ESG – What’s New?

ESG – What’s New?

Posted 13th December 2023

Our Private Sector Lead Charlotte Österman provides a much needed update on this rapidly evolving area of reporting, with the UK Government preparing to consult on legislation changes.

There has been a continued surge in interest in ESG (Environmental, Social, and Governance) factors and the concept of Social Value, since the SVUK Sectoral Conference on ESG and Social Value International’s global conversation nearly a year ago.

Deloitte predicts by 2025, ESG considerations will account for over 50% of professional management investments in the US.

An insightful Pioneers Post article recently noted the necessity for systemic change that was emphasised at our conference. The author highlighted that while ESG manages risk and conveys an ‘idea of impact’, it may not bring with it the broader change required, simply on its own. 

Debate persists on whether reporting should remain distinct from understanding organisational management’s actual impact and the larger system within which organisations function.

In a recent webinar, KPMG UK forecast a ‘regulatory tsunami’ for 2024, with particular focus on sustainability disclosures and ESG – marking a significant shift in the legislative landscape. 

Within the EU, the Corporate Sustainability Reporting Initiative (CSRD) has replaced the Non-Financial Reporting Directive (NFRD), which has crucial implications for UK businesses operating within the EU.

This shift not only sets a international precedent, but also acts as a potential focal point for future UK consultations. 

Of particular interest is the CSRD’s mandating of non-financial reporting for corporates, thus expanding its reach to nearly 50,000 companies, from the previous 11,600 covered by the NFRD.

The directive introduces a unified framework, utilising European Sustainability Reporting Standards (ESRS) and over 120 Key Performance Indicators (KPIs), determined through a ‘double materiality’ assessment, akin to approaches in the social value movement.

Sustainability issues that might create financial risks for a company are included, alongside consideration of impact to people and the environment. This goes further than the ESG traditional ‘single materiality’ (risks for the company) approach.

Moreover, the directive orders third-party assurance, aligning with Social Value International’s Principle 7 call for verification of results.

The introduction of CSRD will redefine operational processes to meet disclosure requirements, rigorously aligning sustainability reporting with financial reporting expectations. 

On a global scale, the International Sustainability Standards Board (ISSB) has finalised two Sustainability Disclosure Standards, set to complement the International Financial Reporting Standards (IFRS) Foundation. These standards, designed specifically for capital markets, implement a financial materiality assessment focused on the risks and opportunities caused by ESG factors to financial returns, diverging from the double materiality approach.

The UK government has acknowledged its’ own legislative gap in a rapidly evolving landscape and committed to establishing a formal assessment mechanism for ISSB standards.

A call for evidence to review non-financial reporting requirements that closed in August further demonstrated proactive steps toward legislative refinement in the UK

Our aim is for an outcome where genuine impact on people, society and wellbeing is duly accounted for, as opposed to just the impact on the business making the decisions.

For those seeking more information, Social Value International has a range of helpful resources on materiality available and a 60 seconds to Change the World survey that examines what we all actually want from our investments. 

For more on ESG, you can access the recorded Sectoral ESG Conference (available via [email protected]) or book your ESG workshop for further insights. 

So as things develop, let’s continue to shape the future, practise and reporting in a way that is not only about impacts to the business and profits, but the impacts on stakeholders and wellbeing.