ESG in 2023: 3 ways to prepare for new regulations

As investment in sustainable asset funds continues to rise, organizations face an array of new regulations in the United States, Europe, the Middle East, and Africa. The new regulations will ensure the companies comprising these funds meet true environmental, social, and corporate governance (ESG) criteria versus some version of greenwashing.

As companies prepare for an influx of new ESG reporting mandates and regulations in 2023, there are three key changes companies should quickly establish to prepare for the challenges ahead.

1. Appoint a chief sustainability executive

The initial impact of these regulatory changes will result in companies making more of a cross-functional effort to understand what needs to happen internally to meet the moment. This will require businesses to build out teams with sustainability roles.

Chief sustainability officers will be critical in influencing, communicating, and cutting through organizational complexity to allow their company to deliver on ESG commitments. People generally support the idea of working or living more sustainably until it involves them having to change their behaviors. And this is true in the corporate world as well.

Once employees are informed and supportive of the goal, they are much more likely to be cooperative with the steps required to get there. This may take some creativity on the part of the chief sustainability executive, for example, including the company’s achievement of its ESG goals as an element of employee bonuses could be a true motivator that links teams together to meet a common goal.

2. Create an ESG policy budget

New ESG regulations will require organizations to hire people for key roles to implement new policies and to partner with companies that will help them achieve sustainability objectives.

The first pushback on change is the lack of budget for making these changes; however, for sustainability policies to be successful, a budget must be set aside, and this will require the CFO’s buy-in to make it happen. Justifying the spending may take some convincing, yet many of the changes could potentially save money.

3. Assess partners’ sustainability practices

There is a clear mandate for carbon footprint reduction in the new regulations. As companies calculate and seek to reduce their carbon footprint, they will also need to assess their supply chain in detail to ensure that their partners operate sustainably. The carbon footprint of all company partners will be impacted by the footprint of those partners and it will be important that these partners are taking steps to reduce their own carbon emissions. Those companies who are not looking seriously at this now will be left behind.

Alongside the growing number of companies establishing “net zero” targets for carbon by 2050 (or sooner), governments worldwide are ramping up regulatory rules that will separate the companies engaging in greenwashing from those that are serious about reducing their carbon footprint and doing their part to stem the harmful effects of climate change.

While meeting the new mandates set forth through regulations may take time, effort, and money, the organizations that rise to meet these challenges will do much more than just future-proof their businesses via compliance. These proactive companies, alongside their executives, will exhibit the values that both stakeholders and potential investors and customers appreciate now and into the future.

Adapted from: “ESG in 2023: 3 Ways to Prepare for New Regulations”, by Adam Moloney, CFO at Blancco Technology Group, a data erasure and mobile lifecycle solutions provider, published on CFO News on 03 January 2023.