Environmental, social and governance (ESG) reporting has become an important part of business operations today. Investors, consumers, and other stakeholders want to dig deeper into company operations and confirm one thing: the company has a strong focus on ethics, climate and sustainability. ESG regulations are also quickly getting introduced, and companies are required to comply. Most of these regulations come with serious implications for non-compliance, which can easily sink your company into financial losses, legal battles, severe penalties and even exiting the market.
As a company/ business manager or entrepreneur, “how well do you understand ESG regulation in your country?” Keep reading as we highlight some of the common laws and policies as well as strategies for compliance.
Common ESG Regulations and Applications
The ESG regulations used today differ from one country and region to another. Indeed, most investors always check these regulations because they want to be associated with companies that are responsible and respect rules set by the regulator. It is also a good way of reducing the risk to their investment. So, let’s highlight some of the policies and rules and their application in different jurisdictions:
- Taxonomy Regulation
The Taxonomy law came into force in January 2022. It is designed to help investors, companies, consumers and policymakers to understand what activities are deemed to be sustainable by using a well-defined classification system. One of the main requirements of the taxonomy law for the European companies is mandatory environmental, social and governance (ESG) reporting requirements for both financial and non-financial operations. Companies operating within the EU are required to also demonstrate to which extent their products meet the Taxonomy regulatory criteria.
- Corporate Sustainability Reporting Directive (CSRD)
This law is still at the EU Commision proposal stage and is aimed at amending the current Non-Financial Reporting Directive. It is aimed at ensuring that more companies that work under the European Union bracket are brought to the reporting bracket. In addition to encouraging more companies to become sustainable, the law also aims to make the disclosure or reporting more comprehensive. Furthermore, it will leverage the overarching European Green Deal to help take the EU closer to its net-zero emission target. The EU Commission is expected to adopt CSRD by the close of 2022.
- ESG Regulation in Asia
Unlike the European Commission and EPA, the ESG regulations are pretty fragmented across the Asia-Pacific (APAC) region. But even with the fragmentation, there are major strides towards business sustainability that businesses and investors can look to. In 2021, ASEAN members issued the first version of its ESG laws. The laws mirror the Taxonomy model of the EU, and are being used to act as a crucial bridge between private sectors and governments on matters of sustainability.
- HKEX ESG Regulations
Individual states and authorities in Asia are racing ahead of APAC to craft individual policies to guide sustainability-related considerations, including risk management, addressing climate change, and guiding investments. Hong Kong Stock Exchange (HKEX) is already leading the way with its comprehensive Environmental, social and governance (ESG) reporting guideline for all listed companies.
These guidelines require all HKEX-listed companies to provide comprehensive ESG reports for stakeholders to read.
The ESG report is also expected to identify future risks and strategies for addressing them.
What You Need for ESG Regulation Compliance
The laws, rules and proposals for companies sustainability that we have highlighted above are only a few of what is happening in the ESG world. So, how do you go about complying with ESG regulations in your jurisdiction and at the global level?
- Ensure to Have a Clear ESG Reporting Policy
This is probably the most important part when working on ESG regulation compliance. Your policy should define a clear route for driving sustainability and reporting the risks to stakeholders. Think about the best topics for sustainable practices for sustainable operations in different areas, including financial, environmental (like climate change reduction and waste minimization), and corporate governance.
- Understand and Stick to ESG Reporting Principles
One concern that has been raised by different stakeholders and government departments about sustainability reporting or disclosure is greenwashing. To prevent your sustainability report from getting labelled greenwashed, you should consider sticking to environmental, social and governance (ESG) reporting principles. This implies that from the beginning of the process of the ESG sustainability reporting to writing of the final business sustainability report, the information presented therein will be accurate, verifiable, and material.
- Work with an ESG Reporting Expert
Another method, which can simplify the process of ESG regulation compliance and reporting, is working with an expert. Because the experts are conversant with the ESG process, they can assist you to quickly set up and operationalize structures for compliance. Having helped other companies address climate-related and other sustainability related risks, the experts will help you to understand the ESG disclosures and the best way to comply with regulatory requirements. Furthermore, the expert will help you pinpoint the best green strategies for compliance with legal requirements at the local and global levels.
- Follow an ESG Reporting Framework
The last item that will help you to comply with ESG regulation, sustainability management in line with different rules/ policies and ESG corporate disclosure, and is working with an appropriate framework. Most corporate ESG management and disclosure frameworks, from the Global Reporting Initiative (GRI) to the Task-force on Climate-related Financial Disclosures (TCFD), have comprehensive maps for compliance with local government and global rules.
For example, you can count on TCFD to comply with Taxonomy rules and other European Commision policies for a green economy.
The framework you select for corporate Environmental, social and governance (ESG) reporting can also help your company surpass the local standards for product design or operations in your country. In most cases, you will find the international standards for sustainable environmental, financial, social and governance surpass what your local regulator needs. Adopting them, therefore, can help to simplify compliance with local business investment, environmental and other laws. For example, most companies committed to sustainability and that strictly follow international reporting frameworks for ESG disclosures easily get their licences renewed.
This post has demonstrated that the ESG regulation both globally and locally, like the Taxonomy law that was introduced by the European Commission, is only unfolding and more green policies are about to hit the market. Therefore, you have to be prepared and always have reports for stakeholders, such as investors and customers to read. In addition to the above attributes for compliance, you should also select the right ESG sustainability reporting app for your company. No matter your green or ESG regulation compliance needs, we have the best experts at Diginex.com to help.
Contact us now for expert assistance and A-rated ESG reporting apps, such as diginexESG and diginexCLIMATE.