Enhesa is a Business Reporter client.
Corporate sustainability has become one of the most complex and controversial issues facing companies today. Lean too much toward promoting all things “green” and you run the risk of generating unwanted scrutiny. Ignore the very real – and growing – global sustainability reporting requirements and you will face serious fines and a reputational nightmare.
In response, many companies have simply stopped talking about sustainability altogether. A recent analysis found that the number of mentions of the phrases “environmental, social and governance,” “ESG,” “diversity, equity and inclusion,” “DEI,” or “sustainability” in corporate earnings calls for U.S.-listed companies increased significantly. The US decreased by 31 percent in April-June 2023, compared to the same period last year.
The phenomenon, which is known as “green silence,” is the result of several factors. On the one hand, there has been a localized ESG backlash whereby investor groups, policymakers and media figures have begun to speak out against corporate ESG initiatives, suggesting that they run counter to fiduciary responsibility. In fact, some 150 anti-ESG notes have been introduced by US lawmakers so far in 2024. And, according to a ISS-Corporate report, 13 percent of shareholder proposals submitted for this year's proxy season focus on countering ESG initiatives. Furthermore, the new “greenwashing” instruments introduced in the European Unionhe USAthe UK and Australia – together with several individuals Our states and EU member states – penalize companies for making sustainability claims they cannot substantiate.
Follow the rules, not the hype
But don't be fooled by this rising wave of silence on sustainability. Whether they choose to talk about it or not, companies are increasingly forced to reveal more details than ever about how sustainable their business practices really are. Now, however, these communications will not take the form of stylized marketing strategies and self-promotional press releases. They will be mandatory, secure and highly detailed risk reports that show proof in numbers, connecting the sustainability strategy with real-world business risks and opportunities.
Several new regulations are forcing this change. There is the European Union (EU) Corporate Sustainability Reporting Directive (CSRD), which officially came into force this year, the EU Directive on Corporate Sustainability Due Diligence (CSDDD), which was approved by the Legal Affairs Committee of the European Parliament in March, and the international standards for corporate sustainability disclosure on climate-related risks, introduced last year by the International Sustainability Standards Board (ISSB) of IFRS. In the United States, the Securities and Exchange Commission recently adopted rules to improve and standardize climate-related disclosures for investors, which was forced to pause quickly pending scrutiny by Republican lawmakers and a review by the U.S. Court of Appeals.
While the situation in the United States certainly highlights the controversial nature of sustainability-focused regulation, business leaders should not be distracted by the noise. Between European regulations that have already come into force and international accounting standards that are already being adopted around the world, companies around the world will need to disclose information about what they consider to be risks and opportunities arising from social and environmental issues, and also about the impact of its activities on people and the environment.
The CSRD alone includes some of the most rigorous sustainability reporting requirements ever imposed on companies, including the responsibility to disclose sustainability-related risks in their own business and that of their suppliers, and the requirement that all such information and data be carefully examined. and evaluated by independent evaluators for assurance purposes. By including suppliers in the mix – many of which will be much smaller companies – the regulation ensures that a wide variety of companies around the world, not just the largest European companies, will have to comply.
Preparing for an uncertain future
Ultimately, this increased level of scrutiny will force companies to take their materiality assessments. These assessments, which define the sustainability and ESG issues that matter most to a company and its stakeholders, are designed to guide how companies report sustainability risks and opportunities and integrate them into overall corporate strategy and planning plans. investment. Importantly, they also provide a benchmark for measuring progress and a clear, numbers-based formula for reporting sustainability risks as they would with financial or accounting metrics.
As sustainability compliance requirements continue to evolve under the watchful eye of politicians, investors, media and consumers, businesses will need robust, real-time solutions that enable them to take a proactive approach to management. of risks, one that removes the emotion of sustainability. reporting focusing on concrete data. That means working with partners who can provide a comprehensive view of the global regulatory landscape. It is simply not enough to have partial knowledge. Companies need a 360-degree view of their risk exposure to successfully navigate this new environment.
No one knows where public sentiment about corporate sustainability will go over the next decade. At Enhesa we believe that the best way to prepare for this uncertain future is to provide companies with all the information at their disposal to help them improve their processes, speed up decision-making on compliance and, ultimately, allow them to be prepared for what lies ahead. come later. .
Corporate sustainability can seem like a minefield for organisations, especially as regulations and frameworks are continually updated, and many are still in the process of going through the various stages of consultation. Gaining a clear understanding of the sustainability landscape is key. Therefore, whether to learn more about the relevant regulations, standards, frameworks and requirements within your jurisdictions, or to ensure your compliance programs are robust enough to withstand increased scrutiny, it is never too early to start Prepare for the changes ahead.
Learn more about the regulatory environment and its impact on companies. Read about CSRD requirements, compare the associated European Sustainability Reporting Standards with the IFRS Sustainability Standards and get advice from Enhesa on establishing and improving the basis for compliance and more.
For more information please visit www.enhesa.com.
