As we approach the end of this year, businesses are bracing for significant developments in Environmental, Social, and Governance (ESG) regulation set to unfold in 2024. Here's a closer look at what to expect:
Stricter Oversight for ESG Ratings Agencies:
Recent reports from the Financial Times reveal that ministers are poised to introduce formal proposals as early as January of the coming year. The tightening of legislation relating to ESG Rating Agencies is designed to build trust, in what is currently an unregulated system.
Following a comprehensive 3-month consultation that concluded in June, this initiative marks the latest in a series of global efforts to tighten regulations. The treasury is evaluating whether existing regulations can suffice or if new legislation will be necessary to enforce oversight.
Corporate Sustainability Reporting Directive (CRSD) Expands Non-Financial Reporting Requirements:
The European Parliament is taking a significant stride by expanding the reach of the Corporate Sustainability Reporting Directive (CRSD), which builds upon the existing Non-Financial Reporting Directive (NFRD). This expansion goes beyond impacting EU-based companies, extending its reach to non-EU companies engaged in substantial activities within the EU. With the CRSD, the number of companies obligated to report on their ESG status is set to quintuple, encompassing a total of 50,000 reporting entities.
Companies will now be mandated to report on the dual materiality aspect, delving into how environmental and social issues influence their own development and how their operations, in turn, impact these issues.
Widening Due Diligence Requirements:
Anticipated in 2024, the European Union plans to roll out the Corporate Sustainability Due Diligence Directive (CS3D). The current proposal for CS3D includes a significant expansion of due diligence requirements, necessitating companies to monitor not only their ESG impact but also that of their subsidiaries. This extension of due diligence is poised to have far-reaching implications globally, as EU-based companies will be mandated to report on subsidiaries that may be situated outside the EU.
In summary, businesses can expect a landscape in 2024 characterised by increased scrutiny and broader reporting obligations in the realm of ESG regulation. As these changes unfold, organisations must remain vigilant and proactive in adapting to the evolving regulatory environment to ensure compliance and responsible business practices on a global scale.