ESG Regulatory Reporting Guide 2024

This guide covers key aspects of Environmental, Social, and Governance (ESG) reporting for 2024:

• New Regulations: CSRD in EU, SEC climate rules in US
• Global Impact: Affecting 50,000+ EU companies
• Reporting Scope: Environment, social issues, human rights, anti-corruption, board diversity
• Financial Implications: $1.3 trillion potential loss by 2026 due to climate risks
• Technology Use: AI, blockchain, big data for ESG reporting

Key challenges and solutions:

Challenge	Solution
Data quality	Implement robust collection and verification systems
Lack of standardization	Follow emerging global standards (e.g., ISSB)
Resource constraints	Invest in ESG technology and training
Regulatory complexity	Stay updated on new rules and best practices
Stakeholder expectations	Engage regularly with all stakeholder groups

To prepare:

1. Conduct materiality assessments
2. Set up data management systems
3. Train staff on ESG regulations
4. Engage with stakeholders
5. Integrate ESG into business strategy

Future trends: Uniform global standards, AI-driven analysis, supply chain focus, climate risk reporting, increased ESG investment.

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2. ESG Regulatory Landscape

2.1 Global ESG Reporting Trends

ESG regulations have grown by 155% in the last ten years. Key trends include:

1. Mandatory Reporting: Many regions are moving from optional to required ESG reporting in 2024. The EU's Corporate Sustainability Reporting Directive (CSRD) is a prime example.

2. Global Standards: There's a push for worldwide ESG reporting standards. The International Sustainability Standards Board (ISSB) is leading this effort.

3. Detailed Industry Reports: ESG reports are becoming more specific to different industries, with a focus on social and governance aspects along with environmental ones.

2.2 Main Regulatory Bodies

Regulatory Body	Area	Key Rules
European Commission	EU	CSRD, SFDR, EU Taxonomy
Securities and Exchange Commission (SEC)	USA	Climate Disclosure Rule (planned)
ISSB	Global	IFRS S1 and S2 standards
California State Legislature	California, USA	SB 253, SB 261

2.3 ESG Rule Changes from 2023 to 2024

1. CSRD Takes Effect: Starting January 1, 2024, the CSRD will affect about 50,000 EU companies, up from 11,000 under the old Non-Financial Reporting Directive (NFRD).

2. Green Asset Ratio (GAR): In 2024, all EU financial companies must report their GAR, which shows how much of their assets align with EU environmental rules.

3. SEC Climate Rule: The SEC plans to finalize its climate disclosure rule in April 2024. This will require U.S. public companies to report on climate risks and opportunities.

4. California's New Laws: SB 253 and SB 261, passed in 2023, will make companies doing business in California report on greenhouse gas emissions and climate risks starting in 2026.

These changes show a global shift towards more thorough, standard, and required ESG reporting. This will affect companies across many sectors and countries.

2.4 Real-World Impact

The new ESG rules are already changing how companies operate:

• Danske Bank set up a team to help companies move to lower carbon business models. In 2023, they advised on 12 major deals worth over €5 billion.

• Citigroup created a 100-person team focused on ESG advisory and finance. They've helped raise over $30 billion for sustainable projects since 2022.

• Morgan Stanley launched a Decarbonization Partners initiative with Blackstone in 2021, committing $1 billion to invest in companies working to reduce carbon emissions.

Maria Patschke, CEO of ESG Solutions at SAP Fioneer, noted: "After introducing multiple regulations in the EU over the past three years, the focus will now shift to execution."

These examples show how financial institutions are adapting to new ESG rules and finding business opportunities in the process.

3. Main ESG Reporting Frameworks

3.1 Global Reporting Initiative (GRI)

The Global Reporting Initiative (GRI) is the most used framework for ESG reporting worldwide. Key features:

• Applies to all industries and company sizes
• Focuses on stakeholder input and impact assessment
• Uses Universal Standards, Sector Standards, and Topic Standards

82% of the world's 250 largest companies use GRI Standards. The framework covers a wide range of environmental, social, and economic indicators.

3.2 Sustainability Accounting Standards Board (SASB)

The Sustainability Accounting Standards Board (SASB) offers industry-specific ESG reporting standards. Main points:

• Covers 77 industries across 11 sectors
• Focuses on financial impact for investors
• Uses industry-specific metrics

SASB's standards work well with financial reports, making them useful for public companies. The industry focus allows for more targeted ESG disclosures.

