Navigating The Complexities Of Jurisdictional ESG Reporting Requirements

Navigating The Complexities Of Jurisdictional ESG Reporting Requirements

Regulating ESG disclosures is a natural evolution of the market; it serves as an important milestone in providing investors and other stakeholder groups with comparable and decision-useful ESG data. According to the European Corporate Governance Institute (ECGI), 29 countries and territories currently enforce some degree of mandatory disclosure regulation. Unlike financial reporting – where firms have had decades to get it right – organizations do not have the luxury of time when it comes to sustainability disclosures.

Governing bodies are working towards a greater interoperability of disclosure frameworks, but it’s unlikely that there will ever be a single global reporting standard for sustainability. Different jurisdictions adapt wider policies, like the GHG protocol or ISO 14064, in specific ways to suit their individual needs. Multinational corporations will find themselves falling under several jurisdictional requirements. Analysis from financial data firm Refinitiv, for example, estimates that of the 49,000 firms covered under the boundaries of the CSRD, 10,000 are non-EU headquartered organizations.

Navigating the various requirements of ongoing and upcoming regulations will be a steep learning curve. Ideological differences in definitions of materiality adds to the complexity, with firms facing two distinct types of materiality: financial materiality and impact materiality. Reporting ESG data across the entire value chain means contending with complex supply chain networks, some with a wide spread of geographic distribution. What’s more, reported data under the CSRD and, when implemented, the SEC’s proposed climate disclosure rule must withstand a rigorous assurance process.

To stay on top of these issues, firms must prepare for mandatory reporting requirements by:

• Performing a gap analysis to understand blind spots in data coverage.
  Gap analyses are often used as a means to compare and benchmark current performance against best practices, goals or standards with the ultimate aim of identifying gaps in data coverage. Part of the complexity of the CSRD is the need for multifaceted data, which encompasses a total of 1,144 data points. Organizations can either perform a gap analysis internally or seek the services of an external advisory partner.
• Ensuring a robust ESG information architecture is operational.
  Preliminary results from our upcoming 2023 global corporate survey suggest that around 70% of organizations still use spreadsheets or internally developed software for their sustainability reporting. Verdantix expects that firms will seek software functionality to streamline ESG data collection and sharing processes at scale throughout 2023. Organizations have a diverse array of software at their disposal and will look for offerings with functionality that facilitates data collection across the value chain (see Strategic Focus: How Corporations Can Leverage Software to Manage ESG Risks).
• Engaging with auditors to understand assurance requirements.
  Firms that fall under the scope of the EU’s CSRD and the SEC’s climate disclosure rule will need to obtain assurance of sustainability disclosures, starting with limited and moving to reasonable assurance over time. Assurance practitioners may review an organization’s definitions and calculations as well as evaluating internal control mechanisms and the availability of evidence.

To gain a deeper understanding of how your organization can manage ESG reporting commitments, check out these recent Verdantix reports:

Market Overview: Digital Sustainability Strategies To Transition From Voluntary To Mandatory Reporting

Strategic Focus: The Future Of Voluntary Sustainability Reporting