As environmental issues become more pressing and more businesses implement ESG measures what will the new reporting standards being implemented at an EU level mean for companies’ sustainability initiatives?
What is green governance?
“Green governance” is a term that is becoming used and discussed increasingly more at board level in the dialogue surrounding environment, social and governance (ESG) yet in the wider ESG space it is a term which tends not to be often used, says Matheson Corporate partner Susanne McMenamin. “ESG is a framework for ensuring that business practices have regard for the environment in which they operate, including energy resources used, the output of waste and general impact on climate; social issues such as employee health and safety, human rights, data privacy of customers and employment practices; and governance of the business in an environmentally and socially sustainable manner, having regard to such issues as the supply chain of the organisation, corporate governance and risk management, and compliance.
“The G in ESG however, is the cornerstone for ensuring that ESG considerations form part of an organisation’s culture and strategy, and is very much a top-down driven concept. Green governance is encapsulated in this ESG framework and as a concept centres itself around a board’s approach to governance through the lens of environmental concerns that impact the company’s shareholders and consumers alike, as well as those doing business with the company.”
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Embedding it into the business
ESG should no longer be treated as a separate agenda from a company’s core business strategy, says Russell Smyth, sustainability lead, KPMG. “The forthcoming regulatory requirements, including investors’ and stakeholders’ pressure, is now driving companies to integrate ESG in their business model, investment decisions and, most importantly, unlocking new products and services to address various climate-related challenges.”
Embedding an ESG strategy can help to strengthen organisational value, generate new opportunities for employees, and attract future employees, says Smyth. “At a senior leadership level it provides a mechanism to communicate internally and externally on how the company is managing ESG risks and demonstrating resilience.”
Placing environmental and social considerations at the heart of boardroom decision-making is a challenge that all boardrooms find themselves navigating today, says McMenamin. “Before companies can make meaningful progress on environmental and social change they need the foundation of a strong governance structure and the concept of green governance is encapsulated within this. Governance in this regard really underpins the environmental and social structures that can be established in a company.”
New reporting framework
The purpose of the new Corporate Sustainability Reporting Directive (CSRD) is to ensure that companies report reliable and comparable sustainability information that investors and other stakeholders need, says Niamh O’Gorman, sustainability lead at Accenture in Ireland. “It focuses on all aspects of ESG and will likely come into effect in 2024.
“The CSRD introduces new requirements for companies to provide information about their strategy, targets, role of the board and management, principle adverse impacts connected to the company and its value chain, intangibles, and how they have identified the information.”
The directive applies to all industries and all large companies, and most listed companies will need to comply, she says. This means that nearly 50,000 companies in the EU will now need to follow detailed EU sustainability reporting standards. This is compared to the 11,000 companies subject to the current requirements of the Non-Financial Reporting Directive (NFRD), which will be replaced by CSRD.
Being transparent
Transparency is more important than ever as whilst the reporting framework is still to be developed it is clear that there is an appetite across various stakeholders to understand who they are engaging with, says Derarca Dennis, EY Ireland assurance partner, and lead for climate change and sustainability services. “ESG regulations are mandating this through their disclosure requirements but for many companies they are already being asked questions by their customers through tender processes or indeed the banks that finance them.
“Thus while the CSRD is forcing companies to report on topics they previously might not have reported on, this really just mirrors what society wants to know. What’s more these reporting requirements are not only requiring companies to disclose their ambitions and initiatives, they require companies to report their progress, management approach, governance and strategy behind each and every ESG claim they make.”
Whilst regulation is increasing the pressure for transparency but this is also being driven by stakeholder needs and the global climate crisis, says Dennis. “Saying you are reducing your impact is no longer enough, you need to prove it through valid and transparent disclosure, measurement and reporting.”
Supporting the move to renewables
While there is a growing movement in the area of green governance, there is more work to be done from the top to promote the use of renewable energy, improve education and awareness in our communities and the quick implementation of policies to encourage sustainable development, says Paul Carson, managing director, Sustainable Power.
“At the highest level we need the structures and policies in place to create a more sustainable future. There must be immediate action here in terms of creating a more seamless planning process, grid connection policies and private wire legislation.
“If we are to meet the 2030 targets there needs to be clarity in the process, linking planning through to grid. We need to get everyone resourced and working towards delivering the Climate Action targets. Switching from fossil fuel generation to renewable energy is a crucial step in meeting many of those ESG targets.”
Strategic advantage
ESG policies won’t just help the environment – they’ll also provide a competitive advantage. It’s not just something companies need to do, there are significant opportunities for those who get it right, says O’Gorman. “The reality is that businesses that have high ESG performance deliver superior returns over time.
“Of course the value extends well beyond commercial returns. Higher ESG performance translates to value for customers, employees and broader communities. A focus on sustainable development will be key to competitiveness and sustained success for businesses moving forward.”