ESG in 5 - The Prominence & Growth of ESG Today | Compliance & Risks

Summary

ESG has become an organization-wide compliance and operating issue—not just the responsibility of sustainability or legal teams. It affects functions including Finance, Sales, Legal, Operations, and, in manufacturing, production. It also spans both a company’s external activities and its internal operations, including its employee footprint and expansion into new markets.

The speakers emphasize that the ESG regulatory landscape is growing rapidly and that enforcement deadlines are generally not being extended. Companies that wait until a deadline is near may not have enough time to identify applicable requirements and organize their reporting processes. The challenge is especially significant for organizations operating internationally, where obligations can vary across markets and change quickly.

Frameworks, Processes, and Recommendations

• Use a cross-functional ESG governance team: The most successful programs bring together stakeholders across product compliance, ESG compliance, and related functions. Responsibility may involve Legal or the General Counsel, the CFO’s office, or other teams; the speakers caution against assuming the work belongs to one department.
• Track requirements continuously: Build a process for monitoring new and amended regulations rather than relying on occasional reviews or a static list.
• Plan ahead for deadlines and market expansion: Assess requirements before entering new markets or significantly expanding an employee footprint. Starting shortly before a reporting deadline may be too late.
• Coordinate ESG with existing compliance work: Connect ESG requirements with product compliance and other relevant compliance sources to understand the full scope of obligations.

Metrics and Timelines Cited

• The number of ESG regulations companies had to report on rose from 23 in 2021 to 150 in 2023.
• One speaker’s tracking showed 171 ESG-related regulatory changes or new regulations in July, 162 in August, and 91 by September 10.
• The data shown for 2024 covered only the first six months of the year; the speaker expected the total to continue rising as the year progressed.
• The speakers contrasted ESG’s near-exponential regulatory growth with the more linear growth they had seen in a packaging-related regulatory example.
• One example of deadline pressure involved preparing for requirements due in January 2024—a timeline the speakers said could leave companies in trouble if they had not started getting organized earlier.

Concrete Examples

• A newsletter that initially highlighted the top five or six key changes had to expand its coverage. By June and July, the volume of changes made a “top 10 or 15” approach difficult.
• Regulatory changes can emerge just as a company is preparing to launch a compliance effort, potentially making its plans outdated before implementation.

Presenters and source: Danny Cassidy and Jason Dallhoff, Adherent.