As the United States grapples with an anti-ESG movement that is gaining some traction in a context of culture war and political polarisation, Europe is demonstrating that the European Green Deal meant business and reinforcing its commitment. The best proof of this is the regulatory revolution we are experiencing in the area of sustainability.
Brussels, well aware of the leading role of companies in the transformation towards more sustainable economies, wants to make sure that we are managing ESG criteria and that this management corresponds to what we communicate in our sustainability reports. One of its goals is to fight against greenwashing.
Two directives articulate this purpose. First, the European Corporate Sustainability Due Diligence Directive (CSDDD) will be approved in 2023, following the vote in favour by the European Parliament on 1 June, which will regulate the responsibility of companies in terms of human rights and the environment, as an important part of their governance.
Second, in January the Corporate Sustainability Reporting Directive (CSRD) came into force. This standard, which revises the 2014 Non-Financial Reporting Directive (NFRD), broadens the range of obliged companies and raises the level of requirements. It also changes the way in which companies will report this non-financial information: from voluntary standards such as the Global Reporting Initiative (GRI), which many companies had already incorporated, to the new and mandatory European Sustainability Reporting Standards (ESRS), which the European Commission is expected to adopt after the summer.
What is Spain’s situation in this new scenario and how prepared is our business network to face it successfully? In the case of the European directive already in force on sustainability reporting, which our country has to transpose by July 2024, the Ministry of Economy has already submitted to public consultation the preliminary draft law that will transpose it into our legal system.
As for Spanish companies, there are reasons to believe that we are among the best prepared to successfully adapt to this new regulation. I read in the press a few weeks ago that Spain is already the seventh country in the world in ESG according to Morningstar’s ‘Atlas of Sustainability’, which recognises Spanish listed companies among the world leaders in their management of environmental, social and corporate governance risks.
As is almost always the case, anticipation is the key: the path that some companies voluntarily started down years ago puts us in a more comfortable position now that it will be required by law. For example, in the environmental field, new legislation will require companies to report not only their own CO2 emissions, but also those of their entire value chain. Enagás has already incorporated the so-called Scope 3 in our carbon footprint, and we have set ourselves targets: to reduce them by 25% in 2030 and 50% in 2040 compared to 2021 levels.
Another example: one of the pillars of the new CSRD is the concept of “dual materiality”, which means that companies will have to identify both the impact of our activity on society and the environment, and the impact of the environment and society on our business and our bottom line. And report on how we manage those impacts. An approach that, once again, Enagás has been adopting for years.
In short, many Spanish and European listed companies have been voluntarily responding to various issues that our stakeholders (customers, investors, society, etc.) have been asking us to address, and thanks to this we can see the new regulation in terms of opportunity: with clear rules of the game for everyone, companies that have been taking ESG criteria seriously for years, specifying them in goals and in facts, and reporting them transparently, will be able to make a difference.
All this will mean raising our ambition, more effort and more work to adapt to the new standards. And it will consolidate a reality: sustainability as a cross-cutting responsibility of the entire organisation. With a key role for governing bodies: ESG issues will occupy an increasingly important place in the affairs of the Board of Directors and the involvement of Chairpersons and CEOs will play a key role.
There is no room for denialism about ESG: under these acronyms we talk about protecting our environment, we talk about people and the ethics and responsibility with which we manage our organisations. We can debate the ‘how’, but the commitment of companies to manage our impact is essential if we are to maintain our social licence.