Study reveals operational and legal challenges as disclosure requirements rise
The potential risks to businesses as international regulations on ESG disclosures rise have been highlighted in a recent report from the Conference Board.
In a report titled Cutting Through Complexity: Managing International ESG Disclosure the organization highlights how the uneven requirements of international regulators regarding disclosures continues to evolve, presenting legal and operational risks for businesses.
However, those that take proactive steps to ensure that they are ahead of the regulatory curve will be better placed to enjoy the opportunities – and avoid the risks – of the growing demand for sustainable investing.
"International ESG disclosure will continue gaining momentum—and many companies are not fully prepared to successfully navigate its unique complexities. Effective reporting and compliance require a multi-layered governance structure, entailing internal groups that are accountable to each other and coordinate across the company," said Anuj Saush, coauthor of the report and Leader of The Conference Board EU ESG Center.
The report notes three key areas of challenge:
- rapidly evolving regulations and a variety of reporting frameworks or initiatives
- internal and external alignment
- complex data and resource management
Differences in the nature of disclosures makes it harder for investors to compare ESG information.
"Companies that proactively track evolving regulations will be better positioned to adapt and comply. To meet future requirements, firms must identify the necessary team skills and capabilities, and allocate the right resources to manage compliance effectively,” said Rebecca Grapsas, partner and co-leader of the ESG & Sustainability practice at Weil, Gotshal & Manges LLP. “Assessing global trends, business requirements, and best practices will also help consolidate information, track the status of disclosures, and identify implementation gaps."
Ensuring that firms have the right talent and that there is cross-department collaboration is key to compliance, along with broadening the framework to include suppliers.
"To achieve internal and external alignment on sustainability reporting, bridging the ESG knowledge gap is essential. Stakeholders hold diverse viewpoints on ESG definitions, practices, regulations, and reporting. Companies must proactively foster ESG knowledge and proficiency across all organizational levels to establish a common language and terminology to avoid potential confusion," said Merel Spierings, coauthor of the report and Senior Researcher at The Conference Board ESG Center.
