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The ESG Review: 2024 - a year when ESG regulation will begin to bite

You’re probably already getting sick of ‘look ahead’ pieces that forecast what we can expect from a sector or around a topic this year.

And we’ve done enough temperature checks on the road ahead for ESG already.

Meanwhile, publisher Ben Smith will have an allergic reaction if this piece so much as hints at a run-down of what communicators should look out for at the World Economic Forum at Davos. So let’s not do that.

Instead, this first column of 2024 will seek to take stock of what’s coming this year, but from a regulatory perspective. While law-making that seeks to bring greater transparency and standards to ESG reporting, and to continue to forge a path for sustainable transformation, has been taking shape for several years now, this year will be a big one for several pieces finally being released into the wild.

And while ESG, communications, government affairs and investor teams will doubtless be across the main pieces, there is still a lot to contemplate in a short space of time.

January

Just as we were bemoaning having to set a morning alarm again, the European Union was already out of the blocks, as the biggest piece of ESG regulation from Brussels came into effect at the beginning of January. The Corporate Sustainability Reporting Directive (CSRD). The sheer breadth of the regulation makes it the biggest piece of law-making to impact ESG activity to date, spanning climate change, pollution, water, biodiversity and multiple societal impacts.

This explainer in The Banker gives a good summary. While for larger companies headquartered in EU member states the need to comply is fairly obvious, the rules also apply to firms in the UK and other countries outside the bloc that have a “subsidiary or branch” with an annual turnover of more than €150 million. They are now compelled to track the factors covered by the directive and share the information in their annual reports or similar platforms.

The beginning of the year also saw the parallel European Sustainability Reporting Standards (ESRS) come into force, which govern how companies should report on all of this.

April

It’s not just Europe though. Just as the last of the Easter eggs are consumed, the US Securities and Exchange Commission is due to introduce sweeping new climate disclosure rules. The rollout has been delayed several times and legal challenges to it remain, but once live the regulation will compel US companies and those with significant operations there to disclose more detailed climate information, particularly on Scope 3 emissions from their supply chains. While many companies already report some of the detail voluntarily, this will make it compulsory, and go broader and deeper.

May

We wouldn’t want to miss out in the UK though. A month later, the Financial Conduct Authority (FCA) will bring in its Sustainability Disclosure Requirements (SDR), predominantly about clamping down on greenwashing. This one has been developed relatively quickly, and is still subject to some further consultation before it’s introduced.

Aimed at fund managers and how their funds are ‘labelled’, it nonetheless has consequences for communicators given its principle around “design, delivery and disclosure”, and the need to ensure that corporate wording is mindful of how those controlling funds will need to demonstrate the assessments they’re making.

June

Breathe. Oh no, you can’t. In the early days of June, the European Parliament elections will take place, with a projected shift to the political right.

This week, European Council President, Charles Michel, announced he will run, prompting a scramble amidst concerns of what any vacuum would mean during Hungary’s six month council presidency, given its controversial (by western European standards) Prime Minister. Reuters outlined earlier this month why the turbulence the elections will cause is likely to accelerate a green backlash in Brussels, and a softening stance on safeguarding the environment.

Also in June, the European Parliament’s Sustainable Finance Disclosure Regulation (SFDR) will come into effect, helping to meet some of the objectives of the European Green Deal. It will compel financial institutions to report on new ESG disclosure requirements, including their financed emissions, covers all companies “active” in the EU.

October (maybe)

A possible UK General Election, though of course this is a wild guess and it doesn’t have to take place until January 2025.

But from an ESG perspective, some of the focus will be on the impact that the election - and a prospective change of government, given current polling - will have on the UK’s delayed ‘green taxonomy’, which FT Adviser has already pointed out will likely be stronger and clearer given the tie it has taken to develop, despite a concern that investors are going cold on the UK partly because it has taken so long.

December

Finally, we’re set to end the year with the introduction of a new EU law governing deforestation, with a December compliance deadline. The regulation has a broad scope, forcing every company with cattle, cocoa, coffee, palm oil, soy, rubber and wood in its supply chain to prove that it is “entirely free” of deforestation.

It is set to be a hectic year politically, with the go-live of ESG-related regulation as a backdrop. Expect twists, turns and need for corporate communicators to adjust to some of the new stipulations. Some of which may even get brought up at Davos.

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

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