The Road to COP 26 – How ESG reporting requirements are driving change
Instinctif Partners and the British Irish Chamber of Commerce have teamed up to hold a series of important dialogues on Influencing the Journey to Climate Action, Sustainability, and a Just Transition, which will seek to develop an exchange of views on some of the key topics of the COP26 negotiations and a mechanism to deliver their input to positively influence these vital negotiations. To follow on from our piece on the role of the private sector last month, we look here at ESG reporting and what changes will occur with the move to mandate ESG reporting.
Ahead of the COP26 Summit in Glasgow this November, the UN and COP26 President Alok Sharma have been urging firms across the globe to sign up the ‘Race to Zero’ campaign and commit to reaching net zero emissions across their operations by 2050 at the latest. Over 3000 companies have already signed up to the campaign including Accenture, Primark and Kingspan. The level of commitment to the Race to Zero highlights how achieving net zero is not only the responsibility of Governments but of the private sector as well.
Environmental, Social, and Governance (ESG) reporting has become a major part of how regulators, stock exchanges and governments are looking to facilitate net zero. In broad terms, ESG disclosures detail how companies manage their environmental impact, relationship with employees and communities and looks at firms’ internal practices. The UK’s strong performance in relation to the decarbonisation of private sector businesses is seen by some as partly down to the introduction of mandatory climate-related financial disclosures for public companies, which improve and increase the reporting of climate-related financial information. This has led to firms taking climate change more seriously and has led to companies taking serious action in tackling their carbon emissions. In Ireland, rules for the disclosure of non-financial information by certain companies, including environmental reporting, have been in effect since 2017 through the EU’s Non-financial Reporting Directive. The European Commission recently proposed a Corporate Sustainability Reporting Directive which would revise and enhance existing reporting requirements, further showing that ESG reporting will play a key role in helping countries achieve net zero.
In April 2021, for example, the UAE Securities and Commodities Authority (SCA) released a circular indicating that all listed companies must submit a standalone sustainability report by June 30th. For next year onwards, the same will need to be submitted 90 days after the end of the financial calendar, or before the company’s annual general meeting, whichever is first.
However, while ESG reporting is becoming a key consideration for both investors and Governments, the current landscape is incredibly complex. There is an array of different frameworks, standards and initiatives depending on the region. Different regulators and stock exchanges from around the world have vastly different and arguably competing approaches to ESG reporting requirements and it can be hard for firms to keep up with the mandatory and voluntary requirements that exist from jurisdiction to jurisdiction. It is easy to see why many want to see a single, comparable set of ESG standards across the world, to make reporting easier. However, such standards are a long way from reality, and it is unlikely that COP26 will deliver such a framework.
While a single, standardised global set of ESG reporting standards is very much a distant reality, companies should not rest on their laurels and wait for further clarity, not should they panic in the face of the different obligations. When first considering ESG reporting, firms should have a well-considered, clearly articulated vision, that is right for their business and looks at how their company performs on environmental, sustainability and governance. This vision needs to be clear and simple and should be communicated clearly throughout a company’s external and internal communication channel.
Firms should try to reach a level of transparency through disclosures that adhere to local customs, regulations, listing rules and competitor best practice while also ensuring they adopt an approach, irrespective of the reporting framework or standard, that works for them. With this in place, companies will be well placed to tackle the different ESG requirements and standards and have an approach that will be able to work with any future obligations that may be introduced.