ESG Regulators Add Enforcement to Verify Disclosures

By John Tobin
on Mar 23, 2021

The Securities and Exchange Commission (SEC) has announced an Enforcement Task Force for climate risk disclosures - “Proactively addressing emerging disclosure gaps that threaten investors and the market”. 

The SEC demonstrates the serious intent of the US administration for Environment, Social and Governance (ESG) disclosures. They stress the importance of getting them ‘right’. However, companies face a whirlwind of regulatory change, emerging ‘standards’, and an increase in depth of disclosures that makes compliance hard to understand, let alone complete and deliver.

The European Union is revising its guidance for sustainable finance disclosures, the UK is moving dates for CO2 reduction, and the Task Force for Climate Related Financial Disclosures (TCFD) recommendations are being supplanted by the World Economic Forum (WEF) as the most popular for company reporting. Meanwhile, carbon offsets are being questioned (for example, Drax) and undisclosed supply chain factors (such as BooHoo) raise questions about disclosures.

Organisations are therefore caught between increasingly strident calls for disclosures and even more vague (but more extensive) sets of information to provide – not just for the company, but also for suppliers and investments. Lack of compatibility between ESG data for suppliers, for investments and the company’s own metrics adds another layer of complexity.

Regulations with compliance power will tend to reduce complexity – forcing priority and standards to fall into line. In the meantime, being able to compare the impact of disclosure regimes on data and policies (eg. WEF vs TCFD – WEF has more emphasis on supply chain and the People and Prosperity pillars), and align company strategic principles and priorities with disclosures and data, will streamline ESG and bring some clarity and organisation.

Solidatus is used to map disclosures, ‘standards’ and regulations to the people with responsibility for them, as well as to company priorities and the data required to fulfil them. This presents a unified, end-to-end view, both for setting out how a company will deliver on their ESG aims and tracking progress on filling data gaps. For example, highlighting how differences in disclosure recommendations for TCFD and WEF impact data required from suppliers and the scope of data for a company’s own disclosures.

ESG is a data sourcing and governance challenge, requiring transparency and clear links to company objectives to drive it successfully. Dealing with changes in regulations and disclosures is going to be required for a few years to come. Investing in mapping and understanding data flows – and relating them to ESG priorities – will help companies make a positive impact.

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Topics: Data Lineage, Data Governance, Metadata Management, RegTech, ESG

Author: John Tobin

Data Architect with extensive experience in regulatory reporting, data governance and data quality implementations in global investment banking. An expert in making sense of complex data structures.
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