How well understood is the regulatory landscape for sustainability and ESG?

The answer to that is two-pronged. On the one hand, there is a high level of awareness in the market and among our prospective and existing customers that a significant wave of regulation is on the horizon. Understanding, however, is another question. There is a notable degree of uncertainty among companies in terms of what is actually required to achieve compliance, as many of the implementing measures and details surrounding the regulation are still under development. 

Is there an appetite to go above and beyond what is required from a compliance standpoint?

There are companies who really see sustainability as a differentiator and something that gives them a competitive edge. At Position Green, we work with many ‘purpose-native’ companies. In particular, the field of green tech is evolving fast. Greentech companies – which aim to solve the climate challenge with technological innovations – tend to have an ambition to be frontrunners in ESG practices in general, not just in their immediate area of impact.

At the same time, there will also be companies for whom sustainability is a very new field that confronts them in the form of regulation. For them, it will have to be a case of compliance and regulatory box ticking right now. What is very important, and where we can help, is to make sure that they map out their trajectory beyond compliance so that they integrate their practices in their strategy and operations – creating long-term value for their customers and for society as a whole.

What do you see as pros and cons of increased ESG regulation?

The pros are more transparency, standardisation and alignment, which we need. If we want systems change, regulatory action is required. Without an alignment on CO2 emissions reporting, we cannot make progress on climate change, for example.

The cons are that companies might be pushed into a compliance-driven approach to sustainability, where ESG becomes something for the lawyers and not the core business. Regulators have a crucial role to play in preventing this, if they take a balanced approach to enforcement.

Do you think there should be global ESG standards?

Most definitely. We need to align globally on the most critical issues, such as carbon accounting and ideally also carbon pricing. What we don’t need is more, uncoordinated regulatory action on ESG. Rather than individual countries implementing their own national rules on supply chain due diligence, for instance, we need EU-level rules and better alignment across the ESG rules that are already on the books. For example, the EU has put in place a world-leading regulatory rulebook for sustainable finance.

Unfortunately, international alignment across the board is a long way off for political reasons. In the meantime, it is critical that regulatory frontrunners such as the European Union keep pushing the bar higher and engage in global dialogues to continue to work towards collaboration.

How do you think the global ESG regulatory landscape will develop in the coming years?

Disclosure and ESG data quality will remain a high priority for regulators across the world, in different shape and form. Some regions will align with international standards, others will follow the EU’s best-practice approach. Many actors – including major international financial players – are lobbying strongly for global alignment on ESG reporting, so I definitely see more global coordination on ESG reporting specifically in the following years.

On industry- and sector-specific rules, there might be more disharmony. Areas such as renewable energy have become a major competitiveness factor. Every region wants to be an EV champion, or a solar champion, for instance. We already see trade disputes between the US, the EU and China. Given the geopolitical shifts of the past years, the race for strategic autonomy is likely to continue. Hopefully, these forces will accelerate the sustainable transition. But there is reason to fear that the intensifying global rivalry will make the systemic change our societies and economies so desperately need more inefficient.

What advice do you have for companies in tackling new sustainability regulations?

I understand it can be overwhelming for companies, but the following touchstones can set them on the right path.

• Employ a strategic perspective: Make sure you focus on what’s important for your company so that sustainability efforts are aligned with your overall business strategy and long-term goals.
• Do your DMA right: Conduct a comprehensive double materiality assessment (DMA) when starting or refreshing your ESG strategy to identify your priority areas, and do it on a granular level.
• Ask the experts: Seek out advice to fill in the gaps to compliance that you will have in your company. Regulation is new to everyone and establishing a clear baseline to work from will be pivotal.

How can Position Green help?

Your company can access Position Green’s ready-to-go solutions for the ESRS, EU Taxonomy and other ESG frameworks straight out of the box, or align with your standards of choice. We combine leading ESG tech with deep sector knowledge and advisory expertise so you can self-manage compliance and embed processes that future-proof your business.