Environmental, Social, and Governance (ESG) initiatives are not only a growing corporate-level movement designed to meet consumer preferences, but they’re also part of robust legislative efforts that are – often successfully – implementing stringent policies with significant impact on supply chain sustainability across the U.S. and E.U. But despite the often steep upfront investment ESG requires, organizations are beginning to recognize the payoff in long-term sustainable business practices and customer satisfaction.
Take a look at these latest ESG updates to see how global firms and countries are taking matters into their own hands to ensure environmental sustainability, ethical sourcing, and responsible governance.
Recent ESG Pledges and New Company Policies
Mars-Wrigley Commits to 100% Responsibly-sourced Cocoa
Mars-Wrigley recently announced a new milestone in its commitment to sustainability. The company pledged that by 2023, 100% of its cocoa sourced for its European factory operations will be verified as responsibly sourced. The move will impact a variety of globally-recognized products, including Mars, Snickers, M&Ms, Milky Way, and Galaxy.
This transition to more sustainable practices is part of Mars-Wrigley’s Cocoa for Generations Strategy, an initiative established in 2018 to deliver “real, lasting positive change across the supply chain for future generations.” According to the Cocoa for Generations 2021 report, Mars-Wrigley is now on track to reach its global goal of 100% of its cocoa responsibly sourced and traceable to first point of purchase by 2025.
Procter & Gamble Will Increase Its Use of Alternative Fibers in Products
Following growing pressure from environmentalists, Procter & Gamble, a multinational consumer goods giant known for brands, like Tide and Charmin, recently announced its commitment to increase its use of alternative (non-wood) fibers in its products.
The use of wood-based products in manufacturing is connected to deforestation. And in its 2019 report, The Issue with Tissue, the Natural Resources Defense Council (NRDC) linked major U.S. tissue product manufacturers (including P&G) to the destruction of the Canadian boreal forest.
In response to this increased pressure and negative PR, P&G has committed to expanding its use of alternative fibers and developing non-wood-based fiber products in its Charmin Ultra Eco toilet paper products. This move is part of P&G’s larger sustainability initiative, Ambition 2030, under which P&G has pledged to use 100% recycled fiber in its packaging by 2025 and 0% net waste by 2030.
ESG Legislation Updates: International, EU, and US Proposals & Upcoming Legislation
Company pledges like the ones above are holding more weight as legal (and social) crackdowns on greenwashing mean that companies can’t just profess their sustainable initiatives without backing them up and reporting on them. Current and proposed legislation will continue to push companies to raise ESG standards and demonstrate compliance with greater enforcement.
China Moves to Standardize ESG Reporting
China has released voluntary guidelines for enterprise disclosure on ESG initiatives that aim to help investors assess risk. While the framework is informed by international ESG priorities, the guidance further underscores the priorities of the Chinese government, such as social stability.
China still doesn’t have mandatory, stringent ESG reporting standards, but there are signs that they are working towards it-and with E.U. and U.S. investors requiring this from firms in their own countries, enforcing these standards for non-E.U. and U.S. firms is only a matter of time.
Voluntary disclosure standards published in June by the China Enterprise Reform and Development Society (CERDS) push for uniform reporting practices designed around Chinese ESG priorities. This means reporting requirements will likely differ significantly from western frameworks.
Germany’s Supply Chain Due Diligence Goes Into Effect in 2023
In 2021, the German parliament passed one of the most robust attempts to ensure firms are holding their tier 1 and 2 suppliers accountable for emissions and other ESG standards. The Act on Corporate Due Diligence in Supply Chains, which goes into effect on January 1, 2023, will apply to all German-based companies that employ at least 3,000 people (covering more than 600 companies total). Then, from January 1, 2024, it will apply to companies with over 1,000 employees (which is expected to cover more than 2,900 businesses).
The legislation requires companies, including indirect (n-tier) suppliers, to conduct a comprehensive risk analysis of their supply chains, and minimize risk across a variety of ESG data categories, such as labor, discrimination, and pollution. Companies in violation will be faced with steep fines. While the act legally applies to German-based companies, its impact will be felt across European and international businesses connected to the German supply chain, driving the need for detailed n-tier mapping.
EU Adopts New Corporate Sustainability Reporting Directive (CSRD)
In 2021, the European Commission adopted a comprehensive package of initiatives to drive investments toward sustainable technologies and businesses. Part of the package included a proposal for a Corporate Sustainability Reporting Directive (CSRD) to improve sustainability reporting.
The commission reached a provisional agreement in June 2022. The agreement, which would apply to E.U. subsidiaries and non-E.U. firms (including U.S. firms with E.U. locations), builds on the E.U.’s current Non-Financial Reporting Directive (NFRD):
- More companies will be covered under the CSRD
- Businesses must apply double materiality, disclosing sustainability impacts on the internal business as well as outward impacts on society
- Companies must report according to expanded sustainability reporting standards
- Companies must get third-party assurance of sustainability information
As a result, the CSRD will make sustainability reporting more consistent, enabling investors and the public to access reliable and comparable sustainability data.
The European Commission plans to adopt the final agreement by late 2022. After this, member states will have 18 months to translate the standards into local law.
SEC Proposes New Climate Disclosure Requirements
The SEC proposed rule changes in March 2022, expanding reporting requirements and disclosures. The proposal specifically focuses on climate-related risks that are likely to impact business operations and finances.
The rule changes would require businesses to disclose
- Its governance of climate-related risks and relevant risk management processes
- How any identified climate risks would impact the business
- How these risks have affected the company’s strategy, business model, and outlook
- The impact of climate-related events (e.g., severe weather, natural disasters, etc.) on the company’s financials
“If adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers,” stated SEC Chair Gary Gensler.
Currently, the standards would only apply to public firms and those that already have ESG goals and initiatives in place. A final rule is expected at the end of 2022.
International Sustainability Standards Board Issues New Exposure Drafts
The ISSB published two exposure drafts in March 2022 outlining proposed International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards. The drafts aim to establish standards that ensure comprehensive, consistent, and comparable ESG reporting for investors.
- IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information would require companies to disclose material information about sustainability-related risks and opportunities.
- IFRS S2 Climate-related Disclosures sets requirements related to the identification, measurement, and disclosure of climate risks and opportunities.
These standards will enable investors and other interested parties to better assess the business impact of climate and sustainability risks and how that will affect the company’s finances, performance, and long-term strategy.
The final standards are expected to be published in early 2023.
This growing network of global sustainability and reporting standards will have far-reaching impacts on companies across the world. Businesses should take a proactive approach now to uncover their obligations, strengthening their current initiatives, as well as supporting their suppliers to improve their ESG performance.
This includes investing in strong ESG data intelligence. Accurate, up-to-date ESG data is essential for understanding risk exposure and opportunities through the supply chain. And as reporting standards strengthen, companies without a robust ESG data strategy will struggle to comply. Ensure you are using a comprehensive supplier intelligence platform that enables end-to-end visibility into your value chain so you can act on and report accurate ESG data.