Future trends

Research from the sustainability and technology company ESG Book, which analysed the World Business Council for Sustainable Development’s Reporting Exchange Platform, shows that global ESG regulations have increased by 155% in the last ten years. While ESG regulations help make businesses accountable for their environmental and social impact and governance practices, it can be difficult to keep up with the proliferation of new rules. Below is a snapshot of some of the latest developments around the world.  

The European Union

The European Union (EU) is in the process of implementing two significant legislative measures, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD/CS3D Directive, collectively referred to as the Directives). These Directives impose a responsibility on corporations to exercise due diligence to mitigate adverse effects on human rights and the environment, both within their own operations and throughout their value chains. The onus is on individual member states to implement them in their regions.

The Corporate Sustainability Reporting Directive (CSRD) is an update to the Non-Financial Reporting Directive (NFRD), which required large companies in the EU to disclose non-financial information, including information on their ESG policies and performance. The CSRD introduces more detailed sustainability reporting requirements for companies, including mandatory reporting on a broader range of ESG indicators. For large companies already subject to NFRD, the CSRD regulation will apply from 1 January 2024, while larger companies not already subject to the NFRD will see the regulation apply from 1 January 2025. Smaller organisations should expect to have to comply from 2026.

Meanwhile, the draft proposal for the Corporate Sustainability Due Diligence Directive (CSDDD) was approved in June 2023. Under the CSDDD, companies must engage in a reasonable due diligence process within their operations and across their entire supply chains to prevent or reduce human rights issues and specific environmental risks. Additionally, they are expected to take decisive action to rectify human rights violations or environmental offences if they occur. Depending on the progress of negotiations with the member states, due diligence obligations may apply as soon as 2025.

The EU Taxonomy Regulation is a framework to establish minimum standard reporting requirements and uphold transparency over which investments or activities can be considered sustainable. Activities are classified as taxonomy-eligible in relation to six environmental objectives, including climate change mitigation, pollution prevention and transition to a circular economy. Taxonomy alignment can be achieved by committing to minimum social safeguards around worker and human rights, for example.

The EU Taxonomy regulation is being phased in by sector, starting with finance back in 2020 and followed by industries such as construction, manufacturing and transport over recent years. It is expected to incorporate new sectors as well as SMEs from 2024. 

Germany

Pre-empting the supply chain due diligence legislation currently in draft for the EU, the German Supply Chain Due Diligence Act (GSCA) came into force on 1 January 2023. It obligates companies to assess and conduct due diligence on human rights and environmental risks across their supply chain. The GCSA applies to any company employing over 3000 staff (dropping to 1000 from 2024) with a registered branch office in Germany. The Act applies to all suppliers, direct or indirect, so if there is any German customer within the supply chain, they will be impacted by the Act, and compliance with GCSA will need to be ensured. 

United Kingdom (UK)   

While the UK has yet to adopt any specific ESG laws, legislation such as The UK Corporate Governance Code 2018, The Companies Act 2006, The Climate Change Act 2008, The Equality Act 2010 and The Modern Slavery Act 2015 provide some of the legal landscape for UK ESG directives. Company law in the UK is mainly set out in the Companies Act 2006, and in 2016, the EU’s NRFD was implemented as an amendment to this Act. The NRFD applies to all large public interest companies with more than 500 employees and mandates disclosure on environmental, social and employee, human rights, anti-corruption and bribery issues through annual reporting.

The Financial Conduct Authority (FCA) is forging ahead with its mission to build transparency and trust around sustainability via its Sustainability Disclosure Requirements (SDR) and investment labelling, which includes restrictions on the use of sustainability-related terms such as ‘ESG’, ‘green’ or ‘sustainable’ in product naming and marketing. Their policy statement is currently due for publication by the end of 2023.

United States of America (USA) 

The USA is also making headway in tightening ESG disclosure and standardisation regulations. The US Securities and Exchange Commission (SEC) announced the creation of a climate and ESG task force which will aim at ESG-related misconduct, particularly concerning greenwashing. 

