What is the current state of ESG in the world?
First of all, it is important to mention that ESG is not a brand new discipline but rather the progression of, the now outdated, corporate social responsibility. The difference with its predecessors lies upon the fact that it is a discipline that goes beyond marketing exercises. It is not about greenwashing.
Multinational investment companies like BlackRock or State Street are increasingly opting for investment decisions based on ESG factors, individual board members are being voted-out based on metrics related to these factors and of course regulators have their eye set on this topic.
This past march the SEC proposed Mandatory Climate Risk Disclosures for public companies. If adopted it would provide investors with consistent, comparable and clear information for making investment decisions as well as providing reporting obligations for issuers.
In Germany, the Corporate Due Diligence in Supply Chains will enter into effect this upcoming 2023 covering companies with 3000 or more employees and from 2024 onwards companies with 1000 or more employees. All affected companies must identify risks of human rights violations and environmental destruction from direct suppliers and indirect suppliers if they acquire substantiated knowledge of a potential abuse. They must take countermeasures, document this information and supply it to the Federal Office for Economic Affairs and Export Control (BAFA). If regulated organizations are found to be in violation of their due diligence obligations severe fines can be issued.
And the list of regulations goes on and on, coming from many different directions. From broad regulations to very narrow ones, the panorama is quite complex and it only promises to complicate even more.