Emergence of ESG regulators and new indicators in financial disclosure

– New regulatory frameworks in line with sustainable economic indicators (environment, society and corporate governance) are emerging rapidly, hence the reporting and disclosure of corporate information in line with these indicators have been used in more than 140 countries around the world so far. is placed International programs for sustainable financing with its accompanying requirements are in front of economic actors. As the Level 2 Sustainable Financial Disclosure Regulation (SFDR) will be implemented in the European Union from January 1, 2023, this is an important step to guide investors and capital managers in the new conditions of the global market.

– The subject of comprehensive sustainable financial programs is to provide a common definition of sustainable activities, oblige companies to integrate sustainability and risk in their management and disclose their impact in the market environment. The goals of these programs can be listed in the following order:

– More transparency about investment products according to environmental, social and corporate governance standards (ESG)

• Using a specific classification to determine and provide a common definition of sustainable activity in the field of economics
• Setting market standards for financial products including green bonds, benchmarks and environmental labels

From January 1, 2023, the requirements to comply with technical reporting standards will be expanded to periodically disclose pre-contracts at the product level, as well as the disclosure of production sites at the entity and product level in the European Union. From June 2023, the disclosure of information on the company’s website at the level of parent organizations with regard to the main adverse effects must be done according to the first reference period (calendar year 2022).

In addition, according to the classification regulations, from January 1, 2023, non-financial companies must review and announce key performance indicators to align with the classification regulations.

Disclosure of information has always been one of the key challenges in the direction of inconsistency in the timing of reporting, so that financial companies are required to report information based on ESG indicators, which itself relies on the data of the parent companies. which themselves are not required to disclose that data until certain dates in the future.

In the UK, disclosure and reporting regulations are also developing, with the country already fully accepting and implementing the FSB task force’s recommendations on financial disclosure of climate-related information TCFD published in 2017 for the pension fund industry. .

According to the FSB report, by the end of 2021, TCFD sponsors were active in 89 countries and jurisdictions with a combined market value of more than $25 trillion (a 99% increase from 2020).

The structure revolves around four subject areas that show the main elements of how companies operate. These elements are: governance, strategy, risk management, and criteria and goals. In addition to these main elements, 11 issues related to support are included in the information disclosure structure.

Climate-related financial disclosures are assumed to provide an informational framework to help investors assess climate-related risks and opportunities.

In the United States, climate-related disclosure requirements have been published and mandated for financial companies and issuers. Based on global frameworks such as the TCFD recommendations and the GHG Protocol, the rules approved by the SEC are set to be implemented as a benchmark from 2023, requiring periodic reports, fund prospectuses and other items of financial companies to provide climate-related data in registration statements. have.

A path to more and more transparent ESG data

It seems that government and private sector policy makers in many countries are getting a better understanding of the need to provide disclosure reports and ESG indicators. Of course, this issue may face resistance at the level of the Securities and Exchange Commission, however, regardless of the level of regulatory maturity in each region, they indicate positive developments. In general, the prevailing trend in investment markets is to harmonize disclosures in compliance with climate indicators, increase investment transparency through key performance indicators (KPIs), and unify different standards for ratings.

With the passage of time, the adaptation and participation of companies to use ESG indicators in the reporting process is being done. Sustainability action plans and regulatory reporting generate more data to help all parties evaluate companies’ performance and guide regulatory reporting aligned with sustainability indicators. Investors will also benefit from more information about how their sustainability preferences and requirements fit into their investment portfolio.

Financial news quarterly, number 32, page 33