HOW TO PREPARE FOR UPCOMING ESG CHANGES


NICOLETA VOICU
5 January '24

2 minute read

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Voluntary and mandatory disclosures are becoming increasingly aligned. We are currently going through a watershed moment in which voluntary standards and frameworks (the famous alphabet soup of the ESG reporting) are being converged in a limited number of mandatory standards.

These are initially targeting large corporates mostly but will soon filter through the mid-market. Therefore it is vital for companies to be prepared by considering- the following key items:

ESTABLISH A BOARD-LED GOVERNANCE STRUCTURE

Companies need processes and controls – as well as involvement of appropriate senior management – to identify impacts, risks and opportunities and perform a materiality assessment to cover both their operations and their upstream and downstream value chain. Processes for data validation should be set up as part of ESG controls to help ensure data completeness and accuracy, and upcoming changes in making sustainability assurance mandatory. To do this a cross-functional governance structure and a sustainability data management systems are required.

INTEGRATE SUSTAINABILITY INTO CORPORATE RISK MANAGEMENT SYSTEMS

Internal controls, appropriate monitoring, and governance are essential to meet stringent reporting requirements. Resilience should be considered from an outside-in perspective, must be company specific and material.

PREPARE FOR ASSURANCE

Limited assurance of sustainability information is mandatory under CSRD and ISSB and likely to be mandatory in the future for SECR and TCFD. And there is ambition to move to reasonable assurance at a future date. Typically assurance is provided by a company’s auditors. Therefore conversations with auditors should begin as soon as possible to help ensure thorough preparation and preconditions are present.

CONSIDER SHORT, MEDIUM, AND LONG-TERM HORIZONS

Stakeholders expect qualitative and quantitative reporting to be both forward looking, covering the short, medium, and long term, and retrospective. To satisfy reporting requirements, companies need to explain their strategy and targets. Consequently, every company should set a net-zero emission target accompanied by a carbon reduction pathway. They must understand the long-term implications of such targets and develop realistic roadmaps to meet them.