ESG Governance: Compliance Guide 2024

ESG governance is now crucial for companies. Here's what you need to know:

ESG = Environmental, Social, Governance
New rules coming in 2024 for EU, US, and California companies
Focus on climate disclosure, sustainability reporting, and board diversity

Key areas to address:

Environmental: Carbon emissions, waste, biodiversity
Social: Diversity, human rights, community impact
Governance: Board makeup, ESG-linked pay, ethics

To prepare:

Set up ESG data systems
Integrate ESG into risk management
Train your board on ESG issues

Use tech tools like Climatta for easier ESG data management.

Area	Key Focus	New Rules
Environmental	Carbon reporting, waste reduction	SEC climate rules (US)
Social	Diversity, human rights	Nasdaq board diversity requirements
Governance	ESG-linked pay, ethics	CSRD (EU)

Remember: ESG isn't just compliance - it's about long-term value creation.

ESG Compliance in 2024

ESG compliance in 2024 boils down to three main areas: Environmental, Social, and Governance. Let's break it down:

Environmental

This covers things like carbon emissions, energy use, waste, and protecting nature.

Think workplace safety, diversity, human rights in your supply chain, and how you interact with local communities.

Governance

It's all about how you run your company: board diversity, executive pay, anti-corruption efforts, and shareholder rights.

New Rules on the Horizon

2024 is bringing some big changes:

Regulation	Who's Affected	What's New
CSRD (EU)	Large EU companies	Broader sustainability reporting
SEC Climate Rules (US)	Public US companies	Climate info in financial statements
California Climate Laws	Big companies in California	Disclose climate risks and emissions

The CSRD is a big deal. It affects about 50,000 EU companies and covers everything from environmental impact to human rights.

The SEC's new rules (coming April 2024) will make US public companies spill the beans on climate risks, emissions, and their climate goals.

Getting Ready

To prep for these new rules:

Set up systems to gather and report ESG data
Weave ESG into your risk management
Make sure your board is on top of ESG issues

"Companies must create value for all stakeholders to deliver long-term value for shareholders." - Larry Fink, BlackRock CEO

This quote shows how ESG is becoming a big deal in corporate strategy.

If you're just starting with ESG, consider using tools like Climatta. They offer dashboards that make ESG data management a lot easier.

As things get more complex, don't be afraid to ask for expert help. It could save you headaches down the road.

Environmental Rules

Carbon reporting

The SEC's new rules are shaking things up for public companies. Now, they've got to spill the beans on climate risks and greenhouse gas emissions in their annual reports. What's that mean? They need to talk about:

How climate affects their business and money
What they're spending on climate-related stuff
Any climate goals they've set

Big companies (we're talking large accelerated filers) need to get on board starting in 2025. So, what should companies do? Here's the game plan:

Set up systems to track ESG data
Make climate risk part of their overall risk strategy
Get the board involved in ESG issues

Waste and recycling

Want to nail ESG compliance? You've got to get smart about waste. Here's how:

1. Follow this waste hierarchy:

Priority	Action
1	Stop waste before it starts
2	Make less waste
3	Use stuff again
4	Recycle
5	Turn waste into energy
6	Landfill (last resort)

2. Keep an eye on your waste with monitoring tools

3. Do regular waste check-ups

4. Use tech (think AI and sensors) to get your waste game on point

Protecting nature

Biodiversity's becoming a big deal in ESG. New rules are popping up:

The EU wants 20% of its land and sea under nature restoration by 2030
A Global Plastics Treaty is coming in 2024, setting rules for plastic

How can companies get ready?

Figure out how they're affecting local ecosystems
Make policies to do less harm to biodiversity
Team up with conservation groups

Want to make all this easier? Try using automated ESG data tools. Platforms like Climatta can help you gather sustainability data and crunch carbon footprint numbers without the manual headache.

Diversity and inclusion

Companies are upping their D&I game in 2024. Here's the scoop:

Make a clear D&I policy
Run mandatory D&I training
Use blind recruitment to cut bias
Track your progress with metrics

Cisco's doing it right: In 2022, ALL their Supply Chain Ops folks finished human rights training.