Other legislation in development by the SEC includes a rule on climate disclosure for publicly traded companies to report annually on how their businesses assess, measure and manage climate-related risks, including greenhouse gas emissions.

Rest of the world

In China, ESG-related Amendments to the Disclosure Rules Applicable to Listed Companies remain the leading ESG legislation. Still, a growing number of Chinese companies are now issuing annual ESG reports voluntarily, representing around a 36% increase since 2009. 

Elsewhere, 2023 has seen the Australian government consult on developing a climate risk disclosure framework for companies and financial institutions, with plans to introduce mandatory sustainability and ESG reporting requirements for large companies in the next few years.

The UAE has also been proactive over recent years. Although their regulations presently focus on listed or financial services organisations, broader obligations on sustainability reporting look set to come into force on all publicly and privately listed companies. Investors and consumers increasingly question businesses across the Middle East about their ESG credentials, and tackling greenwashing has become a hot topic as one of the region's bigger challenges.

International efforts 

A comprehensive worldwide standard for assessing and disclosing the full spectrum of ESG issues does not yet exist, but there are a number of voluntary frameworks and guidelines. This includes the UN Guiding Principles on Business and Human Rights, the Global Reporting Initiative (GRI) and the International Sustainability Standards Board (ISSB), which issued its inaugural standards in June 2023.

Conclusion 

The pressure to maintain transparency and demonstrate a genuine commitment to ESG issues will only intensify for businesses and their supply chains operating in global markets. Being proactive is, therefore, essential for building resilience and mitigating risk. The more companies can do now to improve supply chain transparency and build ESG monitoring and management into their risk management processes, the better prepared they will be for the future. As a leading provider of supply chain risk management services, Veriforce CHAS can help you manage your supply chain and achieve greater levels of sustainability. 

Alex Minett is head of global new markets at Veriforce CHAS. For more information, visit www.chas.co.uk

Cleaning up greenwashing 

Greenwashing, the deceptive practice of misrepresenting environmental and sustainability claims, is facing increased scrutiny and regulatory measures in the UK and around the world. As awareness grows, businesses must adapt to these changes and demonstrate genuine commitment to sustainability.

Understanding greenwashing

Greenwashing involves misleading marketing tactics, vague assurances, and manipulative language to present an organisation as more environmentally responsible than it truly is. 

Culprits range from companies to governments, engaging in practices that can deceive consumers and hinder actual progress toward sustainability.

The consequences of greenwashing are far-reaching. Consumers and stakeholders may make decisions based on false environmental claims, inadvertently supporting companies with insincere commitments to sustainability. This not only erodes trust but also diverts support and revenue away from genuinely eco-friendly businesses, hindering overall progress.

Regulatory response

Regulators are taking concrete steps to address greenwashing. In the UK, the Financial Conduct Authority (FCA) is proposing measures such as sustainable investment labels, disclosure requirements, and restrictions on terms like 'ESG,' 'green,' or 'sustainable.' The EU is developing the Green Claims Directive, setting norms for environmental claim substantiation, communication, and verification. In the US, the Federal Trade Commission (FTC) is updating its "Green Guides" to strengthen legal action against deceptive marketing.

Business response strategies

Businesses need to adapt to the global crackdown on greenwashing by prioritising transparency and providing evidence of genuine sustainability efforts. Verification of supply chain partners is crucial. Third-party organisations like Veriforce CHAS can play a vital role in helping businesses enhance their environmental credibility through accreditations like CHAS Advanced, CHAS Elite, and CHAS Verified Supplier, all including environmental assessments.

Veriforce CHAS offers risk prevention, compliance, and supply chain management services. Their accreditations and assessments, such as CHAS Social Value Level 1, enable contractors and suppliers to demonstrate their commitment to environmental responsibility. The CHAS Client Portal facilitates the search for responsible partners based on trade, location, and qualification level.

Conclusion

The global momentum against greenwashing is reshaping the business landscape. Companies must align with regulatory changes, prioritise transparency, and validate their commitment to sustainability. Initiatives like those offered by CHAS provide a pathway for businesses to navigate this evolving landscape and contribute to genuine progress in environmental responsibility.