ESG reporting is becoming more integrated

One of the biggest trends surrounding ESG has less to do with the issues themselves than it does with how they’re shared with stakeholders. Despite being non-financial factors, more companies are beginning to include reporting on ESG-related issues within their annual and financial reporting because ESG-related issues have grown in their significance among all stakeholders, not just the company’s consumers or client base.

The introduction and passage of ESG legislation

Although there aren’t currently any federally-mandated ESG disclosure requirements in the U.S., that could soon change. Proposed SEC Climate Disclose Rules would:

Globally, the UK already has climate-related disclosure regulations, and in the EU, the Corporate Sustainability Reporting (CSRD) and Draft European Financial Reporting Advisory Group (EFRAG) Standards could apply as early as 2024.

The distinction between CSR and ESG will become clearer for stakeholders

Corporate Social Responsibility (CSR) programs have often been mistaken for ESG, as they do share similarities. While CSR and ESG both help companies ensure social accountability, the impact of ESG should be measurable and is often strategically implemented across the broader organization.

This distinction is likely to become much clearer should federal ESG legislation pass and as more organizations continue to strategically implement their own ESG programs and reporting.

ESG will test SMBs, provide greater opportunity

Both ESG program implementation and reporting can be much more difficult for small and mid-sized businesses (SMB), not only because they often don’t have the same resources as enterprise companies, but also because they might not know where to begin. This year may be the first that many SMB legal departments have had to prioritize ESG initiatives, and many are working without a roadmap. While ESG can provide challenges for SMB companies, it also provides even greater opportunity, as in-house counsel can embed themselves within the program from the beginning and play a bigger role in shaping how it affects the broader organization and its stakeholders.

Here’s the bottom line: Regardless of an organization’s size, it’s imperative GCs and other legal leaders prioritize ESG in 2023. Not only will it allow them the opportunity to help shape and inform how their organizations respond to and report on ESG-related issues, but it will also better empower GCs to remain the conscience of their companies. 

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This article was first published on Axiom Law. January, 2023.