Human rights at work

Respecting human rights isn't just nice—it's smart business. How to nail it:

Set up a code of conduct (Cisco uses the RBA Code)
Check your supply chain (Elanco targeted 51 suppliers for HSE checks in 2023)
Tackle forced labor (Cisco got $2.2 million back to 1,865 workers for unfair fees in 2023)
Team up with industry groups like RBA

Community impact

Your company's not an island. Make waves:

Back local projects that match your values
Measure your community impact
Get your staff involved in volunteering
Be open about your efforts in ESG reports

Remember: It's not just about looking good—it's about DOING good.

Governance Rules

Board makeup and independence

Nasdaq's new rules are shaking things up. Listed companies now need diverse boards:

At least 1 woman
1 racial minority
1 LGBTQ+ person

(Companies with 5 or fewer board members only need one diverse member.)

Why? Because diversity matters. In 2021, 73% of S&P 500 companies tied exec pay to ESG goals. That's up from 66% in 2020.

Want to boost your board's diversity? Here's how:

Know your numbers (gender, ethnicity, LGBTQ+)
Set targets for board and senior roles
Check progress often
Create paths for underrepresented groups to move up

ESG-linked pay

More companies are tying exec pay to ESG goals. But it's not easy to set clear targets.

In 2021, S&P 500 companies focused on:

Diversity and inclusion (51%, up from 35% in 2020)
Carbon footprint (19%, up from 10%)

ESG Goal Type	% of S&P 500 Companies
Human capital management	64%
Environmental	25%

Want to link pay to ESG? Try this:

Test ESG goals for 1-2 years before adding to comp
Get solid data to measure performance
Show how ESG goals fit your business strategy

Ethics and anti-corruption

Good ethics and anti-corruption measures are a MUST for ESG governance. Here's what to do:

1. Create a clear code of conduct

Cisco uses the RBA Code as a model. It works.

2. Watch your supply chain

Elanco checked 51 suppliers for HSE issues in 2023.

3. Fight forced labor

Cisco got $2.2 million back for 1,865 workers who paid unfair fees in 2023.

4. Team up

Join groups like the Responsible Business Alliance (RBA). You're stronger together.

Managing ESG Risks

Spotting ESG Risks

To spot ESG risks, you need to ask the right questions and look at both internal and external factors. Here's what to focus on:

Industry-specific risks
Operational impacts
Supply chain vulnerabilities
Geographic footprint
Regulatory landscape
Industry trends
Stakeholder expectations

Pro tip: Start with a materiality assessment. It helps you prioritize the most important ESG risks for your company and stakeholders.

Adding ESG to Risk Management

Adding ESG to your risk management? It's not just smart—it's becoming a must. Here's how:

1. Do a deep dive

Look at your supply chain and operations. Find potential ESG risks and opportunities.

2. Use what works

The WBCSD and COSO offer guidelines for adding ESG risks to your Enterprise Risk Management (ERM) frameworks.

3. Get the right people involved

Bring in cross-functional reps, including sustainability managers and risk owners.

4. Measure it

Set up ways to track how you're handling ESG risks over time.

Reducing ESG Risks

Spotted your risks? Time to act. Here's what to do:

1. Make clear rules

Create and enforce policies that tackle specific ESG risks.

2. Train your team

Make sure everyone knows what ESG risks are and how to handle them.

3. Talk to stakeholders

Get insights into their ESG concerns.

4. Use tech

Tools like Climatta can help gather and check ESG data, making risk spotting more accurate.

5. Go for quick wins

Find easy-to-do, high-impact actions that can cut ESG risks fast.

ESG Reporting

ESG reporting is now a big deal in corporate governance. Here's what you should know:

Main ESG Reporting Frameworks

Companies use these frameworks for ESG reporting:

Framework	Focus	Key Features
TCFD	Climate risks	Financial impact of climate change
GRI	Broad sustainability	Comprehensive ESG metrics
SASB	Industry-specific	Financially material ESG factors

What to Report On

When making your ESG report, focus on:

Issues that matter in your industry
What your stakeholders care about
Metrics you can measure
How you're doing on ESG goals

"96% of the largest 500 companies by market cap published a sustainability report in 2022, up from 86% in 2018." - Governance & Accountability Institute Inc

Tips for Clear ESG Reporting

1. Use data

Back up what you say with numbers.

2. Be honest

Talk about your challenges too.

3. Show progress

Highlight how you've improved year-over-year.

4. Link to business

Show how ESG efforts affect your bottom line.

"Companies should conduct a double materiality assessment to identify which sustainability matters are most material to their organization and stakeholders." - KPMG

Pro tip: Tools like Climatta can help you collect and analyze data for better ESG reporting.