3.3 Task Force on Climate-related Financial Disclosures (TCFD)

The Task Force on Climate-related Financial Disclosures (TCFD) focuses on climate-related financial risks. Key aspects:

• Covers four areas: governance, strategy, risk management, and metrics/targets
• Looks at future climate-related risks and opportunities
• Supported by over 3,000 organizations worth $27.2 trillion combined

TCFD use grew 21% to 88% for climate disclosures by 2022. It's important for businesses with big climate-related risks.

3.4 Framework Comparison

Feature	GRI	SASB	TCFD
Main Focus	All ESG areas	Industry-specific, financial ESG	Climate-related financial risks
Who Uses It	All organizations	Mainly public companies	All organizations
Report Type	Separate sustainability report	Part of financial reports	Part of main financial reports
Impact View	Stakeholder-focused	Investor-focused	Climate risk-focused
Strong Point	Wide ESG coverage	Industry-specific metrics	Climate risk assessment

Many companies use multiple frameworks to meet their ESG goals. The choice depends on the company's needs, stakeholders, and reporting aims.

3.5 Real-World Examples

1. Unilever

• Uses GRI Standards for its annual report
• Covers topics like plastic packaging, greenhouse gas emissions, and human rights
• In 2022, reported 100% renewable grid electricity use in operations

2. Microsoft

• Follows SASB's Software & IT Services standard
• Reports on data privacy, security, and energy management
• In fiscal year 2022, achieved 100% renewable energy for its operations

3. Shell

• Adopts TCFD recommendations
• Discloses climate-related risks and opportunities
• In 2022, announced plans to reduce Scope 1 and 2 emissions by 50% by 2030

These examples show how different companies use ESG frameworks to report on their sustainability efforts and risks.

4. Key ESG Rules for 2024

4.1 Corporate Sustainability Reporting Directive (CSRD)

The CSRD is a new EU rule for ESG reporting. It started on January 5, 2023, and affects more companies than before. Key points:

• Applies to 50,000 large EU companies and listed SMEs
• Requires reporting on environmental, social, human rights, anti-corruption, and board diversity issues
• Uses "double materiality" to look at both financial impacts on the company and the company's effects on society and environment
• Reports must be in XHTML format for easy machine reading

Timeline for implementation:

Date	Companies Affected
Jan 1, 2024	EU entities already under NFRD
Jan 1, 2025	Large EU companies not under NFRD and large non-EU companies listed in EU
Jan 1, 2026	Listed EU SMEs and certain financial institutions
Jan 1, 2028	Non-EU companies meeting EU Turnover Test

4.2 Sustainable Finance Disclosure Regulation (SFDR)

The SFDR aims to make sustainable investing clearer. Main features:

• Started January 1, 2023
• Financial companies must show how they include ESG risks and chances in their investments
• Asset managers must group sustainable funds into three types based on their risks and goals
• Deadline to report on fund grouping: June 30, 2024

Companies face challenges in creating a system to define sustainable investments and avoiding false claims about being "green."

4.3 SEC Climate Disclosure Rules

The SEC introduced new rules for U.S. public companies to report on climate issues. Key points:

• Rules approved in March 2024
• Companies must report on big climate risks and how they affect business plans and finances
• Large and mid-size companies must report Scope 1 and 2 greenhouse gas emissions
• Big companies need outside checks on their emissions reports

SEC Chair Gary Gensler said: "Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called 'complete and truthful disclosure.'"

4.4 Other Global ESG Rules

More ESG rules are shaping how companies report worldwide:

Rule	Key Points
California SB 253 & SB 261	- SB 253: Big companies report Scope 1, 2, 3 emissions from 2026 - SB 261: Companies with $500M+ revenue report climate financial risks
UK Sustainability Disclosure Requirements	- May affect 450+ investment funds and 1,500+ asset managers - Covers assets worth 10.6 trillion GBP
EU Taxonomy	Helps identify "environmentally sustainable" business activities for investing
Corporate Sustainability Due Diligence Directive	Aims to make businesses address negative impacts in their operations and supply chains

These rules show a global move towards stricter, clearer, and more standard ESG reporting, focusing on climate risks and emissions.

5. Core Parts of ESG Reports

ESG reports show how companies handle environmental, social, and governance issues. Here are the main parts of these reports:

5.1 Environmental Metrics

Environmental metrics look at how a company affects nature. Here are some key metrics:

Metric	What It Measures
Greenhouse gas emissions	Amount of gases that warm the planet
Energy use	How much energy the company uses
Water use	How much water the company uses
Waste management	How the company handles and reduces waste

For example, Microsoft reported in its 2022 Environmental Sustainability Report that it reduced its Scope 1 and 2 emissions by 17% year-over-year. The company also shared that it used 100% renewable electricity for its operations.

