In 2024, several key Environmental, Social, and Governance (ESG) regulations are expected to impact businesses globally, particularly those operating in the EU, UK, and the U.S. Here’s a quick overview of the main regulations:
1. Corporate Sustainability Reporting Directive (CSRD) - EU
• What it is: The CSRD expands on the Non-Financial Reporting Directive (NFRD), making ESG disclosures mandatory for more companies, including non-EU firms with significant operations in Europe.
• Requirements: Companies must disclose a wide range of ESG data, aligning with the EU’s European Sustainability Reporting Standards (ESRS).
• Who it affects: Around 50,000 companies operating in the EU, including small and medium-sized enterprises (SMEs), will need to comply.
2. Securities and Exchange Commission (SEC) Climate Disclosure Rules - U.S.
• What it is: The SEC’s proposed rules aim to enhance transparency around climate-related risks, mandating climate disclosures in annual reports and other public filings.
• Requirements: Companies will need to disclose Scope 1 and 2 emissions, and large companies may also be required to report Scope 3 emissions.
• Who it affects: Public companies in the U.S., with requirements varying based on company size.
3. Sustainable Finance Disclosure Regulation (SFDR) Updates - EU
• What it is: SFDR regulates financial services firms’ disclosures on sustainability risks and investment impacts.
• New Changes: 2024 updates are expected to clarify criteria for labeling products as sustainable, aiming to prevent greenwashing.
• Who it affects: All asset managers, investment firms, and financial advisers operating in the EU.
4. Task Force on Climate-related Financial Disclosures (TCFD) - Global
• What it is: While not a regulation, TCFD guidelines are becoming a global standard, with countries like the UK, Canada, and New Zealand making TCFD-aligned disclosures mandatory.
• Requirements: Disclosures cover governance, strategy, risk management, and metrics/targets related to climate impacts.
• Who it affects: Companies in the UK and others following TCFD, impacting companies across various sectors.
5. UK Green Taxonomy - United Kingdom
• What it is: The UK is developing its Green Taxonomy, setting standards for what counts as “green” or “sustainable” economic activities.
• Goal: To align investments with net-zero targets by providing clarity on sustainable investments.
• Who it affects: Investors, asset managers, and companies in the UK reporting on sustainable activities.
What Companies Should Do
• Prepare and Monitor: Regularly review ESG policies to ensure compliance with new regulations.
• Increase Transparency: Gather and disclose detailed ESG data, including climate impact and governance practices.
• Engage with Stakeholders: Keep investors and consumers informed on sustainability efforts.
• Utilize Tecsnology: Implement ESG management software for streamlined tracking and reporting.
Upcoming ESG regulations in 2024 reflect a growing commitment to sustainability and accountability worldwide.