The regulatory framework governing Environmental, Social, and Governance (ESG) has undergone transformation in recent years, with regulatory authorities worldwide imposing stringent requirements on businesses. These evolving frameworks aim to ensure greater transparency in corporate sustainability practices, with a particular focus on climate-related risks, social responsibility, and governance structures. As these obligations continue to expand and become more complex, organisations are advised to be diligent in understanding and complying with them to mitigate potential legal risks. This article provides an overview of key global ESG requirements and highlights critical considerations for businesses navigating this evolving regulatory terrain.

Global ESG requirements: a snapshot

• United States – The US has seen a complex and evolving landscape for ESG regulations, particularly regarding supply chains, climate-related disclosures, and sustainability reporting. Notable regulations include:
  • Uyghur Forced Labour Prevention Act (UFLPA): This law mandates that companies prove their supply chains are free from forced labour, specifically relating to the Uyghur region in China.
  • California Supply Chain Transparency Act: Requires large companies to disclose their efforts in eradicating slavery and human trafficking in their supply chains.
  • Federal Trade Commission (FTC) Green Guides: Provide guidance on environmental marketing claims, ensuring that companies do not mislead consumers about their environmental impacts.
  • California Climate Accountability Package: This set of laws includes the Voluntary Carbon Market Disclosures Business Regulation Act, which demands transparency in carbon offsetting measures.

Despite these measures, the US has experienced a growing backlash against ESG initiatives, especially from political and activist groups. This has resulted in proposed bills that limit ESG-focused investments and the enforcement of certain divestment actions.

• European Union – The EU remains at the forefront of ESG regulation, with comprehensive laws shaping corporate sustainability disclosures. Key regulations include:
  • Corporate Sustainability Reporting Directive (CSRD): Mandates large companies to disclose detailed ESG information, aligning with the European Sustainability Reporting Standards (ESRS).
  • Sustainable Finance Disclosure Regulation (SFDR): Requires financial market participants to disclose how sustainability risks are integrated into their investment strategies.
  • EU Taxonomy: A classification system to identify environmentally sustainable economic activities.
  • Proposed Corporate Sustainability Due Diligence Directive (CS3D): Aims to establish mandatory due diligence on human rights and environmental practices across the value chain.
• United Kingdom – The UK has integrated ESG requirements into its corporate governance frameworks, primarily through:
  • The Companies Act 2006 (Strategic Report and Directors' Report): Requires directors to disclose ESG-related risks and opportunities as part of their strategic reports.
  • The Green Claims Code: Aims to standardise environmental claims made by businesses to prevent greenwashing.

  These regulations are part of the UK's broader push to ensure transparency in corporate sustainability practices and encourage responsible investment strategies.

• Hong Kong SAR – The Hong Kong Stock Exchange will require listed issuers to disclose climate-related risks in alignment with the IFRS S2 framework from January 2025. Issuers will need to disclose greenhouse gas (GHG) emissions, climate-related governance structures, and risk management practices. This regulation will be phased in, with large-cap issuers being required to comply fully by 2026.
• Mainland China: The China Securities Regulatory Commission has issued guidelines requiring the disclosure of environmental information and green finance activities, with increasing emphasis on transparency in ESG investments.
• India: The Business Responsibility and Sustainability Reporting (BRSR) mandates that large, listed companies report on their ESG practices.

Strategic implications for businesses
The growing emphasis on ESG presents both opportunities and challenges for businesses. To remain compliant, organisations should focus on the following:

• Early adaptation: Proactively familiarise themselves with evolving ESG requirements and begin internal audits to assess existing practices. Gap analyses can help identify areas that need improvement.
• Integration of sustainability into core operations: It is increasingly crucial for companies to incorporate sustainability into their corporate strategy and internal control measures. This includes revising governance structures to ensure oversight of ESG risks and aligning sustainability goals with financial reporting.
• Stakeholder communication: Transparent communication about ESG strategies can build trust with investors, clients, and other stakeholders. Ensure that ESG disclosures are both accurate and comprehensive.

Looking ahead: preparing for future regulations
As the regulatory landscape for ESG continues to evolve, organisations must anticipate and prepare for an increasingly intricate compliance environment. With the ongoing expansion of mandatory reporting frameworks across jurisdictions, it is imperative for organisations to take proactive steps in aligning their governance, risk management, and reporting structures with emerging global standards. Organisations that integrate robust ESG practices and governance structures early will be better positioned to mitigate regulatory risks, enhance stakeholder trust, and ensure continued compliance in this dynamic and highly scrutinised area.