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Regulatory Updates: Navigating the Evolving Landscape of ESG Regulations

ESG regulations

Why the interdisciplinary approach to the change of ESG regulations is the “law” of tomorrow.

You believe access to community well-being, equal educational opportunities, transparency, and due diligence are meaningful.

You are coming from engineering, finance, ERM, science, communications, or other fields, and you are increasingly attracted to a career in sustainability and ESG. Or, although you have many years of experience in Sustainability, you highly need challenge-specific topics, such as ESG Performance and Strategy for Companies and Investors. Are you an industry leader or board member who also needs to understand the sustainability and ESG agenda because you want your corporation to succeed?

Multidimensional scaling map of ​ESG regulations battlegrounds

As ESG regulations get stricter in the EU and U.K., with further disclosure and essential requirements in this area, the U.S. landscape is getting broken up. States are following different directions, and ESG is also becoming a political issue at the federal level. States are passing more laws that are shaping the future of ESG regulations in quite diverse ways.

That is a challenging phase for companies and investment managers that must keep their interests and investments safe while also exploring business and dealing with politics. Companies would do well to keep a careful eye on developments in this arena, considering the wide variety of potential repercussions connected with these state actions, and the pace with which they are suggested and implemented.

Legislators in California and New York have proposed laws that would compel businesses to keep tabs on the greenhouse gas emissions they cause. Under the proposed law in California, companies with annual sales of $1 billion or more would have to report their Scope 1, 2, and 3 carbon emissions to an emissions registry. The bill is important for several reasons, and it was introduced with two other climate-related bills.

During Chair Gary Gensler and Director of Enforcement Gurbir Grewal’s second year at the helm of the SEC, several important enforcement issues emerged that would have far-reaching effects on businesses in different industries. ΕSG funds disclosure and human working capital were the focal points of critical new rulemaking.

In 2022, the Division also took several enforcement actions related to ESG, which showed what the priorities are for 2023 and after.

Human Capital Disclosures: Subjective to Rules

2023 is a year when human capital will further concentrate on rulemaking and implementation actions. In June 2022, a group of experts in academia, the business world, and the SEC filed a petition for rulemaking to have the SEC establish guidelines for human capital accounting disclosure. According to the petition, public companies should release enough data for investors to know how much they have invested in their workforce. Additionally, it suggested more detailed financial reporting to clarify that costs associated with human capital should be categorized as operating expenses rather than capital expenditures.

ESG regulations

Recent Enforcement Actions

The SEC has been cautious during the examination of the ESG metrics that companies use and communicate to their investors following the launch of the Climate and ESG Task Force. Last year, an investment firm was charged with supporting the claim that their fund investments had been under ESG quality review. This was not, however, the case, as there were several errors and misstatements. Among the organizations that were alleged by the SEC to have made misleading claims regarding safety and non-compliance were a Brazilian mining company and a NY-based robo-adviser.

The Sustainable Finance Disclosure Regulation (SFDR) of the European Union is meant to make it easier for people to believe what asset managers, pension funds, and insurers say about sustainability. It does this by making more information about sustainable investment solutions available to the public. To include more companies, the EU Commission has extended its ESG initiative, one of which is the Corporate Sustainability Reporting Directive (SRD). This initiative aims to update the current Non-Financial Reporting Directive (NFRD) and require included firms to report sustainability data in a reliable manner.

The Official Journal of the EU will soon publish the final version of the CSRD, which has been accepted by the European Council and the European Parliament. Companies that are not already subject to the NFRD, large EU undertakings that are not currently subject to the NFRD, listed SMEs, small and non-complex credit institutions, captive insurance undertakings, and non-EU companies operating in the EU will be subject to the NFRD beginning on January 1, 2024, 2025, 2026, and 2028. The first filings for fiscal year 2024 will be expected in 2025.

In that way, EU ESG regulations rules will provide greater assurance. For example, the challenge with data has received more attention, and possible technological solutions are starting to appear. The risk of greenwashing should decrease, and investors’ faith in the ESG regulations framework should strengthen, as investment products cannot easily claim sustainability credentials.

Nevertheless, there are still unanswered questions about some rules and definitions that could have big effects on FMPs.

As of June 30th, 2023, affected businesses under the EU SFDR regime must immediately pivot to meet the mandatory PAI computations at the entity level.

It’s all about interdisciplinarity and analytical thinking!

Being responsible does not just mean purchasing a few carbon offsets anymore. Large firms and SMEs must invest in professionals who can eventually protect them against greenwashing.

As EU, UK, and US regulations develop, professionals in the financial markets need to remain focused if they want to be relevant. Regulatory regimes can be challenging as they entail differences among the markets, and that might give a harder time to investors, asset managers, owners, and fund providers. However, once these products are carefully scoped and categorized, they can offer immense returns to industry, humanity, and the planet.

EcoSkills has set itself a strategic goal for the next decade: to become the most competitive and dynamic knowledge-based online educational platform in the fields of ESG, sustainability, and business, capable of delivering skillfulness for better jobs and greater social cohesion. Designed to help rising sustainability leaders, executives, and graduates acquire the latest ESG thinking and hands-on merit, EcoSkills prepares rising green talent and masterminds for the challenges of the future. 

EcoSkills offers a set of affordable, challenge-specific online certified courses. This effort is the result of well-timed and advanced research that we have witnessed in recent months on the EcoSkills Professional Committee. The contributors to this effort are all joining an ongoing project aimed at unveiling the most complicated, interesting, and interrelated parts of ESG concepts globally in terms of current legislation, global trends, and best practices.

Our works have brought about significantly enhanced data disposal, sophisticated theorizing, and practical multiplicity, all of which prompt us to believe that we are presently experiencing a golden age of research on sustainability and ESG. 

Integrating a common language and the right course of action helps embed sustainability and ESG in all corporate and institutional aspects. Sustainability and ESG experts are not limited to sustainability departments. They need to spread leading knowledge throughout an organization to strengthen organizational culture and corporate structure around sustainability.

Certified online courses include:

You can reach us at info@ecoskills.academy  for more details.

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