ESG and climate related disclosures - why now?

Environmental, social and governance (ESG) disclosures are becoming ever more prevalent, and not only for those entities that are legally required to include them. This is especially true for climate-related disclosures.

On the back of the heightened focus on sustainability and energy consumption, we think this tendency for non-mandatory disclosure will not only remain but will actually increase. Financiers, customers, employees, and the government are some of the stakeholders who will undoubtedly take great interest in an entity’s ESG strategies, or its lack thereof.

Getting a head start on ESG disclosures now is not only good for business – it is simply the right thing to do.

Current landscape and legal requirements

We previously described ESG reporting as the wild west of standards. Little has changed in the standards currently available, but the outlook is positive, with the formation of the International Sustainability Standards Board (ISSB) in late 2021. We are hoping that the ISSB can unify the plethora of existing material into a comprehensive set of standards for ESG reporting. This will enable the existing standard setters to focus on providing further guidance or good practice for specific ESG issues or industries.

Despite the myriad of standards available, none of the suites of ESG standards currently in issue apply on a mandatory basis in the UK, yet some of the UK’s most significant entities are already required by legislation to provide some ESG-related disclosures. Most recently, Statutory Instrument 2022, No. 31 introduced climate-related financial disclosures to many more entities with effect from 6 April 2022. These entities include AIM listed companies with more than 500 employees and all UK companies or LLPs that have more than both 500 employees and £500m turnover.

If your business is not caught by these new requirements, you can nonetheless choose to include ESG disclosures, either in a formal statement, or within other areas of the annual report such as the S172 statement, the directors’ report, the strategic report, the streamlined energy and carbon report, and the corporate governance disclosures. 

Where to start

It is always daunting to start something new. As mentioned, climate-related disclosures are a great place to start and hone your skills in this area. There is also guidance available from many sources, including the Financial Reporting Council (FRC), the Department for Business, Energy and Industrial Strategy (BEIS), and the Taskforce on Climate-related Financial Disclosures (TCFD).

As you would expect, RSM can also be a great source of guidance. We have dedicated ESG resources and expertise, covering both the implementation and reporting of ESG, and we are passionate about the benefits this can bring to your business (and, of course, to society at large).

Please get in touch with Danielle Stewart OBE, or your usual RSM contact, to discuss how to set out on your ESG journey.