A new Thomson Reuters Institute white paper “ESG: Navigating past the noise” looks at the current state of play around ESG activity among organizations, politicians, and regulators across the globe
Many companies that have sought to combat climate change, increase the diversity in their workforce, or bring greater rigor to the oversight of issues that fall under the environmental, social & governance (ESG) umbrella have had a tough year.
ESG has become a highly polarizing, politicized term — seized upon by politicians who paint such policies as a threat to the voters and companies they represent — and the resulting backlash has been most visible in the United States, where anti-woke rhetoric and policies from far-right Republican states have all but made the ESG label a bit too hot for many companies to handle, at least overtly.
While the political rhetoric has been less heated in Europe, there has been some backsliding on the policy front. The United Kingdom, for example, watered down many of its previous commitments to Net Zero, delayed energy efficiency requirements for residential properties, and failed to introduce a ban on fossil fuel vehicles. Many ESG advocates saw these actions as echoing the populist rhetoric of some anti-woke US politicians.
Separately, the European Commission has delayed the introduction of sector-specific reporting under its Corporate Sustainable Reporting Directive (CSRD) after its president said she intended to slash European Union reporting requirements by 25%.
In this frothy mix, the Thomson Reuters Institute has published ESG: Navigating past the noise, a new white paper — authored by the Thomson Reuters Regulatory Intelligence group — that looks at the current state of play of ESG activity and initiatives across the globe.
Of course, the irony of the politicization of ESG issues is that it comes against the backdrop of catastrophic weather events across the world. The first half of 2023 witnessed massive wildfires, flooding, and temperatures rising to levels never seen before across many regions. More importantly, all of this comes ahead of COP28, the annual United Nations climate change conference, that began last week and lasts until December 12.
Progress continues despite politics
Of course, there is some good news in the ESG realm as well. Beyond the inflammatory headlines and reported demise of ESG, progress continues to be made by investors, companies, and governments on a number of fronts as the paper details.
For example, investors have shown a considerable appetite for sustainable projects, and one of the biggest drivers of that has been the recently US passage of Inflation Reduction Act (IRA), which is funneling billions of dollars into new clean energy and manufacturing investments.
Also, government regulations related to the environment and other social issues are moving ahead across the world. In the Asia-Pacific region, for example, some governmental financial authorities have put forward numerous new proposals, such as increased carbon disclosure, green taxonomies, and transition planning. In the European Union, despite some changes that will impact the CSRD, there has been no delay to when EU and non-EU based companies must begin complying with its reporting requirements, which still remains January 1, 2025, for most large EU corporations and January 1, 2028, for non-EU-based firms.
In the US, while the Securities and Exchange Commission drags its feet on a final climate disclosure rule for publicly traded firms, the state of California has charged ahead with its own disclosure requirements, affecting thousands of companies operating within the state.
Because of all this, as the paper makes clear, corporations’ need to meet growing regulatory obligations around environmental disclosure and other related social and governance issues means that siloed nature of ESG functions within many corporate structures is breaking down. This necessitates a greater urgency to integrate climate and social reporting processes that are more closely tied into traditional corporate functions such as operations, legal, and finance. This represents a transformation that those organizations with a longer-term view see as essential — the need to embed sustainability processes across their organizations, the paper describes.
While this paper outlines the latest regulatory developments and hurdles that companies face as they seek to navigate through the noise of divisive politics around ESG, it also shows that many companies are rising to the challenge by recognizing their fiduciary duties to shareholders, employees, and other stakeholders. And although the term ESG may have become toxic in some circles, the underlying problems that ESG initiatives seek to address still remain and those organizations that hold a view towards long-term viability and competitiveness understand the vital importance of the issues at hand, whatever the label.
You can download a copy of the new Thomson Reuters Institute white paper, “ESG: Navigating past the noise”, by filling out the form below: