ESG Reporting Requirements Globally: An Overview

In recent years, the attention of investors to Environmental, Social, and Governance (ESG) considerations has boomed. What is ESG reporting? ESG reporting is an organization’s public disclosure of its environmental, social, and corporate governance data, hence the ESG. From being seen as an uber-niched investment just a few years ago, it is now often a deal-breaker for whether or not an organization succeeds or fails. The increasing number of mandatory ESG regulations around the world plays a key role in this - and more are on the horizon.

In fact, the number of governments that introduced legislation making ESG reporting mandatory in the past year proves that ESG reporting is not just another bubble - it is here to stay. As a result, more and more companies are being asked by investors to disclose their data. If you haven’t been affected already, it is probably just a matter of time until your business must start to collect, analyze and report your ESG.

To help you get started, we have examined the current state of mandatory ESG reporting requirements worldwide and whether or not you are affected. The negative impact of climate change on businesses is already having visible effects in all sectors, and understanding environmental, social, and governance (ESG) risks is becoming increasingly important for investment decisions. Yet, the lack of availability and quality of companies’ ESG information hinders investors from making informed and sustainable investment decisions - and thus slows down the transformation to a greener economy.

To bridge the gap between the demand for ESG information by investors and the supply of information by firms, more countries are adopting mandatory ESG disclosure legislation. A study from 2021 identified 25 countries that introduced mandates for firms to disclose ESG information during the sample period - most applying to financial institutions, state-owned companies, and large, listed companies. This doesn’t mean that other businesses won’t be affected.

Global regulators continue to release new reporting requirements around environmental, social, and governance (ESG) and sustainability factors.

Today, there is no consistent ESG reporting framework mandated.

Regional Overview of ESG Reporting Requirements

Europe

Prior, certain large companies (around 11.000 entities) within the EU were required to disclose ESG information under the Non-Financial Reporting Directive (NFRD). However, in 2023, the NFDR was replaced by a new ESG reporting directive - the Corporate Sustainability Reporting Directive (CSRD). The CSRD will significantly extend the scope of companies obliged to comply with approximately 50.000 companies in the EU, corresponding to 75% of the EU’s companies turnover. These Regulations require certain companies to provide climate-related financial disclosures in their strategic report.

We counsel international corporations on the general landscape of EU and UK ESG regulations (in force and proposed) and help them understand and prepare for those laws. Following EU legislative acts directed at the financial sector including the EU’s SFDR-on which we counsel asset managers in particular-the most recent wave of sustainability legislative efforts was aimed at corporates. We can assist large corporates-whether Europe-based or active in Europe-that under CSRD will have to report on sustainability matters in line with ESRS. We also can help multinational corporations in the EU that may become subject to corporate sustainability due diligence obligations, anti-greenwashing regulations, and industry-specific sustainability laws.

In the UK we counsel corporates and financial services firms on UK climate-related, energy and carbon reporting, and other sustainability-related requirements.

United States

There are currently no mandatory ESG disclosure requirements on the federal level in the US. On a state level, legislators and state attorneys general continue to develop new regulations around investments that consider ESG factors, climate change initiatives and disclosures, and policies related to diversity, equity, and inclusion (DEI)-which is magnified at the federal level.

Canada

In April 2022, the Canadian federal government released its 2022 budget, where they promised to bring mandatory climate-related reporting requirements to federally regulated banks and insurance companies.

Asia

In Malaysia, ESG reporting has been mandatory for all public listed companies since 2016, making it one of the first countries to introduce this kind of disclosure requirement. The regulatory landscape across Asian nations is taking shape as Japan, Singapore, India, China, and Hong Kong have all released some form of standards for ESG-related investments, new reporting requirements, and greenwashing.

China

There is currently no mandatory ESG reporting legislation in China. However, with effect from 1 June 2022, China’s first set of (voluntary) guidelines for Chines companies to report on ESG metrics came into effect - the Guidance for Enterprise ESG Disclosure.

Middle East

The Middle East, led by the UAE, has implemented sustainability-related regulations that aim to accelerate the growth of a sustainable finance ecosystem and channel capital into activities that advance the region’s greenhouse gas emission reduction goals. We guide companies in determining if they meet the mandatory ESG disclosure requirements and how to include that information in their annual accounts.

Even if your organization is not yet bound to disclose your information by law - this could change any time soon.

The best part? Setting up your ESG reporting doesn’t have to be baffling! Save time and resources by digitizing your ESG reporting in Worldfavor to automatically allocate all your ESG information with established frameworks, such as TCFD and CSRD - we got them all. Sounds interesting?

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