ESG regulations have increased 155% in the last decade
New research has found that global ESG regulations have increased by 155% in the last 10 years as nations get serious about climate legislation, but the risk remains that companies will struggle to navigate the various reporting requirements.
Sustainability data and technology company ESG Book analysed the World Business Council for Sustainable Development’s (WBCSD), Reporting Exchange platform, which covers more than 2,400 ESG regulations covering more than 80 jurisdictions worldwide, all of which are updated in real-time.
The analysis found that ESG regulations globally have increased by 155% in the past decade, with 1,255 ESG regulations introduced worldwide since 2011. In comparison, 493 regulations were published between 2001 and 2010.
Since the turn of the millennium, there has been a 647% in ESG regulations.
ESG Book’s chief executive Dr Daniel Klier said that the jury is still out on whether this will help drive sustainable practices, or just burden businesses with more compliance hoops to jump through.
“ESG regulation is today a hot topic, sparking debate across financial markets. On one hand, proponents argue that it is a vital step towards creating a more sustainable and resilient world, where businesses are held accountable for their environmental impact, social responsibilities, and governance practices,” Klier said. “On the other hand, some critics argue that ESG regulation burdens companies with excessive compliance, and can hinder economic growth.”
“The sharp rise in ESG regulation is only going to continue, however, as markets seek more effective and transparent allocation of capital to sustainable outcomes.”
Most of the regulations are attempting to align themselves with the more dominant industry standards that businesses are complying with. These include the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), Task Force on Climate-Related Financial Disclosures (TCFD), and Sustainable Finance Disclosure Regulation (SFDR).
Late last year, it was revealed that more companies are disclosing climate-related information through voluntary frameworks, but that the information being provided is still not “decision-useful” for investors and stakeholders.
The inaugural Disclosure Benchmark Review by Manifest Climate found that 66% of assessed companies disclose some sort of TCFD-aligned information, however, just 49% of the companies provided disclosures with “sufficient clarity, specificity, and comparability” to be useful for investors and stakeholders.
The market growth could have detrimental impacts on the UK.
Earlier this year, a group of MPs, warned that the EU is now outpacing the UK in terms of delivering a joined-up approach to ESG disclosures.
Last year, the EU brought forward a new Corporate Sustainability Reporting Directive, mandating unified ESG disclosures from all large and listed companies. It covers almost 50,000 firms, which must produce their first aligned reports by 2025.
Moreover, the EU last year finalised its green finance taxonomy, defining which investments can be considered as ‘green’ or ‘transition-related’. The UK’s own version was due earlier but has been delayed and was not included in last month’s update to the British Green Finance Strategy. It is believed the taxonomy will arrive in the Autumn.
More recently, the EU has outlined a new directive aimed at stamping out greenwashing, partly by phasing out ineffective and confusing certification schemes.
The UK Government has repeatedly faced criticism for failing to update its skills strategy after legislating for net-zero by 2050 back in 2019. It has also neglected calls for a unified definition of a green job.
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