News & Insights
ESG research, strategies, expectations, and regulations are evolving rapidly and we are committed to helping move the field forward.
Noteworthy: European Parliament Fails to Ratify CSDDD
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.
The 2023 ESG Regulatory Landscape: A Year in Review
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.
New Labels to Avoid Greenwashing
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.
California’s New Climate Disclosure Legislation: SB 253 & SB 261
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.
Taskforce on Nature-related Financial Disclosures
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.
The ESG Report – Kai Gray on ESG
The ESG Report podcast is hosted by Tom Fox. Looking for innovative solutions to tackle climate change? Look no further than The ESG Report! In this episode, Tom speaks with Kai Gray, CEO and co-founder of Motive, a software company focused on ESG data management.
