accounting Standards Board (SASB, now the Value Reporting Foundation) also incorporate compliance – even for areas such as fees paid for non-compliance against water/wastewater quality standards. The consensus is that these disclosures will only become more unified, and likely mandated.
The best thing a business can do to meet existing rules – as well as prepare for what may be coming – is to develop an ESG programme that is centralized, auditable, and accurate. It also must provide visibility into third-party performance across the ESG spectrum.