The EU-Corporate Sustainability Due Diligence Directive (CSDDD), which aimed to enhance corporate sustainability reporting and accountability, failed to achieve the required majority in the European Parliament on February 28th. This unexpected development marks a turning point in the EU’s regulatory push for sustainability disclosure, suggesting markets may have reached their limit after the CSRD and SFDR additions. Although the CSDDD’s ascension was expected, its failure provides a temporary reprieve for small and medium-sized companies facing increasing ESG data requests from larger corporations preparing for compliance. While portfolio companies can pause further expansions of supply chain reporting for now, maintaining existing capabilities is prudent in case the CSDDD regains life. Investors can also reorient efforts toward ESG initiatives more aligned with value creation. However, the strong momentum behind the CSDDD signals that enhanced sustainability reporting will likely remain a regulatory frontier.

Reflecting on 2023, key ESG regulations significantly shaped the sustainability and reporting practices globally. From the ISSB’s inaugural standards to California’s pioneering approach in Scope 3 emissions reporting, the landscape saw meaningful evolution. Notably, the EU continued to lead with impactful disclosure regulations, influencing the global stage. As the year ends, understanding these changes is vital for investors and companies navigating the ESG terrain.

The UK’s Financial Conduct Authority (FCA) introduces new Sustainability Disclosure Requirements, bringing much-needed clarity to green investing. These requirements include four investment labels: Sustainability Focus, Improvers, Impact, and Mixed Goals, simplifying choices into two categories – prioritizing financial returns with a sustainability angle or investing with a sustainable priority. This development is particularly relevant for private equity firms and portfolio companies, offering a straightforward framework to differentiate between ESG integration and impact optimization, reducing the complexity in sustainable investing.