5.2 Social Responsibility Measures

Social metrics show how a company treats people. They include:

• Diversity in the workplace
• How happy employees are
• Fair work practices
• Helping local communities

Unilever's 2022 Human Rights Report is a good example. It showed that 56% of its managers were women, up from 51% in 2021. The company also trained 1.5 million retail partners on business skills.

5.3 Governance Policies

Governance metrics look at how a company is run. They cover:

1. Who's on the board of directors

2. How much leaders are paid

3. Rules to prevent wrongdoing

4. How the company protects data

Apple's 2023 Proxy Statement showed that its board had 50% women and 33% members from underrepresented communities. The company also tied executive pay to environmental and social goals.

5.4 Data Collection and Checking

Getting accurate data is key for good ESG reports. Companies should:

• Set up systems to collect data from all parts of the business
• Use numbers and stories to show their ESG work
• Check their data often to make sure it's right
• Have outside experts look at their data

The World Economic Forum is working on a standard way to measure ESG across all companies. This could help solve the problem of different companies reporting in different ways.

For instance, Salesforce uses its own Net Zero Cloud to track its carbon footprint. In 2022, the company reported a 14% reduction in its Scope 1 and 2 emissions compared to 2021.

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6. ESG Reporting Hurdles

Companies face several challenges when reporting on Environmental, Social, and Governance (ESG) issues. This section looks at these problems and offers ways to solve them.

6.1 Data Quality Issues

Poor data quality is a big problem for ESG reporting. A BNP Paribas survey found:

Issue	Percentage of Investors Affected
Inconsistent and incomplete data	71%
Greenwashing	61%
Balancing ESG with fiduciary duties	53%

To fix data quality problems:

• 65% of investors use multiple data sources
• 37% have created their own research methods, like internal ESG scores

Companies should focus on good data management and set up clear rules for handling data. This helps make reports more accurate and can lead to better investments and loans.

6.2 Using Multiple Frameworks

There's no single standard for ESG reporting, which makes things complicated. Companies have to deal with different frameworks like GRI, SASB, CDP, and GRESB, each needing different data.

To handle this:

1. Learn what each framework needs
2. Find data that fits more than one framework
3. Use a system to manage all ESG data

The Weinreb Group found that sustainability teams haven't grown much in the past ten years, even though ESG issues have become more important. This shows why it's crucial to handle multiple frameworks well.

6.3 Deciding What's Important to Report

Figuring out what ESG topics matter most is hard. Many companies only check this every two or three years, which isn't enough as investor expectations change quickly.

To improve:

• Check what matters more often, ideally every year
• Talk to different groups of people who care about the company
• Use data to spot new ESG trends

A 2022 study of 1,300 ESG decision-makers found 59% worry about money problems from new rules. This shows why it's important to pick the right things to report on.

6.4 Meeting Stakeholder Needs

Talking to different groups about ESG is important but tricky. PwC Canada looked at top Canadian companies and found:

Finding	Percentage of Companies
Explained how they address stakeholder concerns	54%
Did not identify their stakeholders	38%
Did not explain how they choose important sustainability issues	42%

To do better:

1. Set up good ways to communicate
2. Use different methods for different groups
3. Ask for feedback and use it to improve
4. Make ESG information easy to find and understand

7. ESG Reporting Tips

Here are some key tips to help startups improve their ESG reporting:

7.1 Creating an ESG Plan

To build a strong ESG plan:

1. Link ESG to your business strategy
2. Pick topics that matter to your industry and stakeholders
3. Set clear goals with numbers you can measure
4. Use well-known frameworks like GRI, SASB, or TCFD

Mark Carney, Former Governor of The Bank of England, said: "Investors want to know how companies are responding to big trends, how they spot ESG risks and chances, and how they plan for long-term success."

7.2 Adding ESG to Business Practices

To make ESG part of your daily work:

• Put someone in charge of ESG projects
• Train all teams on ESG skills
• Talk to big customers about what ESG reports they like
• Check and update ESG goals often

Remember, 91% of investors say non-financial performance is key to their decisions. This shows why ESG needs to be part of your main business practices.

