The big picture
- Recent ESG regulations from across the globe are changing the game for sustainability.
- The global regulatory picture is anything but simple; companies may be subject to multiple regulations.
- Stakeholder demands, regardless of the status of regulations, continue to increase and evolve.
- A pragmatic approach based on materiality of issues is the best way to get ahead of the regulatory wave.
A regulation roundup
In recent years, increasing pressures from a variety of stakeholders have combined to drive companies toward more sustainable practices in their business operations, and greater transparency in disclosing the results of those efforts. The real game-changer, however, has been the proliferation of recent global environmental, social and governance (ESG) reporting regulations, which require a level of reporting far above the voluntary disclosures many companies have been issuing (or would prefer to issue) to their stakeholder groups.
The major regulations in play are the Corporate Sustainability Reporting Directive (CSRD) by the European Union adopted on January 5, 2023, and the highly anticipated ESG disclosure rules under consideration by the Securities and Exchange Commission (SEC) in the United States, expected to be finalized in 2023 — but there are others as well, and the global regulatory picture is anything but uniform or simple.
- In Europe, companies headquartered in countries that are not part of the EU may still be subject to CSRD rules, depending on the size and source of revenues of their European operations. In addition, some of those countries have their own ESG disclosure requirements, which could complicate the compliance and reporting path.
- In the Asia-Pacific region, regulations range from established and mandatory to proposed, and in most cases are enforced through the financial authorities of each country. Investor interest is a major driver behind the ESG regulations that have emerged in the region in the last two to five years.
- In the United States, the SEC is poised to issue ESG disclosure rules in the near term, the only unknowns being the final scope and degree of reporting and attestation rigor that will be required.
- New or recently updated greenwashing and modern slavery regulations further add to the global ESG mosaic. Greenwashing refers to the practice of misstating a company, investment portfolio or product’s environmental impact. Greenhushing is an attempt to avoid accusations of greenwashing by under-communicating about such impacts.
Where to begin?
To begin, companies need to understand to what regulatory jurisdiction(s) they are subject. With supply chains stretching across the globe, the answer is, most likely, more than one. They will need to perform a gap assessment against those requirements and identify reporting processes that need to be established or enhanced.
Some companies may be ahead of others in their ESG operational practices, as well as their ESG reporting, especially if they have reported voluntarily in the past using reporting frameworks like those of the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). Those companies still have to track the evolving regulatory landscape closely and ensure that they follow the specifics of the regulations they are subject to.
Protiviti recently published a white paper to assist companies in this new paradigm. The paper provides background, data, analysis of the recent developments and links to learn more. The paper also suggests an approach for companies to get up to speed, which focuses on meeting the reporting requirements by making meaningful progress. We expect that the learning curve for companies will flatten over time as regulations continue to mature and consolidate and as companies watch and learn from each other, getting help where needed.
Download the white paper here. For more on Protiviti’s sustainability solutions, visit our website.