Building a sustainable future: Aligning ESG strategy with business priorities

Talk to your stakeholders, customers, employees, investors and the community to understand their ESG concerns and priorities. This helps to identify and prioritize the most important ESG issues with respect to sector, business operations, peers, regulations, and global standards and frameworks. The company can use the assessment results to set ESG goals, allocate resources and drive initiatives accordingly as well as minimize overall ESG risks.  For example, an energy company may list greenhouse gas emissions as its material issue, while a technology company may identify data privacy as its key priority. 

Evaluate your existing ESG initiatives, capabilities and processes in terms of how extensive, comprehensive and organized they are and identify gaps and opportunities for improvement.  

For instance, a manufacturing company may find it has advanced initiatives for waste reduction but needs to improve its labor practices. 

Help understand where your organization stands with industry peers and globally recognized best practices. Identify areas of underperformance to learn from your industry peers, competitors or proven practices. For example, a retail company might compare its carbon footprint or supply chain practices with its competitors to assess how to improve. 

Implement transparent and actionable policies that document the organization’s approach to ESG issues and hold internal and external parties accountable. An overall ESG framework can also be formulated in alignment with standardized frameworks like the Global Reporting Initiative, the United Nations Sustainable Development Goals (SDGs) and the Sustainability Accounting Standards Board (SASB). These frameworks offer a set of guidelines, metrics and criteria that help companies and investors evaluate sustainability and ethical performance and help organizations measure business risks and opportunities. For example, a policy could specify targets for reducing carbon emissions, improving workforce diversity or ensuring ethical sourcing.  

Calculate your greenhouse gas emissions and model future emissions based on your business activities. These calculations and models provide a road map for reducing emissions and transitioning to a low-carbon business model. The Global Reporting Initiative (GRI) and the Greenhouse Gas Protocol offer standards and tools to help companies with this process. Additionally, the ISO 14064 standards provide organizations with a complimentary set of tools to quantify, monitor, report and verify greenhouse gas emissions. For validating decarbonization plans and emissions reduction targets, Science-based Targets Initiative (SBTi) encourages businesses to set ambitious emissions reduction targets aligned with the latest climate science and assists to independently assess and approve these targets. 

Engage with your vendors and suppliers to validate that they adhere to your company's ESG standards. Conduct supplier audits, provide training and incorporate sustainability criteria into your procurement decisions. Vendors and suppliers can also document their greenhouse gas emissions so you can measure your overall Scope 3 emissions.

• Scope 1 emissions are those direct emissions that are owned or controlled by a company.
• Scope 2 emissions are caused by a company indirectly through the energy it purchases and uses.
• Scope 3 emissions are not produced by the company itself and are not a result of activities from assets owned or controlled by them, but by those indirectly responsible up and down its value chain. 

Let your stakeholders know about your company's ESG strategies, challenges and progress. This can be done in two ways: by adding ESG criteria to the existing vendor onboarding checklist and by conducting periodic supplier due diligence audits to assess their ESG performance. Thereafter, provide training and capacity-building workshops, and share ESG-related communications to incorporate sustainability criteria into your procurement decisions. Additionally, you can conduct surveys, distribute periodic newsletters and email communications on ESG-relevant days, and host ESG council meetings, town hall meetings and consultation sessions. 

Set measurable ESG goals and targets—ambitious yet achievable—based on the materiality assessment, benchmarking results and stakeholder feedback. Align these goals with external frameworks where relevant. For example, many companies align their GHG reduction goals with the GRI, science-based targets or SDGs. 

Develop an action plan outlining a detailed path to achieve your ESG targets. This plan should include specific actions, responsibilities, timelines and resources. It should be flexible to adapt to changing circumstances and stakeholder expectations by tracking, monitoring and reviewing progress periodically. 

As sustainability and ESG reporting becomes mandatory, establishing internal controls and internal audit processes over this non-financial data is essential to accurate and reliable reporting. These controls help ensure that the data collected is accurate, reducing the risk of errors or misstatements that could lead to penalties, reputational damage and loss of investor confidence as these reports are increasingly scrutinized by regulators and stakeholders.

The U.S. Securities and Exchange Commission (SEC) on March 6, 2024, adopted a final rule that will require climate-related disclosures in registrants’ annual reports and registration statements. The final rule introduces new disclosures of the company’s GHG emissions; the governance and oversight of material climate-related risks; the impact of climate risks on the company’s strategy, business model and outlook; the company’s risk management processes for climate-related risks; and the company’s climate targets and goals. The requirements are subject to certain materiality thresholds, registrant applicability and an adoption phase-in timetable.  

The final rule includes certain required climate-related disclosures within the registrant’s audited financial statements, which may require additional disclosures of risks, governance and emissions data in a registrant’s annual report or registration statement. For further information, see SEC issues final rule on climate disclosures.

Recently passed legislation in California requires companies to disclose climate-related data by 2026 for 2025 data, with additional guidance to be released during the operationalization of the laws for other phase-in requirements, such as Scope 3 emissions in 2027 for 2026 data. 

For entities incorporated in the United States and that operate in California, the new laws will have a broad impact based on the stated applicability thresholds:

• SB 253 will affect both public and private companies operating in California that have global annual revenue exceeding $1 billion.
• SB 261 will affect both public and private companies operating in California that have global annual revenue exceeding $500 million, with the caveat that companies subject to California Department of Insurance regulation, or conducting insurance business in other states, are exempt from SB 261. 

Failure to file the mandated reports could result in administrative penalties of up to $500,000 per year for SB 253, and up to $50,000 per year for SB 261. The California laws are among the first of what could be many similar actions across the United States. 