7.3 Ensuring Accurate Data

Good data is key for following rules and being trusted. To get good data:

1. Set up clear rules for handling data
2. Make standards to check if data is correct, on time, and complete
3. Write down how you collect and check data
4. Check your data often to keep it right

Only 3 in 10 of Europe's biggest listed companies fully share their environmental and climate impacts. This shows why it's important to have good, complete data.

7.4 Using Tech for Reporting

Using technology can make ESG reporting easier:

Benefit	How It Helps
Easier processes	Less manual work, fewer mistakes
Better accuracy	Improves data quality
Follows rules	Helps meet new regulations
Saves money	Makes data management more efficient

The global market for ESG reporting software is expected to reach $571.74 million by 2028. This shows that more companies are using tech for ESG reporting.

When picking ESG software, look for:

• Ability to handle lots of data
• Tools for teams to work together
• Reports that fit different frameworks
• Dashboards that show data in real-time

For example, Novata offers a platform for private companies to collect and report ESG data. Proof lets users share real-time ESG insights through digital dashboards. Benchmark ESG helps teams work together to ensure good reporting quality.

8. How to Get Ready for ESG Reporting

As ESG reporting becomes more important, companies need to prepare well to meet rules and expectations. Here's a guide on how to get ready:

8.1 Figuring Out What's Most Important

To prepare for ESG reporting, companies should:

1. Do a materiality assessment to find the most important ESG issues
2. Match ESG plans with business goals and what people expect
3. Focus on ESG areas that affect your industry the most

For example, Arkema, a French company, did a materiality assessment to update its ESG plan. They talked to key people through interviews, workshops, research, and surveys. This helped them understand different views and pick the most important ESG topics.

8.2 Setting Up Data Systems

Good data systems are key for accurate ESG reporting. Here's how to set them up:

Step	What to Do
1. Find data sources	List all places where you can get data, like HR and suppliers
2. Use automatic data collection	Set up systems to collect data automatically to reduce mistakes
3. Check data quality	Make rules to keep data accurate and safe
4. Choose data owners	Pick people to be in charge of keeping ESG data correct
5. Connect data systems	Link different data sources to create one main ESG data system

By 2024, big EU companies will have to do double materiality assessments as part of the EU Corporate Sustainability Reporting Directive (CSRD). This shows why it's important to have good data systems.

8.3 Training Staff on ESG Rules

Teaching your team about ESG is important for good reporting. Here's what to do:

1. Give full training on ESG ideas, reporting methods, and rules
2. Teach ESG to everyone in the company, not just the sustainability team
3. Give special training to people who handle data
4. Use resources like Speeki Academy, which offers training on over 30 ESG topics

In Poland, companies scored an average of 5.08 out of 10 for non-financial reporting in 2023. This shows there's room to improve through better training.

8.4 Working with Stakeholders

Talking to stakeholders is important for good ESG planning and reporting. Here's how to do it:

1. List stakeholders based on how much they affect or care about your ESG work
2. Set up regular meetings to keep stakeholders informed
3. Use different ways to talk to different groups (like detailed reports for investors, meetings for employees)
4. Ask stakeholders to help set ESG goals
5. Get feedback through surveys or group talks and show how you use it

For example, Microsoft shares its ESG progress in several reports, including its Environmental Sustainability Report. This report tracks how they reduce carbon emissions, save water, and cut down on waste. This approach shows they're open and committed to talking with stakeholders.

9. Future of ESG Reporting

9.1 More Uniform Reporting Rules

ESG reporting is becoming more standard worldwide. The International Sustainability Standards Board (ISSB) is leading this change. Here's what's happening:

• The ISSB is taking over from other groups to make one set of rules.
• More countries are likely to require ISSB-style ESG reports.
• In the EU, about 50,000 companies must report on sustainability starting in 2024.

9.2 AI in ESG Data Analysis

AI is making ESG reporting easier and better. It helps with:

AI Use	How It Helps
Data collection	Gets information faster and more accurately
Finding patterns	Spots risks and chances companies might miss
Writing reports	Saves time and gives new insights
Checking sentiment	Shows how serious companies are about ESG

Evan J Schwartz says: "AI is changing ESG reporting by improving data accuracy and finding valuable insights."

9.3 Focus on Supply Chain ESG

Companies are paying more attention to ESG in their supply chains:

• In 2024, 92% of big companies will ask their suppliers for ESG data.
• Companies need to report on emissions from their whole supply chain, which are often 11.6 times more than their own emissions.
• Big companies like Microsoft and Amazon are making their suppliers follow ESG rules.

