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The ESG Review: An EU rulebook and a UK opportunity?

New EU rules that compel large and mid-sized businesses to disclose more about their ESG plans and performance will also require that information to be audited. Yet in parallel, the case is being made that, by comparison, the UK has an opportunity to lead on ESG.

A provisional agreement by the European Parliament and member states last week means that the new reporting requirements are due to take effect from January. Reporting will be standardised to help stakeholders compare company performance, but will have to be externally audited, and will centre on the impacts of their activities and supply chains on the environment and people.

The agreement, which is partly aimed at tackling corporate greenwashing, now awaits ratification by the Council of the EU and the European Parliament.

Meanwhile, equivalent legislative tracks in the UK are beginning to increase confidence - if opinion pieces and commentary in the business media are to be believed - that the pragmatic and straightforward approach to standardising disclosures will give UK businesses an advantage.

A chest-beating piece in CIty AM made the case that “Brexit could give London the agility and flexibility to eclipse the rest.” It outlined the Financial Services Bill as a platform for building the UK’s own regulatory and reporting framework as the Financial Conduct Authority rolls out new rules over the remainder of this year.

It illustrates how ESG can become a “golden thread” woven through regulation to make the UK a more attractive place to invest and do business than the EU bloc. “There are over 500 pages in the EU taxonomy alone, and it’ll be a long time before compliance teams begin to understand the full scope of the impact of this regulation,” it said.

Meanwhile the FCA announced that issuers of bonds raising finance for ‘green’ projects should voluntarily apply industry standards to avoid greenwashing, in a light-touch clarification that it called a “measured approach”, setting out clear guardrails as the ESG market continues to develop.

There was, generally, more positivity about ESG investing and the long-term future of stakeholder-capitalism-at-large this week. According to the FT, private investors remain committed to ESG and net zero commitments, despite the disruption and shift in priorities caused by the Ukraine war.

And a barbed opinion piece in The Times slammed Elon Musk’s recent ESG takedown, telling him “​​You have wasted a unique opportunity to help fight important misconceptions about ESG and impact measurement.”

It all points to the UK having the opportunity to become something of a poster child for a transparent, proportionate, measured and above all clear approach to assessing ESG transformation and performance.

It may not be as simple as that in practice though. For large multinationals with complex operations and assets, being based in the UK may not ‘liberate’ them from strings of compliance requirements at EU levels and even in the US, where the SEC’s ESG regulations continue to gather pace.

From a UK perspective, the devil will be in the detail of the regulations as the specifics emerge in the months to come. What does seem certain is that ESG reports, annual reports and ongoing major disclosures that communications teams help to shape and share will come under much greater scrutiny, and certain facts will more likely than not have to be audited.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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