Although Environmental, Social, Governance (ESG) has been a topic on the minds of risk managers for a while, stakeholder attention to it is growing. This awareness of what ESG is and how companies can do better is permeating key industries. Financial industries are looking for long-term investment value and they’re looking for companies that are doing ESG and TPRM correctly.
Does that mean that they can manage that ESG risk better? Does that mean that they can continue to deliver their services and products to the market when and if these kinds of challenges occur across their entire supply chain? ESG is now overlapping third-party risk and creating pressure from stakeholder scrutiny.
I was able to sit down with Jason Lindauer, Senior Director of ESG Products at Dun & Bradstreet, to discuss these issues.
JASON: There are a lot of companies concerned about the EU’s Corporate Sustainability Reporting Directive (CSRD) due to the breadth and depth of required reporting. Even though the first wave of companies won’t need to report until 2025, it is based on 2024 financials. Many large companies based outside of the EU will also need to start reporting in 2026, based on 2025 financials.
We’ve also seen several laws being enacted around supply chain due diligence such as the LKSG- the German Supply Chain Due Diligence Act, which was proposed in 2021 and just went into force in 2023 for companies with more than 3,000 employees. Now, companies with more than 1,000 employees are subject to complying with the regulation.
We are hearing from companies that have German subsidiaries who need relevant data to comply with these regulations that impact not only their company, but also their supply chain. Many of these supply chain regulatory due diligence actions prompt the need for companies to have that full picture around their supply chain risks, especially in the areas of human rights and the environment.
Regulators are asking companies to report around two main areas. One is around human rights: child labor, forced labor, slavery, and the other is around environmental concerns to varying degrees. If you look at the differences between the German Supply Chain Act and the Norwegian Transparency Act, they’re very similar.
The German Supply Chain Due Diligence Act has a few different environmental requirements, but these mainly follow the international Conventions such as Basil, Minamata, and Stockholm, focusing on pollution, hazardous wastes, mercury, and other chemical wastes that impact human health. Whereas the Norwegian Transparency Act is mostly focused on human rights and labor issues.
The EU Corporate Sustainability Due Diligence Directive (CSDDD) has an almost equal focus on environmental as well as human rights issues within a company’s supply chain.
While there was some recent pushback from Member States, a compromised proposal was approved in March, but will still need to be approved by the EU Parliament. The revised version is expected to decrease the number of companies as well as reduce the burden on companies that need to comply. We expect the CSSDDD to be finalized and go into effect in 2026.
Additionally, there has been a lot of discussion around the climate disclosure regulations recently passed by the SEC, State of California, and is expected to be required for Canadian companies as part of mandatory sustainability reporting requirements.
These climate disclosures mainly follow TCFD reporting recommendations, however the SEC removed the requirement for companies to disclose Scope 3 (indirect) GHG emissions.
Despite the watered-down version approved by the SEC, several lawsuits have prompted the SEC to halt implementation until the Courts provide guidance.
JASON: It is important to note that we have seen some congealing and consolidation from regulators and sustainability frameworks. TCFD was dissolved in 2023 and was consumed by ISSB, which has taken over the task force recommendations on climate disclosures.
ISSB has consolidated a number of different regulatory actions including the Sustainable Accounting Standards Board (SASB), Integrated Reporting, and the Climate Sustainability Standards Board (CSSB). I do expect further integration or alignment across these different frameworks to occur over the next few years.
JASON: It takes a lot of collaboration amongst teams. Companies should work with their auditors and specialists like D&B who really understand the regulations and can walk them through when they need to comply, as well as what metrics they need to measure and report. These types of specialists have data that can help you comply.
It’s definitely challenging to try to keep up with all of these different regulations, especially if you’re a global business with subsidiaries around the world that will be impacted by various sustainability regulations in North America, Europe, and Asia. And lastly, ensure that you’re involving all the appropriate people within your organization to coordinate around the timing and data collection, and reporting to comply with these various regulations.
This interview has been edited for length and clarity.
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