9.4 Climate Risks and Reporting

Climate change is affecting business more:

• New laws in California will make over 10,000 U.S. companies report on their carbon footprint starting in 2026.
• Companies that don't follow ESG rules might face fines and lose customer trust.
• 62% of U.S. business leaders say customer requests are the main reason they start ESG projects.

9.5 ESG Spending and Technology

Companies are spending more on ESG:

ESG Investment Plan	Percentage of Executives
Increase by 10% or more	92%
Increase by 50% or more	18%

They're using technology to:

• Meet new rules
• Be more open about their ESG work
• Make better decisions about sustainability

As ESG reporting grows, companies need to keep up with new rules, use AI wisely, and look closely at their whole supply chain to stay ahead.

10. Wrap-up

10.1 Key Takeaways

As we finish our ESG Regulatory Reporting Guide for 2024, here are the main points to remember:

1. New Rules: 2024 is a big year for ESG rules. Companies now have to report on ESG issues, not just by choice. The CSRD in the EU and SEC climate rules in the US are leading this change.

2. Global Impact: ESG rules are spreading worldwide. The CSRD will affect about 50,000 big EU companies, which is five times more than before.

3. Wide Reporting: Companies must now report on many ESG topics, including their impact on the environment, how they treat people, human rights, fighting corruption, and diversity in leadership.

4. Money Matters: ESG performance is now linked to financial results. A study showed that companies could lose $1.3 trillion by 2026 due to climate risks.

5. Tech Use: Companies are using AI, blockchain, and big data to collect, analyze, and report ESG data. This helps solve problems with data quality and consistency.

10.2 Keeping Up with ESG Rules

To stay on top of the changing ESG landscape, companies should:

1. Act Now: The CSRD starts on January 1, 2024, and the SEC's climate rules are expected by April 2024. Companies need to get ready now.

2. Use Technology: Karen Abramson, CEO of Wolters Kluwer Corporate Performance & ESG, says: "Cloud tech has made financial reporting clearer over the past ten years. The same change is happening now with ESG."

3. Focus on Data Quality: 35% of executives say data quality is their biggest ESG reporting challenge. Companies need to set up good ways to collect and check data.

4. Talk to Stakeholders: ESG performance affects many groups. 76% of consumers would stop working with companies that treat employees, communities, and the environment badly.

5. Keep Learning: Stay up to date on new standards and best practices. The International Sustainability Standards Board (ISSB) is working to create global standards for sustainability reporting.

ESG Reporting Challenge	Percentage of Executives
Data quality issues	35%
Lack of standardization	24%
Resource constraints	18%
Regulatory complexity	15%
Stakeholder expectations	8%

This table shows the top challenges executives face in ESG reporting, highlighting the importance of addressing data quality and standardization issues.

FAQs

What is the ESG compliance process?

The ESG compliance process involves these steps:

1. Know the rules: Stay up-to-date on ESG regulations and frameworks.

2. Set up checks: Put controls and audit systems in place.

3. Make good policies: Create ethical practices that match ESG principles.

4. Report clearly: Share ESG information openly using well-known frameworks.

For example, Microsoft has shown strong ESG compliance. By 2030, they plan to be carbon negative and are investing in clean energy. Their Chief Environmental Officer, Lucas Joppa, said: "We're committed to becoming carbon negative by 2030 and removing our historical carbon emissions by 2050."

What are the ESG guidelines?

ESG guidelines are rules set by governments for:

Aspect	Description
Actions	What companies should do for ESG
Reporting	How to share ESG information
Disclosure	What ESG details to make public

These guidelines help measure a company's impact on:

1. Environment
2. Society
3. Company leadership

They let stakeholders see how well a company is doing beyond just money matters.

For instance, the U.S. Securities and Exchange Commission (SEC) adopted new climate disclosure rules on March 6, 2024. These rules make companies share information about climate risks that could seriously affect their business.

Gary Gensler, SEC Chair, explained: "The final rules will provide investors with consistent, comparable, and decision-useful information for making their investment decisions."

To follow ESG guidelines, companies should:

• Appoint a sustainability leader
• Set clear ESG goals
• Make ESG part of their main strategy
• Keep track of their progress

A 2023 KPMG survey found that 25% of investors plan to make ESG investments by 2025. However, 30% still find it hard to spot good ESG investment chances.

Companies that do well with ESG often see benefits. For example, Unilever focuses on cutting its environmental impact and supporting social causes. In 2022, they reported that their "Sustainable Living" brands grew 69% faster than the rest of their business.

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