ESG regulations vary from country to country and are crucial for international companies
Author: House of Eden
The ESG Disclosure Rules are provisions that require companies to report on their environmental, social, and governance (ESG) practices. These regulations vary from country to country, but are crucial for international companies. Attempts at harmonization and automation have so far not been successful.
Regional differences in ESG disclosure requirements
In Europe, EU regulators have launched a number of ESG initiatives. These include the EU taxonomy, the Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Reporting Directive (CSRD). These regulations aim to improve the transparency and sustainability of financial markets. In addition, investors should be informed about the ESG practices of the companies.
In the UK, the Financial Conduct Authority (FCA) is following the Greening Finance Roadmap. The aim is to promote sustainable investments and combat greenwashing. UK companies are required to disclose their ESG practices and provide investors with transparent information.
In Asia, ESG regulation is fragmented but there are moves to harmonize it. For example, China is working with the EU to align the taxonomy for green investments. Other countries in the region, such as Japan and South Korea, have also adopted their own ESG policies. They are intended to improve the transparency and sustainability of the financial markets.
Harmonization and automation of ESG regulations
Businesses face numerous challenges in complying with these regulations. Such as the complexity of the various requirements and the need to produce accurate and meaningful ESG reports. Automation tools can help overcome these challenges. The tools handle the collection, storage, organization and analysis of ESG data. They then create required ESG reports.
Another step towards global harmonization is the establishment of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards Foundation (IFRS). The ISSB aims to develop globally accepted standards for accounting and disclosure of sustainability data. This is intended to provide investors and other market participants with consistent information about sustainability-related risks and opportunities for companies.
That happened in Germany Supply Chain Due Diligence Act (LKSG)came into force on January 1, 2023, and obliges large companies to comply with social and environmental standards throughout their supply chain. This regulation is not limited to German companies and affects all companies that sell goods or products on the German market.