The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of Canada’s federal government that regulates financial institutions (FRFIs). As the climate crisis becomes an increasing concern for investors and regulators, OSFI has been prioritizing climate disclosure guidelines. In Canada, temperatures are warming twice as fast as the global average, contributing to the agency’s urgency for action and recent publications:

Guideline B-15: Climate risk management (March 2023)

• Companies are expected to consider physical risks and risks associated with the transition to a low greenhouse gas economy.
• High-level reporting areas:

1. Governance
2. Risk management
3. Climate scenario analysis and stress testing
4. Capital and liquidity adequacy

• Minimum mandatory climate-related financial disclosure expectations closely mirror the Task Force on Climate-related Financial Disclosures, or TCFD, recommendations.
• FRFIs will be required to calculate greenhouse gas emissions in line with the Greenhouse Gas Protocol.

S-211: Canada’s Modern Slavery Act

The Canadian government recently introduced new measures to combat slavery and other forms of forced labor in its supply chains with Bill S-211, The Canadian Modern Slavery Act (CMSA or Act). The Act introduces a reporting obligation on government institutions and specific nongovernmental private entities that produce, sell, distribute or import goods into Canada, or that control entities that do so.  Although the Act does not directly require institutions or entities to make any changes to their supply chains, the purpose of the Act is to reduce the use of forced labor and child labor in the supply chain by increasing transparency. To do so, institutions will be required to disclose targeted information in a report on or before May 31 of each year. Key definitions contained within the Act are listed below.

The term “entity” is broadly defined as a business that’s either (a) listed on a stock exchange in Canada or (b) has a place of business in Canada, does business in Canada or has assets in Canada and meets at least two of the following conditions for at least two of its most recent financial years:

• Owns at least CA$20 million in assets.
• Generated at least CA$40 million in revenue.
• Employs an average of at least 250 employees.

Once any of the two application thresholds above are met, the entity must be engaged in one of the following activities to be subject to the annual reporting obligations contained in the CMSA:

1. Produce, sell or distribute goods in Canada or elsewhere
2. Import into Canada goods produced outside Canada
3. Control an entity that is engaged in 1 or 2

Bill C-59: Greenwashing

In November 2023, Bill C-59 was introduced to improve greenwashing regulations through the Competition Act. Amendments to the Competition Act were passed in June 2024.

Under the Competition Act, it is illegal to advertise or market something in a way that is false or misleading.

The changes strengthen the Competition Bureau’s ability to act against bogus discount claims and drip pricing by:

• Requiring that businesses be able to establish that their discount claims are genuine.
• Clarifying that it is misleading to omit mandatory fees from advertised prices, unless those fees are imposed by the government on purchases, such as sales tax.
  • Previously, some firms had interpreted the Competition Act as allowing them to pass their own business taxes and regulatory compliance costs onto consumers as mandatory hidden fees.

The changes also tackle unsupported environmental claims, commonly known as greenwashing, by:

• Requiring that claims about the environmental benefits of a product be supported by adequate and proper testing.
• Requiring that claims about the environmental benefits of a business or business activity be based on adequate and proper substantiation in accordance with an internationally recognized methodology.
• The bureau is assessing the impact of these requirements and expects to provide guidance, in due course, that will offer transparency and predictability for the business and the legal communities in the enforcement of the law.

The European Commission adopted the European Sustainability Reporting Standards (ESRS) in July 2023 for use by all entities that are subject to the EU’s Corporate Sustainability Reporting Directive (CSRD). The ESRS requires a wide range of disclosures across environmental, social and governance categories. It includes two broad standards that cover general sustainability disclosures. It also requires 10 specific standards that specify disclosure requirements in various environmental, social and governance areas. These 12 ESRSs require companies to disclose information relating to strategy and governance related to material sustainability areas; impacts, risks and opportunities arising from such areas; and certain metrics and targets.  

The ESRS also includes the concept of “double materiality,” which requires materiality to be assessed through both a financial and impact lens. It helps to provide stakeholders, investors and consumers with a clearer, more consistent view of a company's environmental and societal impacts, focusing on the importance of transparency in areas like climate change, resource use and social responsibility.  

Reporting requirements depend on legislation passed in the various jurisdictions within Asia. Companies are required to abide by Corporate Sustainability Reporting (CSR) rules and regulations of the respective countries’ latest regulations and make disclosures of the CSR spend in their respective sustainability/annual report. For instance: 

• Singapore will begin mandatory climate reporting for companies listed on the Singapore Exchange beginning in 2025, with larger nonlisted companies beginning in 2027. Reporting requirements will be developed based on International Sustainability Standards Board (ISSB) standards and will include Scope 1 and Scope 2 emissions with a later phase-in of Scope 3 emissions.  
• Bangladesh will also introduce climate reporting for banks and financial institutions, based on the ISSB standards. Such disclosures will be phased in over three years, with initial reporting in 2025.  
• Hong Kong Stock Exchange will also require listed companies to adhere to ISSB standards. In India, the Business Responsibility and Sustainability Reporting (BRSR) core framework has been introduced by the Securities and Exchange Board of India (SEBI) on March 29, 2023, as a new regulatory framework for enhancing the ESG disclosures by India’s top 1,000 listed entities and is a subset of the wider BRSR framework that SEBI had launched in May 2021. Additionally, the corporate sustainability report rules require certain companies to spend at least 2% of their average net profits on corporate social responsibility initiatives and report these in their annual reports.   
• Japan encourages companies to disclose their environmental performance. An electronics company in Japan might need to report on its waste generation, energy consumption and conservation, and recycling initiatives.