Regulation is expanding on a global and local scale

Recent reporting on corporate sustainability and environmental, social and governance (ESG) initiatives has highlighted several major global reforms, such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive in Europe, the Climate Related Disclosure Standards from the U.S. Securities Exchange Commission, and the International Sustainability Standards Board’s new sustainability reporting standards. However, these initiatives only scratch the surface of the rapid pace and broad scale of global and local sustainability regulatory developments.

To provide a comprehensive overview of the regulatory risks facing companies and the potential costs of compliance, a recent analysis tracked the total number of sustainability-related regulatory developments in key jurisdictions worldwide, including North America, the EU, Asia Pacific , Africa, and the Middle East. The analysis covered new regulations, proposals and changes in several categories, such as corporate sustainability reporting, ESG topics, climate change, stakeholder engagement, responsible investing and biodiversity. In the first two months of 2024, there were 522 new regulatory developments related to corporate sustainability globally, on top of the 1,300 reported in 2023 and 800 in 2022.

For companies operating in multiple jurisdictions, the cumulative effect of sustainability regulations becomes increasingly complex as guidance and proposals from previous years evolve into laws that are continually updated, refined and implemented. Multinational companies must deal with hundreds of sustainability and ESG-related regulatory updates at various stages of completion in the different countries and states where they operate. These regulations cover a wide range of sustainability aspects, from mandatory reporting requirements to responsible investment standards, employee wellbeing, gender equality, human rights in supply chains and more.

In addition to environmental risks, sustainability regulations also focus on human rights, worker safety and other ESG areas that impact companies’ operations and global supply chains. To ensure compliance with these specialized and detailed requirements, sustainability teams must engage multi-disciplinary experts with domain and jurisdictional knowledge to comprehensively address the various regulatory changes. The actions of each local jurisdiction to implement impactful reporting requirements or supply chain due diligence processes contribute to an ever-changing global regulatory landscape that companies must interpret, adapt and comply with accordingly.

Investing in the resources and systems needed to comply with evolving sustainability regulations will pose significant financial and administrative challenges for most companies in the short term. However, making this investment early will benefit companies in the long run, as regulators and customers will be more likely to extend leniency to those who make efforts to comply. As compliance processes mature over time, companies that act proactively now will be better positioned to navigate the increasingly complex sustainability regulatory landscape and achieve long-term success in the evolving ESG environment.