Why ESG Disclosure Matters Right Now
Friday, 22nd April 2022
It’s abundantly clear that ESG is here to stay. Not only do investors like to be able to assess the environmental, social and governance aspects of a company. But so too do customers, employees, and the companies themselves.
Governments across the world, too, are taking notice of ESG disclosures, and putting them front and centre of a business’s regulation requirements. In the US, the Securities and Exchange Commission (SEC) already contains some mandatory ESG disclosure requirements. Meanwhile, in the UK, the government has announced it will be introducing sustainability disclosure requirements (SDR) as a way of combating climate change. The EU, Canada, Japan, and others have also introduced similar ESG disclosure regulations.
So, more than ever, getting your ESG reporting in order is not only good for the world around you. It’s an absolute must for your business too.
What are ESG disclosures?
ESG disclosures are reports on your company’s environmental, social, and governance impacts, filed alongside, or as part of, other company reports. These disclosures are then used by relevant parties to understand the wider impact your company is having.
Specifically, ESG reporting gives greater clarity to the opportunities and risks for investors and the working environment and company values for employees. Meanwhile, it shows the organisation’s commitment to the climate, sustainable practices, and social issues that matter for governments and consumers alike.
ESG regulatory frameworks can include:
Environmental metrics. A company’s greenhouse gas emissions or carbon emissions, for example, are at the forefront of sustainability reports—alongside energy efficiency, waste production, and air and water quality.
Social issues. ESG reports should include information about employee wellbeing, data protection, privacy policy, corporate social responsibility, health and safety, and workplace diversity.
Corporate governance. Does the running of the company meet the expectations of investors and regulators? Business ethics, the diversity of senior management and the company’s board, bonuses, and investment strategy will all need to be included in your ESG disclosure.
How is ESG disclosed?
One of the major challenges of ESG disclosure is the lack of a single, standardised framework for ESG reporting among the various ESG standards and regulations across the globe. But work is underway to address that, at least in part, for climate change disclosures.
For example, following COP26 in Glasgow in 2021, the International Financial Reporting Standards Foundation (IFRS) announced the International Sustainability Standards Board (ISSB), which seeks to implement a global baseline for ESG data and sustainability reporting. Meanwhile, the G7 in June 2021 agreed a commitment to back recommendations from the Task Force for Climate-Related Disclosures for ESG regulations.
These sorts of attempts to standardise ESG information are supported across many nations worldwide.
Yet there remain dozens, if not hundreds, of other frameworks that are used to analyse ESG information. For example, the Global Reporting Initiative (GRI), which looks at factors like energy, emissions, and compliance, is one of the world’s most commonly used ESG reporting frameworks right now.
Whichever ESG framework you use, we at Infogrid can help. With our Healthy Building System, we can enable you to monitor and improve your performance on a variety of different ESG metrics, including energy efficiency, waste levels, and employee wellbeing. And we’ll be there to help you validate your data and improve your sustainability too.
A breakdown of ESG disclosure regulations
With so many metrics, frameworks and regulatory practices, it can be tricky for companies to get on top of their ESG disclosures.
But the best way to start? By understanding regulations in the countries in which you operate and how the rules may change in the coming years. With that in mind, here’s an overview of the differing ESG disclosure regulations by country.
United States
When it comes to ESG regulation, companies based in the US are required to disclose the impacts of their business with regards to US and international climate change legislation as well as material risks to their businesses due to climate change.
There’s no formal corporate governance code, but the Security and Exchange Commission does require information about social and governance issues, including information relating to business developments, human capital resources, risk factors, directors and officers, and business ethics. Companies wishing to list on the stock exchange (such as NYSE or NASDAQ) are also subject to separate corporate governance disclosures.
The US SEC has also recently announced its intentions to update disclosure rules relating to climate change, human capital and workplace diversity, and cybersecurity risk.
United Kingdom
UK listed companies are required to make disclosures in line with the TCFD (Task Force on Climate-Related Financial Disclosures) recommendations. In their annual report, companies must disclose information about environmental activity, carbon emissions, energy consumption, their workforce, as well as social, community, and human rights issues.
Companies are subject to the UK Corporate Governance Code, which requires firms to produce an annual report so stakeholders can assess the company’s risks and opportunities. Under UK law, large company directors are also required to consider the environment, as well as social and ethical matters, in their decision-making processes. They even have to file a statement to confirm how they’ve fulfilled those obligations.
The UK government has set out further ESG disclosure requirements relating to the environment and has proposed that more large companies should be subject to the current ESG disclosure requirements.
European Union
The EU’s Non-Financial Reporting Directive (NFRD) requires ESG disclosures on topics such as human rights, anti-corruption, and bribery for some of the bloc’s largest companies. Currently, there are no binding climate-related disclosures on an EU-level, although there are guidelines available based on TCFD recommendations.
In the near future, the proposed Corporate Sustainability Reporting Directive (CSRD) will require regulatory sustainability reporting. The CSRD looks to replace the NFRD by 2023 and will apply to most large companies.
The European Commission will also publish EU-level corporate governance guidelines in 2022. It’s expected to include new disclosure requirements, such as mandatory sustainability criteria in corporate decision making and rules around human rights, governance, and the environment.
Canada
Currently, sustainability reporting is voluntary, although the Canadian Securities Administrators (CSA) have recently proposed mandatory reporting on climate change.
Canada also has mandatory and voluntary corporate governance guidelines which relate to ESG matters such as board composition, business ethics, and compensation of board members and senior officers.
Australia
Listed companies are required to report any exposure to environmental and social risks and how they’re managed. The Australian Prudential Regulation Authority (APRA) has published draft guidance for companies on what this might look like, as well as industry best practices.
Australia also has a set of corporate governance principles and recommendations, which includes ensuring ethical and responsible business culture, disclosures of exposures to environmental and social risk, and respecting rights and security.
How Infogrid can help with ESG disclosures
Monitoring, tracking and reporting ESG data can be as complex as the guidelines that regulate them. At Infogrid, we can streamline the process by helping you collect data and analytics on the efficiency of your buildings which can feed directly into your ESG reporting.
Get in touch to find out how Infogrid can help you understand your building.
