IT Sustainability Think Tank: What enterprises need to know about regulation

Mandatory disclosures and environment, social and governance (ESG) reporting requirements for companies are rapidly expanding. Organisations should prepare themselves to disclose more and leverage disclosed data from others. At both entity and product levels, substantiation of sustainability assertions is required by governments, investors, clients, and several other stakeholders.

New regulations that address high-profile issues related to sustainability and environmental concerns like waste, pollution and carbon emissions have surfaced globally. These regulations aim to address these issues and promote a more sustainable future.

Being aware of newly enacted global policies is important for companies. These changes should be followed in their practices. Part of being a sustainable business means understanding the sustainability regulations that apply to and influence your business.

The Task Force on Climate-Related Financial Disclosures (TCFD) provides information to investors about what companies are doing to mitigate the risks of climate change, as well as being transparent about the way in which they are governed.

In accordance with the 2023 TCFD status report, more companies and jurisdictions are adopting TCFD’s recommendations. They are leading the way in Europe, but significant progress is still needed worldwide.

A wider range of entities will need to monitor their activities from a sustainability prospective, when the proposed EU Corporate Sustainability Reporting Directive (CSRD) comes into force.

Companies categorised as ‘large’, which equate to a total of almost 11,000 firms, must now disclose the ratios between their turnover and expenditure in relation to actions geared towards supporting the environment.

There will be supplementary requirements for this under the Non-Financial Reporting Directive (NFRD), introduced through Article 8 of the Taxonomy Regulation.

Ensuring accountability and transparency in the corporate world about the environmental impact of a business is the purpose of this requirement.

Product disclosure requirements will soon be expanded, too. Draft rules for Sustainable Finance Disclosure Regulation (SFDR) Article 8 and 9 products have been submitted to the Commission to underpin additional requirements added to SFDR.

The European Commission introduced the SFDR alongside the Taxonomy Regulation and the Low Carbon Benchmarks Regulation as part of a package of legislative measures arising from the European Commission’s Action Plan on Sustainable Finance.

Officials plan to update existing disclosure requirements, such as the TCFD alignment, by including new requirements for reporting environmental impact. Investment products must make consumer-focused disclosures to demonstrate how their financed activities impact risks and opportunities.

All these present pressures that have caused corporate leaders to pay attention. CFOs must now have complete confidence in reporting the company’s non-financial performance and be held accountable. Organisations now have to establish high-quality procedures and checks for non-financial parameters. This includes thinking about upskilling and reskilling the workforce to prepare for these changes.

With these actions in place, 2023 looks set to become the year in which any remaining fluff and puff around sustainability is finally replaced by meaningful and accountable disclosures that will reassure regulators and support growth.

Leadership teams must better understand the sustainability measures most important to the business and its stakeholders and why. More robust processes need to be implemented to build confidence in delivering critical sustainability programmes and in the data on which they will be judged.

This will require more robust governance, accountability, documentation, quality assessment, training and control. It will also mean choosing technology platforms that support data confidence and completeness. Ultimately, it will be about delivering better data that can make a real difference in delivering both business and stakeholder outcomes.

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