Corporate sustainability reporting is a rapidly evolving area of regulation that has seen a number of significant developments in recent months, including the UK Government’s updated Green Finance Strategy and finalisation of tahe first two International Sustainability Standards Board (ISSB) standards. In this blog, we look at some of the main themes and challenges we have seen across the market and in our conversations with clients as they prepare for new regulatory requirements.
International interoperability will be key
As sustainability reporting regulations take shape globally, companies with an international footprint must reconcile the different jurisdictional frameworks, standards, and regulatory disclosure requirements, leading to operational and compliance challenges. For example, businesses that must comply with both the EU’s Corporate Sustainability Reporting Directive and the UK Sustainability Disclosure Requirements regime will have to ensure their reporting accounts for the differences in scope, assurance requirements, and detailed disclosure requirements in each of those regulations.
To account for divergent regulatory approaches, companies must establish processes for examining their activities through multiple reporting lenses to determine what activities they will need to report on and the information they need to obtain. In the longer term, the UK Government’s approach of building on international standards such as the ISSB and promoting international interoperability should foster consistency across companies’ international reporting obligations.
If reporting is to trigger broader transformation, companies must think about how they can use regulation to set their ambition around sustainability and develop a strategy that embeds sustainability risks and opportunities across the business.
Companies need to prioritise effectively
Producing high-quality reporting will be an iterative journey with disclosures improving as more data becomes available and industry consensus on best practice forms over time.
Due to the volume and complexity of regulation, companies need to prioritise their reporting to avoid overstretching their resources. In practice, this means that many companies prioritise alignment with formal regulatory requirements and will deprioritise initiatives, such as the UK Green Taxonomy, that will be introduced on a voluntary basis. Clear commitments and implementation timelines from the Government are needed to guide companies’ prioritisation and ensure that they are engaging with the most critical reporting initiatives.
Transparency alone is not enough to drive transformation
The pace and volume of regulation can lead companies to perceive sustainability reporting as a compliance exercise. However, if reporting is to trigger broader transformation, companies must think about how they can use regulation to set their ambition around sustainability and develop a strategy that embeds sustainability risks and opportunities across the business.
Though many sustainability teams work with colleagues across their company to drive business-wide transformation, building engagement and buy-in can be challenging amid competing priorities such as supply chain issues. Some companies have had success in using impending regulatory deadlines to engage Board members and drive the integration of sustainability into business priorities. Companies have also found that making value creation central to their approach has helped combat compliance mindsets within the business.
The UK’s regulatory agenda on corporate sustainability reporting is complex and evolving rapidly, raising a number of challenges for industry. Companies are contending with a raft of fast-paced and complex regulatory initiatives while also negotiating differences in regulatory approaches internationally and competing priorities within their business.
As the UK Government advances its regulatory agenda, it is crucial that companies engage with the policymaking process to ensure their views are represented. Companies must also take steps now to prepare their business for incoming regulation and take advantage of value creation opportunities.
