The surge of new regulations covering the disclosure of ESG data has been accompanied by deepening confusion over how financial institutions and corporates should prepare for an evolving regulatory landscape. As these are new requirements, organisations are having to interpret for themselves how they can comply.There is a risk of misinterpretation and the potential for falling into the trap of greenwashing. As regulators introduce penalties for compliance failures, organisations can feel like they are walking a tightrope.
“ESG disclosure regulation in the year 2023 is fraught with anxiety and uncertainty,” said Michelle Auger, a sustainability expert with more than a decade of experience in financial institutions. “In an ideal world we would have a clear framework where we report on what is mandatory and have options to provide voluntary data – but that’s easier said than done.”
The thorny issue of regulatory reporting for ESG is the subject of A-Team Group ESG Insight’s next expert panel webinar. “How to Develop a Reporting Framework for ESG Disclosure Regulation” will take a deep dive into the challenges institutions and firms face in meeting this new – and growing – set of obligations and will seek to offer some solutions to them.
From the specific issues facing disclosures and the frameworks already in place, to compliance best practices and technological solutions, the panel will look over a host of themes at a time when companies are bracing for yet more updates to established oversight codes.
On the panel, Auger will be joined by Adrian Whelan, senior vice president and head of regulatory intelligence for investor services at private investment bank Brown Brothers Harriman (BBH) and Alex Merola, executive directive, software solutions commercial strategy for sustainability and private markets at S&P Global Market Intelligence.
New Reporting Landscape
In Europe, the Taxonomy Regulation, Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) have ushered in a slew of new reporting and disclosure obligations, requiring the submission of data on institutions’ and companies’ ESG performances. For SFDR, asset managers are additionally asked to submit their funds’ data via a template that’s been approved by Europe’s financial overseers. Earlier this year, the International Sustainability Standards Board (ISSB) published its first two S1 and S2 standards as a proposal for a global baseline.
Auger draws parallels between the state of play for ESG reporting methodologies and the development of financial reporting practices decades ago.
“With financial statements, the norms have been established – you have the balance sheet, income statement, the cash-flow statement – but if you go back just a few decades ago, our financial statements didn’t have the form that they have now,” she told ESG Insight. “And it’s happening in a similar way for ESG disclosure, where the reporting framework is evolving, but at a much faster speed.”
It is generally agreed that data availability and quality is a key factor that hampers the disclosure process. Many companies are unused to finding the data needed to comply with CSRD, so it’s not surprising their reporting processes are still nascent in some cases. Although many companies have produced some form of voluntary ESG disclosure, such disclosures take on an additional tone of seriousness once they are enshrined as regulatory requirements.
The variability of regulations around the world is an additional hurdle towards the establishment of seamless compliance workflows for companies that work across geographies. The sensible thing for organisations to do is to take an inventory of the regulations and identify their exposures, Auger said.
The solution to these challenges for financial institutions and corporates alike lies largely in marshalling their data and technology capabilities, said Auger.
“Data and technology teams are key, they should own the ESG data roadmap, the strategy for investing and upgrading their technology platforms,” she said. “I’ve seen some teams that are really very good because they’ve looked at what their legacy databases were and have understood what was required to upgrade their platforms. You can’t do it without technology, you must grow with the times to cope with the amount and quality of data that will be generated and needs to be evaluated.”
- A-Team Group’s “How to Develop a Reporting Framework for ESG Disclosure Regulations” webinar will be held on October 10 at 10.00 am ET/3.00pm London / 4.00pm CET. Reserve your place by clicking here.
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