Tech and Data in ESG Compliance

ESG compliance is getting trickier. But here's the good news: tech and data are making it easier to handle.

Using data analysis for ESG

Data analysis is a game-changer for ESG efforts:

AI spots trends in environmental impact and social practices
Advanced analytics flag potential ESG risks early
Data-driven insights track ESG progress accurately

Automated ESG data tools

New software is making ESG data management a breeze:

Tool	What it does	Why it's great
ESG Flo	Churns out ESG metrics	Saves time, cuts errors
Prophix One	Centralizes ESG data	Faster reporting, better compliance
IBM Envizi	Gathers data from everywhere	Solid base for auditable ESG data
Climatta	Automates sustainability data collection	No manual work, quick insights

These tools help companies:

Pull data from all corners of the business
Create reports that fit ESG frameworks
Keep ESG info up-to-date in real-time

Data security and privacy

Keeping ESG data safe is a must:

Pick ESG software with tough security
Control who sees and changes ESG data
Check your data practices often

"In ten years, ESG or Sustainability won't just be an adjunct to business strategy; it will be synonymous with it." - Patrick Obeid, Founder and CEO, ESG Flo

As ESG rules tighten, smart use of tech and data will be key to staying compliant and ahead of the pack.

Involving Stakeholders in ESG

ESG isn't a solo act. It's a team sport involving shareholders, employees, and suppliers. Here's how to get everyone playing:

Shareholder influence on ESG

Shareholders are flexing their ESG muscles:

Proxy voting now shapes ESG priorities
ESG shareholder proposals up 36% from 2021 to 2022
Social proposals increased 3% from 2022 and 24% from 2021

Boards: stay ahead of the game. How? Boost board diversity. It's not just for show—diverse boards often make smarter calls.

Employee involvement in ESG

Employees can be your ESG superstars. Why it matters:

SEC now sees people as key to business value
Engaged employees = better ESG results

Employee Action	Impact
"Green Talks"	Raise awareness
Cross-team innovation	Create sustainable products
ESG-focused groups	Generate new ideas

Susan Hunt Stevens, WeSpire CEO, says: "Engage employees in these programs and you'll hit your ESG goals AND boost engagement rates."

ESG standards for suppliers

Your ESG efforts don't stop at your doorstep. Extend them to your supply chain:

1. Set clear expectations

Spell out your ESG criteria for suppliers.

2. Check and assess

Regularly audit suppliers' ESG performance.

3. Lend a hand

Help suppliers up their ESG game if needed.

4. Reward the good guys

Consider favoring suppliers with strong ESG track records.

ESG Compliance Challenges and Fixes

Common ESG hurdles

Companies face several obstacles when implementing ESG practices:

1. Data management complexity

ESG data is messy. It comes from all over the place, making it a pain to collect and analyze. Companies often struggle with:

Data scattered across departments
Mismatched data formats
No standard way to collect info

2. Regulatory maze

ESG rules? They're changing faster than you can say "sustainability":

1,255+ new ESG regulations popped up globally from 2011 to 2023
37% of companies are struggling to keep up

3. Measuring progress

34% of businesses can't track their ESG goals because they lack solid data.

4. Resource constraints

29% worry they don't have enough money for ESG initiatives.

Overcoming ESG obstacles

Here's how companies can tackle these challenges:

1. Streamline data processes

Use software to automate data collection
Set company-wide data standards
Check data accuracy regularly

2. Stay ahead of regulations

Keep a close eye on upcoming ESG rules
Align your reporting with frameworks like SFDR and CSRD
Talk to stakeholders about compliance needs

3. Improve measurement

Set clear, measurable goals
Invest in tools to track progress accurately
Consider getting a third party to verify your ESG data

4. Secure resources

Show why ESG investments are good for business
Make ESG part of your core strategy talks
Give CSOs a seat at the decision-making table

Success stories in ESG

Unilever: Sustainability champion

Going 100% renewable energy by 2030
Zero waste to landfill at many sites
Aiming to boost health and well-being for 1 billion+ people

Salesforce: Profit meets purpose

Hit net-zero greenhouse gas emissions
Uses 100% renewable energy
Tackles gender pay gaps
Donates 1% of product, equity, and employee time to charity

Walmart: Big goals, big impact

Targeting 100% renewable energy by 2035
Zero waste to landfills by 2025
Cutting greenhouse gas emissions by 18%

These companies prove that while ESG compliance is tough, it's possible to do good for the planet AND your bottom line.

