There are several regulations that have been put in place to help companies consider ESG factors.For example, the Corporate Sustainability Reporting Directive (CSRD) is a European Union law that requires companies to report on the environmental and sustainable impact of their business activities and their ESG initiatives. The Sustainable Finance Disclosure Regulation (SFDR) aims to do the same by standardizing the reporting of ESG indicators.
Various frameworks have also been developed to assist companies with their ESG disclosures. In Europe, the Carbon Disclosure Project (CDP) enables companies to provide environmental information to stakeholders. The project consists of risk and opportunity management, environmental objectives, strategy and scenario analysis. Similarly, the Global Reporting Initiative (GRI) provides a global framework to standardize approaches to materiality, management reporting, and disclosure for all types of ESG issues.
Although these regulations and frameworks are designed to guide organizations and investors towards more sustainable business practices, they are not a surefire deterrent against greenwashing or green fraud. Nor is it a buffer against global turmoil.
The COVID-19 pandemic has rapidly exposed vulnerabilities not only in the climate itself, but also in corporate supply chains, health care, and financial services. In the face of uncertainty, academics have grown concerned that companies will deprioritize ESG efforts for survival. Although this was the case in some cases, an interesting discovery was made. Companies with strong ESG performance were better prepared to weather the pandemic because they had already considered the potential for disruption.1
This is a powerful reminder that ESG is more than just metrics, regulations, and frameworks. At its core, ESG is an actionable way to measure progress and take steps towards a more sustainable future.