Reporting: EU adopts rules requiring product emissions reporting for new import carbon tax
The European Commission has announced the adoption of reporting rules for importers of products under the Carbon Border Adjustment Mechanism (CBAM), the EU’s new carbon tax on imported goods, aimed at avoiding “carbon leakage” where companies shift production of emissions-intensive goods to countries with less stringent environmental regulations. Under the Implementing Regulation, importers will be required to report direct and indirect emissions released during the production of goods imported into the EU, supplemented with further details including the country of origin of the goods, the installations where they were produced, and the location of the main source of emissions. The Commission also published guidance to help with the practical implementation of the new rules, as companies will be required to begin data collection on embedded emissions in October 2023 and to report from February 2024 onwards.
Reporting: Businesses are likely unprepared for EU CSRD, according to VinciWorks
A recent survey conducted by VinciWorks, a provider of online compliance training, has found that almost eight in ten businesses (out of 175 surveyed), that are likely to fall under the remit of the European Corporate Sustainability Reporting Directive (CSRD), have yet to commence preparations for reporting in line with the new ESG compliance requirements. Under this new EU directive, applicable businesses will be required to improve the quality of their data collection and reporting on issues such as Scope 3 emissions and value chain impacts on nature – an area that half of the survey respondents highlighted as the most significant challenge to CSRD compliance. The survey found only 23% of businesses to have started preparations, with a further 29% planning to do so within the next six months; this leaves the majority of businesses exposed to the risk of non-compliance from January 2024 onwards.
Reporting: Survey shows that businesses are grappling with the complexity of ESG reporting
The 2023 Global ESG Practitioner Survey, commissioned by Workiva, which polled over 900 professionals involved in ESG reporting, has produced results which illustrate the increasing significance of ESG in corporate reporting. The survey uncovered a disconnect in perception across senior levels, with 62% of C-level executives strongly agreeing that their companies apply the same level of diligence to ESG reporting as they do to financial reporting, as opposed to only 32% of managers and senior managers sharing this sentiment – a disparity indicating that businesses may not be fully prepared to comply with emerging regulations. The survey also revealed a growing belief among practitioners that technology is a key component of ESG reporting; 95% of respondents agreed that adequate technology is critical to managing ESG reporting processes and 97% took the view that technology and data will be key drivers of ESG strategy-related decisions.
Ratings and data: S&P remove ESG indicators from credit rating reports
S&P has announced that it will no longer include its ESG credit indicators in its credit rating reports. Originally introduced in September 2021, the ESG credit indicators outlined the influence of various factors such as climate risk on companies’ credit rating analysis. The debt rating agency used to publish scores from one to five (the former being the highest) to assess a company’s exposure to E, S and G issues; S&P’s new approach differentiates it from Moody’s, which still scores ESG criteria (one to five) within its credit rating analysis. S&P determined that the ESG-focussed analytical narrative paragraphs within credit rating reports are most effective at providing transparency on ESG credit factors. S&P has stated that the removal of its ESG credit indicators will not affect its ESG principles criteria or its commentary on ESG-related topics, including the influence of ESG factors on creditworthiness.
Ratings and data: Increased demand for ESG data, but data management challenges persist
A survey by Bloomberg and Adox Research covering over one hundred portfolio managers, climate risk executives and data management executives has shown that demand for ESG data is increasing. The survey found that the vast majority of executives (92%) plan to increase ESG spending by at least 10%, with 18% planning to increase their spend by 50% or more. The top priority areas for firms are ESG benchmarks and indices (29%), company-reported data (23%), ESG scores (20%), and sustainable debt (19%). 99% of executives agree that their organisations value ESG data, citing market forces and regulatory compliance as drivers. Firms are also contending with how best to manage ESG data, with over 70% taking an ad hoc or decentralised approach to acquiring and managing their ESG data. Only 29% of respondents take a firmwide approach for evaluating, implementing, and rationalising their ESG data.
