In recent years, a growing number of ESG (environmental, social, and governance) regulations have been passed around the globe.
More and more companies are being asked by investors to disclose their data, and more regulations are coming in full force. For institutions in the UK, it seems as if mandatory disclosures are just around the corner.
It is important to understand how regulations could affect your business, and to be prepared to start collecting, analysing and reporting on your ESG practices.
What are ESG Regulations?
ESG regulations are a set of requirements placed on an organisation to publicly disclose information about their ESG performance.
Although environmental, social, and governance (ESG) concerns have recently become a focus, the regulation surrounding these matters is even more current. Adhering to ever-changing regulations poses a difficulty, particularly for organisations in the early stages of developing their ESG reporting initiatives.
ESG regulations vary by country, and staying informed, as well as compliant, of these differences is crucial for companies doing business abroad.
The repercussions of non-compliance can be staggering. This can include large fines, a loss of public trust through poor publicity and, ultimately, an impact on revenue. It’s time to start understanding how ESG regulations might affect your organisation.
What are the current UK regulations?
At present, the UK has no single ESG law or regulation. The UK’s ESG policy consists of domestic and EU-derived laws and regulations, many of which are not ESG-focused.
However, one key regulation for ESG disclosures in the UK that does exist is the Companies Act. It includes requirements for annual reporting, and this applies to larger companies that are listed, have more than 500 employees or exceed £500 million in annual turnover.
Non-financial information has always been a requirement of these reports but the Act was extended in 2022 to include sustainability details. Large UK companies are now required to report on energy usage and carbon emissions as part of their annual reports.
Some sectors and organisations of a certain size now have standards they may have to report against. For example, the Housing sector has the Sustainability Reporting Standard, which whilst currently optional is paving the way for industries to specialise and standardise their ESG Reports.
Additionally, starting in 2023, ESG reporting in the UK will be further defined through Sustainability Disclosure Requirements (SDRs). The SDRs offer a framework for companies to handle sustainability opportunities, potential risks, and effects, while also establishing measurable goals and objectives.
While the SDRs are rolled out over the next two years, fully mandatory disclosure is expected by 2025.
For financial years starting after 6 April 2022, TCFD based reporting will be mandated for more than 1,300 of the largest UK-registered companies and financial institutions.
This encompasses numerous major publicly traded corporations, financial institutions, and insurance companies in the UK. Additionally, sizeable private companies are also subject to the new regulations.
New legislation affects not just large companies and institutions in the UK, but also the businesses that are in their supply chains. This emphasises the need to start reporting on ESG matters, regardless of whether you are directly impacted or not.
What are the future ESG Regulations?
Other developments in ESG reporting expected over the coming year include a mandatory requirement for certain companies to publish "net zero transition plans". These should outline how they will adapt as the UK moves towards a low carbon economy by 2050.
It is also worth noting that European corporate sustainability reporting requirements may well impact non-EU companies in the future. If they have significant EU activity or fall within the value chain of an in-scope EU company, they could be affected.
The new CSRD requirements mandate that both private and public EU companies provide detailed information on sustainability-related issues. This also applies to any non-EU companies with a substantial presence in Europe.
The International Sustainability Standards Board (ISSB) released its exposure drafts on 31 March 2022 with comments to be received by 29 July 2022. The proposed guidelines establish the criteria for disclosing information on climate and overall ESG reporting. They are likely to be implemented into UK legislation by 2024 or 2025.
While ESG reporting requirements are rapidly expanding, these regulations mostly build on existing reporting frameworks, such as the TCFD.
Although not all companies are subject to these regulations, there is a growing demand from investors for reporting. Therefore, businesses can anticipate this evolving scenario by embracing the best practices of ESG reporting without delay.
How Convene Can Help With Your ESG Reporting
Here at Convene we have developed our own ESG reporting tool: Convene ESG.
Our aim is to alleviate some of the challenges of ESG data gathering, performance tracking, and reporting for ESG factors so organisations can move towards global sustainability and net zero.
Designed in collaboration with our clients, Convene makes reporting simple, so you can focus on developing sustainable strategies.
Convene ESG can help you report on a range of existing standards including the TCFD, GRI, SRS, amongst a range of others.
It also has a built-in comparison feature, which allows you to compare against competitors' formatting of their publicly accessible reports. This will help your organisation develop the best results possible.
It's important to understand the ESG landscape and its regulations, even before these regulations are mandatory, so you can be prepared to face ESG disclosures head on. It helps not only your organisation, but the planet, to focus on how you can improve ESG practices.
You can learn more about Convene ESG, and how we can help your organisation achieve your ESG goals, here.