The Landscape of ESG Regulations in 2023
Navigating the Global Landscape of Environment, Social, and Governance in 2024
In recent years, there has been a transformative shift in the corporate landscape as businesses redefine their approach to environmental, social, and governance (ESG) responsibilities. The surge in ESG initiatives reflects a growing recognition within companies acknowledging the far-reaching impact of their operations. While ESG efforts were once voluntary, they have evolved to be at the forefront of corporate accountability, spurred on by increased regulation at all levels across the globe.
The Momentum of Change:
Businesses are beginning to understand more deeply the impact their activities and operations have on the environment and people in the communities where they do business. Regulatory bodies worldwide are increasingly taking action to force companies to disclose and - in many cases - reduce potential negative impacts on the world. In many ways, the year 2023 has been a pivotal moment on this front, witnessing a significant wave of regulatory changes aimed at ensuring companies not only measure and report their ESG impacts but also take steps to improve them.
Grounded in International Frameworks:
Many of these regulations draw inspiration from international frameworks such as the Global Reporting Initiative (GRI) and the Task Force on Climate-Related Financial Disclosures (TCFD). These frameworks are designed to guide companies in disclosing their ESG impacts and risks systematically. Beginning January 2024, the ISSB will assume oversight of TCFD, and transition support through IFRS standards, which have fully incorporated TCFD. This integration follows the growing momentum toward establishing a streamlined global baseline for sustainability-related disclosures that will reduce complexity for businesses expected to leverage them. By adhering to these established standards, companies can offer transparent, accurate, and verifiable information to stakeholders, fostering trust and reducing risk. It also enables stakeholders greater ability to compare apples to apples when it comes to the ESG impacts and initiatives across companies.
Beginning to use any reporting framework can seem daunting, but we can support you throughout the journey. Looking to get started?
The Stakes Are Higher:
With the proposal or adoption of the regulations outlined below, the consequences for non-compliance have risen significantly. Companies failing to adhere to the new ESG standards may find themselves facing legal ramifications, financial penalties, and reputational damage. As business evolves, so does the risk, making it essential for companies to stay ahead of the curve to proactively navigate the compliance landscape.
Overview of 2023 ESG Regulations:
Navigating this intricate regulatory landscape demands proactive efforts to ensure compliance and foster transparency in your sustainability practices. Staying informed of evolving federal and state legislation is one of the critical steps you will need to take to achieve and maintain compliance.
Here’s a breakdown of some of the top 2023 ESG regulations and an overview of how to achieve compliance:
U.S. SEC Climate-Related Disclosure Rule:
Timeline for completion pushed to April 2024; compliance timeline to follow
Requires disclosure of Scope 1 and 2 emissions, and Scope 3 if material to business
Requires limited, and then reasonable assurance for emissions
Companies must identify climate-related risks,their likely impacts, oversight of these risks and any climate-related goals, following TCFD framework
California Climate Accountability Package:
Climate Corporate Data Accountability Act SB-253:
Applies to both public and private US businesses with revenue greater than $1M doing business in California
California Air Resources Board (CARB) currently working to establish reporting rules
Requires disclosure of Scope 1 and 2 emissions by 2026, and Scope 3 by 2027
Requires limited, and then reasonable assurance for emissions
Climate-Related Financial Risk Act SB-261:
Applies to both public and private US businesses with revenue greater than $500M doing business in California
Requires identifying climate-related physical and transition risks, their likely impacts, oversight of these risks, and any climate-related goals following TCFD framework starting in 2026
Reports must be published on the company’s website annually
EU Corporate Sustainability Due Diligence Directive (CSDDD):
Being finalized by EU legislators with expected approval in 2024
Applies to four separate categories of companies, including EU-based and non EU-based
Ensures the identification, prevention, and mitigation of adverse impacts on human rights, the environment, and society
Establishes comprehensive due diligence processes across corporate operations and value chain
Requires clear reporting mechanisms aligned with forthcoming ESRS guidelines
EU European Sustainability Reporting Standards (ESRS):
Companies within the scope of the EU Corporate Sustainability Reporting Directive (CSRD) will report using ESRS starting in 2025
Ensures accurate, consistent, and comparable sustainability reporting in the EU, aligning with GRI and ISSB (IFRS 1 & IFRS2) recommendations
Requires disclosure of sustainability impacts, risks, opportunities, strategy, targets, progress, products, services, business relationships, and incentive programs
Leverages double materiality and requires reporting on how sustainability affects business and its impact on sustainability matters
Requires limited assurance for report data and potentially reasonable assurance in the future
Canada’s Fighting Against Forced Labor and Child Labor in Supply Chains Act Bill S-211:
Companies must issue an annual report on or before the end of May beginning in 2024.
Requires detail on the company's approach to forced labor and child labor and steps that prevent and reduce risk
Requires disclosure of policies related to forced labor and child labor and the human rights due diligence processes followed by the company
Companies must outline remediation efforts in case of identified human rights issues
Requires description on internal training related to forced labor and child labor
Reports must be published on the company’s website annually
Download Uplift’s Full Overview of 2023 ESG Regulations & Updates: HERE
Preparing for 2024:
In view of the varied ESG regulations that came out in 2023, companies can see this as a call to action to reevaluate strategies and enhance ESG practices. As we approach 2024, businesses need to quickly take proactive steps to align with these new regulatory requirements if they are going to meet the rapidly approaching deadlines. Here are some key considerations:
Assessment and Measurement: Conduct a comprehensive assessment of ESG impacts and risks. Use internationally recognized frameworks to guide this process, ensuring thoroughness and accuracy.
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Transparency and Reporting: Embrace transparency by adopting a robust reporting mechanism. Provide stakeholders with clear, concise, and meaningful information about the company's ESG performance. This not only satisfies regulatory requirements but also builds trust among investors, customers, and the wider community.
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Integration into Corporate Strategy: Embed ESG considerations into the overall corporate strategy. This involves not only meeting regulatory mandates but also proactively identifying opportunities to contribute positively to environmental and social causes.
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Risk Management: Establish a robust ESG risk management system. This includes identifying potential risks associated with non-compliance and implementing measures to mitigate them effectively.
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Engagement with Stakeholders: Actively engage with your stakeholders, including investors, employees, customers, and local communities. Foster two-way communications channels to address concerns, gather feedback, and demonstrate your commitment to ESG principles.
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Conclusion:
The landscape of corporate responsibility is evolving rapidly, with ESG considerations becoming a non-negotiable aspect of business operations. The regulatory changes in 2023 underscore the urgency for companies to align with these new standards. By taking the necessary steps to prepare for the challenges of 2024, businesses can not only navigate the regulatory landscape but also contribute meaningfully to a sustainable and responsible future - something their stakeholders continue to demand. Embracing ESG is more than a mere act of compliance; it's a strategic move toward building a resilient, purpose-driven business that not only adapts to change but actively shapes a positive impact on the world.
The Uplift Agency
Uplift builds strategies, programs, and communication campaigns that advance ESG in workplaces, supply chains and communities.
We know how to navigate the road ahead because we’ve already been down it – 90 percent of our team has led environmental or social programs in corporations or nonprofits. Because ESG is all we do, our services are more comprehensive and integrated than most firms.
