Leaders of governments, businesses and NGOs met last week at the World Economic Forum, which was hosted in Switzerland. Topping their concerns were climate change, cost of living and geopolitics.
Position Green, a provider of ESG reporting software, stated this focus on climate change is refreshing compared to the previous events where sustainability issues have been forgotten over economic priorities. It attributes this new prioritisation due to the fact it is becoming increasingly hard to ignore the evidence of climate change, whether it is flooding, heatwaves, wildfires or famine.
It added, “Participants at Davos are also keenly aware of the growing scrutiny of environmental, social, and governance (ESG) claims made by companies and investment funds.
“The prospect of a significant wave of ESG disclosure regulation, set to take effect in Europe by mid-2023, further highlights the importance of this issue.” With sessions on greenwashing, climate regulations, climate litigation and decarbonisation, action is being taken.
Regulation pressures to continue
Regulation is going to be a major part of ESG in 2023. Position Green pointed to the European Union’s launch of the Corporate Sustainability Reporting Directive (CSRD) and the publication of the European Sustainability Reporting Standards (ESRS), which it claims signals a comprehensive expansion and overhaul of sustainability reporting requirements.
With these changes, ESG considerations will be put on par with financial for around 50,000 companies, with phased implementation commencing in 2024 and first reports to be published in 2025.
Across the pond, the US SEC also looks to increase ESG-related regulations. Last year, the regulator proposed rules to enhance and standardise climate-related disclosures for investors. These changes would require registrants to include certain climate-related disclosures in their registration statements and periodic reports. This would include information around climate-related risks that could impact the business.
Then there is the draft ISSB standards for climate and sustainability, which would require companies to use climate-related scenario analysis to report on climate resilience and identify climate-related risks and opportunities.
The value of data
Position Green stated that it is already working with many early adopters of the ESRS. One of these is a global corporation headquartered in Sweden, which it claims is recognised as a leader in ESG practices. The results of a gap analysis found that this company met only 35% of the disclosure requirements within the ESRS, highlighting the significant challenge that companies will face in complying with new regulations in the area.
It added that the scope of data being collected will bring new challenges, especially for those that have relied on manual data collection and spreadsheets. The most effective way to become compliant and ensure high-quality reporting is by collecting and reporting sustainability data regularly through the use of sustainability reporting software.
Position Green stated this data is critical in assessing ESG credentials of companies for due diligence or when making funding decisions. It stated that improved ESG credentials can affect access to and cost of capital, particularly in industries that are vulnerable to the decarbonisation of economic activity and at risk of stranded assets.
Position Green concluded, “Companies that focus on sustainability will be better equipped to navigate global shifts and overcome challenges. They will be able to maximise their chances of long-term financial success and help accelerate the transition to a more sustainable future.
“At Position Green, we advise taking a proactive approach when it comes to compliance with new sustainability disclosure requirements. The time for action is now. Business has a responsibility to help lead the way towards a more sustainable, fair and resilient future for all.”
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