Future of ESG Governance

New ESG Rules on the Horizon

The ESG world is changing fast. Here's what's coming:

1. Corporate Sustainability Reporting Directive (CSRD)

This EU rule will hit about 50,000 big companies. It wants more details on:

Environmental impact
Social issues
Governance practices

2. Corporate Sustainability Due Diligence Directive (CSDDD)

Big EU companies will need to check their supply chains for human rights and environmental issues.

3. EU Taxonomy

This system defines what's "green" in business. Large companies must show how they stack up.

4. Sustainability Disclosure Requirements (SDR)

The UK's working on these. They'll give consumers better sustainability info.

Climate Change's Impact on ESG Rules

Climate change is pushing ESG rules to evolve:

The SEC now wants public companies to report their greenhouse gas emissions.
Laws like the Uyghur Forced Labor Prevention Act are making companies look closer at their suppliers.
The U.S. government wants federal agencies to think about environmental justice.

Tech Shaking Up ESG

Tech is changing the ESG game:

1. AI-powered data analysis

AI tools can crunch tons of ESG data fast. MSCI, S&P Global, and Refinitiv are using AI to spot trends and risks in ESG reports.

2. Automated reporting

New software is making ESG reporting a breeze:

ESG Flo turns raw data into audit-ready ESG metrics.
Benchmark Gensuite's AI can process 150,000 records in 30 minutes.

3. Data standardization

AI is helping make ESG data more consistent across sources.

"AI will shape sustainable investing more and more as ESG evolves." - KEY ESG Representative

But remember: AI's great, but humans still need to make the final calls on ESG.

Conclusion: Building Strong ESG Governance

ESG governance isn't just about following rules. It's about making smart choices that benefit your company and the world.

Here's what we've learned:

ESG needs to be part of your core business strategy
Good ESG practices can save money and boost your reputation
You need solid data to make good ESG decisions
Everyone in the company needs to be on board with ESG goals

Want to step up your ESG game? Here's how:

1. Set up a dedicated ESG team

Create a group that focuses on ESG. This team should set clear goals, track progress, and report to top management.

2. Pick the right framework

Choose an ESG framework that fits your business. Options include:

Global Reporting Initiative (GRI)
Sustainability Accounting Standards Board (SASB)
Task Force on Climate-related Financial Disclosures (TCFD)

3. Use tech to your advantage

Invest in software to manage ESG data. This can cut down on manual work, reduce errors, and give you better insights.

4. Be open about your progress

Share your ESG journey with stakeholders. Tell them what's going well, where you're struggling, and your plans for improvement.

5. Keep learning and adapting

ESG rules and best practices change fast. Stay on top of things by joining industry groups, attending conferences, and reading up on new regulations.

6. Get your supply chain involved

Work with suppliers to set ESG standards, share best practices, and track their ESG performance.

7. Make ESG part of decision-making

When making big choices, always ask how it will affect your ESG goals, if there are more sustainable options, and what the long-term ESG impacts are.

Remember: ESG isn't a side project. It's a key part of running a successful, responsible business in today's world.

FAQs

What are the new ESG requirements?

The SEC just approved new climate disclosure rules for U.S. public companies. Here's what you need to know:

1. Climate risk disclosure

Companies must now report on climate risks that could impact their business and finances. This includes their plans to address these risks and how severe weather events might affect them financially.

2. Greenhouse gas emissions

Big companies have to disclose their Scope 1 and 2 emissions. But don't worry about Scope 3 - it's not required.

3. Financial impacts

Companies need to be upfront about:

How much they're spending on severe weather events
Costs for carbon offsets and renewable energy credits

4. Board oversight

Boards can't ignore climate risks anymore. Companies must disclose how their board keeps an eye on these issues.

5. When does this start?

Company Size	Compliance Start Date
Large	2026
Small	2028

SEC Chair Gary Gensler put it this way: "These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings."

So, what should companies do to get ready?

Start measuring those greenhouse gas emissions
Get better at reporting sustainability data accurately
Think about using automation for carbon footprint reporting
Get ready to include climate risk info in annual reports and registration statements

It's a big change, but with some preparation, companies can meet these new requirements head-on.