John Whelan: Sustainability compliance changes coming fast for firms

The EU's Corporate Sustainability Reporting Regulations were signed into law by Enterprise Minister Peter Burke last month. 

Change is coming fast to the sustainability footprint of global enterprises, with far-reaching implications for the future of the wide range of multinationals operating in Ireland.

Ireland was one of the first EU member states to implement the new EU Corporate Sustainability Reporting Regulations 2024, pushing the regulation into law on July 5.

The new guidelines include disclosures on biodiversity, climate impact, corporate governance, and sustainability practices. Including what is called the Scope Three emissions — the indirect emissions in a company’s value chain — this is a significant move and will impact many Irish small businesses who supply the larger corporations.

In the past few years, investors’ attention to environmental, social, and governance (ESG) considerations hit the headlines internationally, driven by the increasing number of mandatory ESG regulations around the world, and more are on the horizon.

This year, the Top 250 Companies in Sustainability features many corporations such as Apple, Google, and Facebook, but also many EU companies such as Schneider Electric, Nike, BMW, and Roche, as well as many more global powerhouses, are all driving the sustainability movement.

In March this year, the US Securities and Exchange Commission finalised amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning ESG factors.

Meanwhile, China is setting its sights on outpacing the US, if not the EU, and challenging to become a global leader in corporate sustainability reporting, announcing earlier this year the new ESG reporting standards for companies listed on the Shanghai Stock Exchange, Shenzhen Stock Exchange, and the Star Market, as well as mandating those with dual listings overseas to disclose ESG information, including Scope Three emissions.

The new reporting standards in China could have a significant impact globally. 

If already competitive Chinese companies are also seen to be champions in this area, their fortunes could be set to rise even further than at present.

Other countries are also introducing ESG-related disclosure laws, including the UK, Japan, Singapore, Canada, and Australia.

For many CEOs, the negative impact of climate change on businesses is already having visible effects on their customers and understanding ESG risks is increasingly important for investment decisions.

However, as always, it is a fine balancing act delivering business growth and shareholder value while supporting ESG efforts.

Business leaders and investors have long demanded more transparency, trust, and consistency in ESG reporting, but a mixture of voluntary frameworks and standards made reliable readings of performance all but impossible.

It is hoped that the EU sustainability reporting directive, while mainly affecting Irish and European companies, will impact more broadly across corporates in the US, Asia, and further afield, driving up a more uniform global standard.

Initially, it is expected to drive up reporting for large public-quoted corporations who will be required to publish in 2025, with compliance filtering down to small and medium businesses who will first report in 2027.

Businesses, small and large, who are subject to the EU’s sustainability reporting will need to take time during 2024 to put in place processes that ensure compliance.

Enterprise Minister Peter Burke said that the EU regulations provide a helpful structure to companies for preparing sustainability reporting in a clear and consistent way.

Whereas the EU sustainability regulations apply mainly to large corporations listed on stock market exchanges, Mr Burke has also released a new policy statement which will hit small businesses who rely on support from their local enterprise offices around the country.

The new policy introduces a climate-focused assessment criteria for capital grants for manufacturing and internationally traded services businesses.