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California has ushered in a new era of climate disclosure with SB 253 and SB 261, going beyond the SEC’s draft guidelines. These laws mandate that many businesses in the state, both public and private, disclose their greenhouse gas emissions and climate-related financial risks. Specifically, they call for detailed Scope 1, 2, and eventually, Scope 3 emissions reporting and are rooted in established protocols like the Greenhouse Gas Protocol and TCFD. For PE firms, this could mean added reporting responsibilities for portfolio companies doing business in California. While larger firms might have direct reporting obligations, even smaller entities could feel the ripple effects, especially those in the supply chains of reporting entities.

In September, the Taskforce on Nature-related Financial Disclosures (TNFD) released guidelines on nature-related risks, gaining traction as ‘the biodiversity standard’. While voluntary, it’s meshing well with major ESG frameworks. The TNFD offers a holistic view of firms’ nature dependencies and impacts. However, it’s a double-edged sword: delving deep may reveal sensitive competitive data. As the TNFD gains momentum, PE firms and portfolio companies should anticipate shifts in ESG conversations and strategies.

Last week marked a significant move in European sustainability reporting with the rejection of an attempt to dilute the European Sustainability Reporting Standards (ESRS). With its affirmation, companies are now set on a course to publish their sustainability reports, in line with ESRS, in 2024. While mainly an exercise in standardized disclosure, the ESRS brings about notable shifts. One of the most consequential is the synchronization of sustainability and financial reports, aiming to elevate the importance of sustainable operations. As firms grapple with these changes, understanding the finer nuances, from materiality considerations to enhanced transparency requirements, becomes essential. Dive in to get a grasp of what’s on the horizon with the ESRS and its implications.

ESG often stirs opinions, yet remains undefined for many. Let’s clear the air: ESG is performance data drawn from corporate operations amidst market, environmental, and social dynamics. It aids in risk management, acts as a compliance tool, and is grounded in materiality, not agenda. At Motive, we emphasize understanding ESG’s essence rather than drowning in popular commentary. Our aim? Start discussions on ESG from first principles.