As the world grapples with a myriad of environmental and social challenges, businesses are increasingly held accountable for their impacts on society and the planet. Now, regulatory bodies are taking notice, leading to an increasing number of ESG-related reporting requirements around the globe.
Navigating these new regulations and understanding the frameworks can be complex, but doing so can pave the way for not just compliance, but also significant opportunities.
This guide aims to decode the intricacies of ESG reporting regulations and non-governmental frameworks in Europe, North America, and the United Kingdom. It presents a comprehensive outlook on ESG reporting essentials, detailing the current regulatory landscape and its implications for businesses.
You can download the full ESG Reporting Guide (PDF) here.
In the UK, large companies must report their greenhouse gas emissions, energy consumption, and energy efficiency measures under the Streamlined Energy and Carbon Reporting (SECR) regulations. This applies to all large UK companies, public and private alike, as well as LLPs and qualifying partnerships. Simultaneously, companies must divulge climate-related risks in their annual reports as mandated by the Financial Conduct Authority (FCA).
Key reporting aspects across the FCA and SECR include:
Within the EU, large companies must report on various non-financial issues, including environmental and social impacts, human rights, and anti-corruption efforts, under the Non-Financial Reporting Directive (NFRD), last updated in 2019. This applies to public-interest entities with more than 500 employees, including publicly-traded companies, banks, and insurers. Additionally, the EU Taxonomy Regulation requires companies to report on the extent of environmental sustainability within their operations.
Under the NFRD, the following disclosures are essential:
In 2024, NFRD is set to be superseded by The Corporate Sustainability Reporting Directive (CSRD), with the goal of enhancing the quality, consistency, and comparability of corporate sustainability reporting across the EU. Key features of the CSRD include,
The CSRD will be gradually implemented over the coming years, with companies expected to comply with the new reporting requirements from 2024 onwards.
On March 15, 2022 the Securities and Exchange Commission (SEC) initiated the proposal for new climate-related disclosure regulations. Though currently delayed, these regulations are set to advance shortly.
Global Reporting Standards:
Several predominant private and inter-governmental standards form the basis of ESG reporting and sustainability performance measurement.
Science-Based Targets Initiative (SBTi): This initiative equips companies with the tools necessary for setting science-based targets aimed at mitigating their greenhouse gas emissions, in accordance with the objectives of the Paris Agreement. The SBTi not only sets the framework but also aids in tracking progress against these targets.
Global Reporting Initiative (GRI): As a comprehensive framework for sustainability reporting, GRI guides companies on reporting various sustainability issues, including environmental, social, and governance issues. This framework has gathered worldwide adoption by companies and diverse organizations.
Task Force on Climate-related Financial Disclosures (TCFD): This internationally-developed framework for climate-related financial disclosures offers insights on how to reveal climate-related risks and opportunities. The TCFD framework is extensively used by businesses and investors in evaluating these climate-related risks and opportunities.
Sustainability Accounting Standards Board (SASB): As an industry-specific framework for sustainability reporting, SASB instructs on reporting sustainability matters pertinent to a specific industry. Primarily adopted by US companies, the SASB framework standardizes sustainability performance assessment, assisting investors and other stakeholders in their evaluations.
While not always explicitly incorporated into all ESG reporting regulations and frameworks, the SDGs are, in essence, closely tied to these initiatives. This connection helps establish a system for companies to disclose their sustainability performance in a manner that substantially contributes to the realization of these universal objectives.
US: Despite the absence of a direct mention of the SDGs in the proposed climate disclosure regulations of the SEC, they do stipulate that companies disclose their climate-related risks and opportunities. This provision resonates with several SDGs, including SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). Additionally, several private sector initiatives, including the Principles for Responsible Investment (PRI) and the Sustainable Accounting Standards Board (SASB), integrate the SDGs within their reporting frameworks.
UK: While the UK’s Streamlined Energy and Carbon Reporting (SECR) scheme does not directly reference the SDGs, it insists upon companies reporting their energy use and carbon emissions. This bears a close resemblance to several SDGs, notably SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). Furthermore, the UK’s Voluntary National Review (VNR) process establishes a system for reporting on national progress towards the SDGs.
EU: Though the EU’s Non-Financial Reporting Directive (NFRD) and the proposed Corporate Sustainability Reporting Directive (CSRD) do not explicitly cite the SDGs, they do require companies to report comprehensively on sustainability concerns, including social, environmental, and governance issues. These areas intersect with multiple SDGs. The EU also maintains a Sustainable Finance Disclosure Regulation (SFDR), obligating financial market participants to disclose how they integrate sustainability factors, including the SDGs, into their investment decisions.
Frameworks: A large number of private sector frameworks referenced, such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), and the Carbon Disclosure Project (CDP), incorporate SDGs in their reporting frameworks. For example, the GRI’s Sustainability Reporting Standards include indicators directly pertaining to the SDGs, such as indicators addressing poverty, hunger, and clean energy.
To sum up, while not always explicitly incorporated into all ESG reporting regulations and frameworks, the SDGs are, in essence, closely tied to these initiatives. This connection helps establish a system for companies to disclose their sustainability performance in a manner that substantially contributes to the realization of these universal objectives.
Embracing ESG reporting goes beyond regulatory compliance; it presents an opportunity for organizations to illustrate their commitment to a sustainable and equitable future. Are you prepared to enhance your ESG reporting and solidify your commitment to a sustainable future?
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