ESG regulations need clarity says business sector

WHETHER regional businesses want to or not, if they want to be competitive in the global market they must focus on environmental, social and governance (ESG) management.

At a one-day workshop on ESG practices hosted by the TT Chamber of Industry and Commerce, Westmoorings, more than 100 attendees were reminded that when dealing with global partners, one of the first conversations to have is about how they deal with ESG practices.

But for TT, and in many other instances globally, standards for transparency in ESG practices remain a challenge. Companies are faced with too many different standards, which gives companies leeway to play coy with their corporate social responsibility.

According to financestrategists.com ESG is an investing philosophy where standards of social responsibility are considered when evaluating a company for investment, rather than only maximising return on investment.

At the Chamber’s session on Wednesday, businesses said there were many challenges to proper ESG reporting too much ambiguity and called for a single standard practice for all companies to adhere to.

“We do not as yet have one standard,” said one business representative. “If you look at annual reports in the Caribbean and we look at the ESG section it is as diverse as the ocean. It is what we choose to report on.”

The representative said one of the main challenges when convincing business leaders about the importance of reporting ESG practices is the diverse reports on how it can be integrated into their businesses.

“Then you have auditors coming in and asking about ESG for a framework that does not exist legally,” she said. “There is a disconnect between what the standards say, which is not uniform, and the legislative backing for it.

The situation is unlike to the securities sector where there is local legislation that guides businesses on what a report should look like.

Marcus Jardine, associate partner at Ernst and Young, agreed with the representative, saying that at one point there were over 600 different bodies for disclosure on ESG practices.

“On top of those 600 disclosures you also have financiers and other people you wanted to transact with,” he said. “The challenge to this number of disclosures is that on one side you had this sphere where a lot of businesses really wanted to immediately embark on the ESG journey, but at the same time you have this regulatory fog where people are unsure in terms of what does 'good' look like, how do I know if I am getting better, how do I know if I am even doing or recording what is meaningful to stakeholders.”

Jardine, however, said there will be a single standard for ESG reporting through the establishment of the International Sustainability Standards Board (ISSB)

The ISSB was established in 2021 at COP 26 in Glasgow, after several global entities called for it to be set up.

The ISSB has international support to develop sustainability disclosure standards and is backed by the G7, G20, the International Organisation of Securities Commissions, the Financial Stability Board and other international bodies.

Jardine said that many of these institutions connected with ISSB are recognised in up to 140 jurisdictions.

“The expectation is that it is voluntary at the moment but when they become mandatory it will have the same amount of rigour and recognition across all the jurisdictions in which they operate,” Jardine said.

He added that reporting in ESG is evolving and getting more detailed.

“It is going from limited in detail to much more complexity and rigour in terms of detail, and there is an expectation that it can stand up to scrutiny and audit.”

He said while they are not mandatory now. Regulations in reporting ESG practices are an opportunity to be compliant and for organisations to differentiate themselves from the rest.

He added that businesses that comply to these regulations and report in the right manner will also be able to meet capital requirements to access value markets and to get involved in value chains that other entities which do not comply with ESG reporting standards can’t.

“It starts with governance but in terms of management you really want the people involved to have the right competencies and capabilities to oversee the risks and opportunities at a board level and at the executive and management level implement and execute,” he said. “These people are also expected to be identified in the disclosures that is why more and more you are seeing the roles of chief sustainability officer and sustainability committees."

He added that these roles must be filled by people with the right qualifications and capabilities.

“The same way you have a qualified accountant, you would need people qualified in these roles and you would have to have them embedded through your organisations.”

Maria Daniel, Ernst and Young partner in strategy and transactions, and lead in sustainability, said the best policy is to begin trapping data which is the most difficult part of ensuring that companies are compliant.

“A lot of people tell us we are measuring but then we ask what exactly are you measuring? How many tonnes of carbon are you emitting, they say they are not measuring that. I ask are you tracking your electricity usage? Or would you have to go back to every bill to really see how much you are using?”

“First people must start tracking data. Once you start to do that, the actual calculations can be done.”