Keep calm and be prepared for the changing ESG landscape

Global concerns about climate change, social responsibility, and corporate accountability have resulted in environmental legislation doubling in the past decade, and we are now seeing a paradigm shift in corporate reporting standards.

So what does that mean for you and your business?

In short, it means be prepared.

Many business we work with have embarked on the B Corp journey to help them adapt to the changing needs and expectations of all stakeholders, and others are taking a less structured approach.

However, research shows that despite the increased awareness of the social and environmental challenges facing us, the majority (98%) of sustainability programmes fail (Bain & Company, 2017)

This blog post outlines the current and forecasted changes in ESG (Environmental, Social, and Governance) regulations and legislation that could or will impact businesses in the UK.

From Double Materiality, to integrated financial reporting requirements regulations are changing rapidly.

By understanding and adapting to these changes, businesses of all sizes can align with the evolving needs and expectations of employees, clients, customers, investors and regulators.

The concept is clear; businesses must consider and report the impact of their decisions on all stakeholders (including climate and the environment), and understand and mitigate the impact of social and environmental challenges on the future success of the business.

In short, we need to understand and report how our business impacts people and our planet, and how social and environmental changes impact our business.

Depending on the size and sector of your organisation there are a number of regulatory and optional frameworks.

An overwiew of the current Landscape:

1. TCFD (Task Force on Climate-related Financial Disclosures)

   The UK government has strongly endorsed TCFD, fostering transparency regarding climate-related financial risks. The TCFD has developed a framework to help public companies and other organisations more effectively disclose climate-related risks and opportunities through their existing reporting processes. It is estimated that around 1,300 organisations will be covered by the mandate in the first instance. It will apply to all companies currently required to produce a non-financial information statement annually – so listed companies, banks or insurers with more than 500 employees. Read more here

2. CSRD (Corporate Sustainability Reporting Directive):

   The CSRD, an update to the NFRD (Non-Financial Reporting Directive), expands non-financial reporting requirements. It is set to make ESG reporting mandatory for more companies, including SMEs, broadening the scope of transparency. The CSRD takes a double materiality perspective. This is an important distinction from other frameworks, such as the International Sustainability Standards Board (ISSB) and TCFD. Currently, CSRD applies to organizations with over EUR 20 million in total assets, a net turnover of EUR 40 million and/or 250+ employees. These entities are referred to as 'large undertakings' within the CSRD and include both EU companies and EU subsidiaries of non-EU companies. However, as Chris Fenwick explains in this helpful explanatory video, “the downstream impacts of CSRD will reach you eventually”

3. GRI (Global Reporting Initiative):

   GRI standards serve as a foundation for sustainable reporting. The GRI framework is increasingly adopted by businesses seeking comprehensive reporting guidelines, reflecting a growing trend toward standardised ESG disclosures. GRI is used by more than 10,000 organisations of all shapes and sizes in over 100 countries and the Standards remain the most widely used sustainability reporting standards globally. Read more here

4. GHG Protocol (Greenhouse Gas Protocol) and SBTi (Science-Based Targets initiative):

   These standards focus on measuring and reducing greenhouse gas emissions. With climate change concerns intensifying, adherence to these protocols is expected to become more stringent, influencing reporting practices significantly. We are already seeing an increasing number of global businesses impose these two standards on their entire supply chain.

Forecasted Changes:

1. Integrated Financial Reporting: The integration of ESG metrics into financial reporting is set to become more prevalent. Companies will be expected to demonstrate how their financial performance aligns with their social and environmental impact, offering stakeholders a holistic view of their sustainability efforts.

2. Double Materiality: Traditionally, materiality in financial reporting pertained to the impact of financial information on a company’s value. In the context of ESG, double materiality considers the impact of environmental and social issues on a company's financial performance and conversely, the impact of a company’s financial performance on the environment and society. This dual perspective necessitates a comprehensive approach to ESG reporting, urging businesses to assess risks and opportunities from both angles.

Adaptation Strategies:

1. Stay Informed: Regularly monitor updates from regulatory bodies and industry standards organizations to stay abreast of evolving ESG requirements. We’re working hard at UK for Good to support you with the increasing changes in legislation and regulation. If you are an existing client or UK for Good member expect some new and exciting news from us soon on this.

2. Invest in Impact on Board: Sustainable businesses succeed because they ‘get it and embed it. Social and environmental impact is everybody’s job and is embedded from the boardroom into every fibre of the organisation. Set clear, realistic ESG goals, and robustly review, measure and improve.

3. Engage Stakeholders: Identify and actively engage with employees, customers, clients, and investors to understand their expectations and concerns. Transparent communication builds trust and demonstrates commitment to ESG principles.

4. Collaborate and Share Best Practices: Collaborate with other businesses, charities, and infrastructure organisations (such as Business Declares and Better Business Act) and participate in forums to share best practices. Learning from others’ experiences can accelerate your adaptation and impact.

The acceleration of ESG regulations in the UK emphasises the pivotal role of businesses in mitigating climate change, fostering social equity, and ensuring transparent governance.

By proactively adapting to these changes and embracing the concept of Double Materiality, presents an opportunity for businesses not only to comply with existing and future regulations but also enhance their reputation, attract investments, and secure their future in an increasingly sustainable and socially responsible global economy.

Please talk to us to see how we can help you adapt to the changing needs and expectations of employees, customers, investors and regulators.

You can email me directly here