The Marathon of Corporate Regulations and Sustainability Requirements
ESG requirements keep us all on our toes.
Imagine getting ready to run a marathon. You’ve trained for months, you’ve built your stamina, you’ve consulted all the resources for successful marathon-running. You’re ready to start. But at the start of the marathon, the organizers suddenly announce that a) the route may change as you’re running, b) you’ll have to quickly adjust to new rules as they are constantly being announced and c) no one really knows where the finish line is.
That is the situation that sustainability professionals at companies now find themselves in.
The landscape of corporate regulations is rapidly evolving and changing. In a few years, we’ve gone from a few corporate regulations to dozens. From voluntary reporting to mandatory reporting. From general to very granular data expectations. Some of these are already in effect and many more are expected to become law in coming years. The stakes are high: there are enormous risks involved in making sustainability and reporting decisions today that could be costly later on. There are also enormous risks involved in not acting: considerable fines could be levied against companies that are not in compliance with regulations.
It’s a lot to track. Just like in our marathon analogy, it can take all of our energy and attention just to know how to understand the objective — let alone how to perform well.
Various technology providers offer solutions and frameworks to support with ESG reporting, GHG emissions calculations, Scope 3 or product-level impact calculations and forest or agriculture-based carbon tracking. Yet vetting various technology solutions is another massive task, especially as new ones seem to be launching every other day.
Is it a wonder that decision-making on company sustainability, sourcing and impact can feel paralyzing? Not many of us came to our jobs with high levels of preparedness and literacy about these regulations; some of the most consequential ones have only emerged in the last year or two!
Signposts for Clarity
Before we get lost in the woods of various acronyms — ESG, GHG, SBTi, SEC, SFDR, FLAG, CCAA, TNFD — here are a few signposts to keep us on a path of clarity and sanity:
1. Note the difference between corporate regulations on the one hand, and voluntary frameworks on the other.
For example, the Science-Based Targets Initiative (SBTi) is a completely voluntary framework that companies can adopt to define and commit to sustainability targets. The SEC’s proposed rule that would require large US companies to make climate-related disclosures such as GHG emissions and climate-related risks, on the other hand, would be mandatory if passed into law.
2. Determine which regulations and frameworks apply to your company.
Not all of them do. Some requirements and policies only apply to publicly traded companies. Some are industry-specific. Others are country-specific. If your company does business in the EU, for example, you will need to understand the relatively more sophisticated regulatory environment of the EU.
Here are some tools to track how regulations are evolving in different countries and in different industries.
3. Not taking action is not an option.
Emerging regulations in both the EU and the US suggest that company sustainability reporting and climate-related disclosures will simply become the new normal in the future. This is not a can to kick down the road. The sooner you begin to develop the tools to assess and report about your company’s impact, the easier this task will be in the future.
4. Mindset shift: from burden to a decision-making tool
Even though regulations may seem like a burden, they are also a tool for attracting responsible investment, a method for earning consumers’ trust, and a reminder/guidepost to make us do the difficult work to ensure that companies operate compatibly with a living, thriving planet.
Invest in Insight into your Supply System
There’s one thing we at Terra Genesis have learned from our work supporting companies with their climate impact assessments and regenerative supply development: developing a better understanding of their supply system is always a worthwhile investment.
Developing a clear picture of where your partners, suppliers, producers, processors, and manufacturers are is crucial preparation for any climate reporting involving Scope 3 emissions, but also for meeting sustainability reporting requirements in general and for complying with new regulations.
Not only that, the same process is also what sets your company up for success when you decide to begin the transition to regenerative sourcing of your ingredients or raw materials.
In other words, connecting with your supply system is always a win-win-win.
For companies that source raw materials from agriculture, the motto from the local food movement — “know your farmer” — serves as a principle to hold. Even though it may not be possible for a large food company to gain a line of sight or personal connection with every one of their farmers, there are ways to start developing more of a connection. Talk to your suppliers, who do likely have a connection to producers. Develop a pilot project or research project with a specific group of farmers. Find out how you can best support them.
And if the thing your company needs is guidance along the path through this sometimes-confusing regulatory landscape, our team at Terra Genesis will be more than happy to go on this journey with you. Navigating a complex landscape is what our interdisciplinary team does every day, whether with designing farms, stakeholder systems, or companies’ regenerative or sustainability strategies.
We’re committed to running the marathon together with you, up to the finish line.
