ESG regulations: A master list

Environmental, social, and governance (ESG) considerations have transitioned from optional corporate responsibility measures to elements of strategic decision-making and regulatory compliance. As a result, Chief Data Officers and Chief Sustainability Officers must lead their organizations to create and implement effective ESG compliance strategies.

This article lists the current major ESG regulations in the EU and the US, including those issued by global organizations.

European Union ESG regulations

Corporate Sustainability Reporting Directive (CSRD)

The CSRD, set for phased implementation starting in 2024, represents a significant ESG regulation in the EU aimed at enhancing financial market transparency.

• Key provisions: The CSRD requires extensive and detailed disclosures on various ESG-related topics, including environmental aspects aligned with the EU Taxonomy, social and human rights issues, and governance matters. It mandates companies disclose plans that align their business models with goals limiting global warming to 1.5°C as per the Paris Agreement.
• Affected organizations: The CSRD applies to large companies in the EU, including those listed on stock exchanges, banks, and insurance companies.Non-EU entities will adhere to modified disclosure standards focused on their impacts on people and the environment. A gradual move towards third-party assurance over disclosures is required, starting with “limited” assurance and escalating to a higher standard by 2028.
• Penalties for non-compliance: Non-compliance with the CSRD may result in regulatory penalties and legal consequences, depending on individual EU member state laws.
  French ESG regulations

Article 173 of the Energy Transition for Green Growth Law

France’s 2015 Article 173 is a pioneering piece of legislation in Europe specifically designed to integrate ESG concerns into the heart of financial decision-making.

It has a broad impact, influencing not only asset managers and institutional investors but also indirectly affecting the companies they invest in.

• Key provisions: The law mandates the inclusion of ESG criteria and climate-related risks in investment policies, making it a vital tool for driving sustainable finance. It also requires reporting on contributions to national and international climate goals, thereby aligning financial activities with broader environmental objectives.
• Affected organizations: Article 173 primarily targets asset managers and institutional investors, including insurance companies and pension funds, requiring them to integrate ESG criteria and climate-related risks into their investment policies and decision-making processes.
• Penalties for non-compliance: Entities failing to comply with Article 173 may face fines and regulatory actions imposed by French authorities, leading to direct financial consequences.

United States ESG regulations

Securities and Exchange Commission (SEC)

Since 2021, the SEC has been progressively focusing on ESG matters to ensure investors can access reliable and consistent information on companies’ performance and risk profiles on ESG metrics.

• Key provisions: The SEC has proposed rules to enhance and standardize disclosures regarding climate-related risks and ESG factors. These rules include detailed reporting on greenhouse gas emissions, climate-related financial risk assessments, and how the company manages climate risks. These regulations require companies to integrate ESG considerations into their financial disclosures.
• Affected organizations: Publicly traded companies in the U.S. are affected. The SEC’s regulations also impact global companies listed on U.S. stock exchanges. The impact extends to investors, asset managers, and other financial entities relying on corporate disclosures to make informed investing decisions.
• Penalties for non-compliance: Regulatory actions, including fines and penalties; reputational damage; and diminished investor confidence.

Additional U.S. ESG initiatives

Several states such as California and New York are developing ESG-related regulations, emphasizing climate accountability and sustainability in specific industries.

Global ESG standards

Global Reporting Initiative (GRI)

Established in 1997, the GRI was developed to provide a global framework for sustainable reporting. It has since become the most widely used sustainability reporting standard globally by promoting transparency and accountability.

• Key provisions: GRI standards offer a comprehensive framework for reporting environmental, social, and governance performance.
• Affected organizations: The GRI standards are designed to be flexible and relevant across all industries. They provide sector-specific guidance to address unique sustainability aspects pertinent to various industry sectors. This universal applicability has facilitated widespread adoption, making GRI a benchmark for sustainability reporting globally.
• Penalties for non-compliance: While adherence to GRI standards is voluntary, not following them could decrease transparency and accountability. It may result in diminished stakeholder trust and potential exclusion from consideration by sustainability-conscious investors and clients.

International Sustainability Standards Board (ISSB)

The ISSB was established in 2021 by the IFRS Foundation to develop a comprehensive global baseline of sustainability disclosure standards. This initiative responded to growing investor demand for consistent, comparable, reliable sustainability information.

• Key provisions: The ISSB delivers standards that inform investors about companies’ sustainability-related risks and opportunities. These standards are expected to significantly impact global business practices by standardizing how sustainability information is reported and used in financial decision-making.
• Affected organizations: ISSB standards are being developed for application across various industries globally. They seek to complement financial reporting standards by providing a holistic view of a company’s performance. Sectors most impacted by ISSB include finance, energy, utilities, manufacturing, industrial, and automotive industries.
• Penalties for non-compliance: As ISSB standards are more recent, the immediate legal risks of non-compliance may be limited. However, not aligning with these emerging global standards could place companies at a competitive disadvantage, particularly in markets where investors and stakeholders prioritize ESG compliance.

Sustainability Accounting Standards Board (SASB)

The SASB was established in 2011 to develop sustainability accounting standards, releasing its first set of standards in 2018. Its purpose is to guide public corporations in disclosing material, decision-useful information to investors.

• Key provisions: SASB standards focus on industry-specific ESG issues most relevant to financial performance and offer guidance on disclosing sustainability information in regulatory filings.
• Affected organizations: SASB has developed standards for 77 industries, providing tailored guidance that reflects each sector’s unique sustainability challenges and opportunities.
  This industry-specific approach has facilitated targeted and meaningful sustainability disclosures relevant to investors and other stakeholders.
• Penalties for non-compliance: Non-compliance could result in the inability to attract ESG-focused investments, potentially affecting the company’s market value and financial health.

Data Governance: The key to ESG success

ESG regulations and standards are swiftly becoming defining elements that are shaping sustainable business practices globally. As we have explored, from the comprehensive rules in the European Union (CSRD) and the United States (SEC) to the global standards set by GRI, ISSB, and SASB, the push towards sustainability is no longer a peripheral concern but a central aspect of corporate strategy and governance.

Effective data governance plays a pivotal role in managing ESG regulations, which have become increasingly critical in the business landscape. To comply with these regulations, organizations need robust data governance frameworks that facilitate the collection, management, and reporting of relevant ESG data. Data governance ensures the accuracy, integrity, and transparency of this information, enabling companies to demonstrate their commitment to responsible business practices.

By implementing strong data governance practices, organizations can enhance their ability to track and measure ESG metrics, identify areas for improvement, and ultimately build trust with stakeholders, including investors, customers, and regulatory bodies. Additionally, a well-established data governance framework helps mitigate risks associated with non-compliance, fostering a culture of accountability and responsible data management within the organization.

Conclusion

Navigating ESG involves adhering to regulations and embracing them as a strategic imperative for achieving a competitive advantage and long-term success. We encourage businesses to embrace this shift, leveraging the power of data governance and the capabilities of platforms like DataGalaxy to navigate the complexities of ESG compliance.

Interested in learning even more about using your data as an asset; leading your teams with data-driven decision-making; and remaining compliant in the face of several national, international, and global regulations? Book a demo today to get started on your organization’s journey to complete data lifecycle management with DataGalaxy!