Regulators are stepping their demands for companies to pay attention to the impact of environmental, social and governance (ESG) issues, according to a report published Thursday from London, U.K.-based risk management software fimr Datamaran.
The report documents a sharp increase in ESG-related requirements in Canada, the United States. and the United Kingdom; the number of rules in this area has jumped by 72% since 2013, according to the report.
Regarding the number of regulations, “Canada appears to be the country that is the least active in the regulatory space. However, it did increase the sector specific regulations in the field of financial services and utilities by 50% after 2015 compared to 2012 to 2014,” the report says.
For the financial sector in particular, business ethics and climate change are the primary focus of increased regulation, according to the report.
Voluntary initiatives from organizations, such as the Task Force for Climate-Related Financial Disclosure, The World Economic Forum, and The World Federation of Exchanges, setting out how they expect companies to manage and disclose their non-financial risks have major effect on how companies disclose this sort of information, the report says.
“While those recommendations are voluntary, they set a milestone for regulators to step in and write mandatory policies,” it says. “Adapting early and driving the conversation around those recommendations allows for potential influence in defining future mandatory policies.”
These trends indicate that “companies need to think beyond one or two years to a much longer term horizon to evaluate the potential impacts and outcomes from non-financial risks.”
“The tougher stance taken by regulators means that companies who are not integrating ESG issues into their strategy and their risk analysis will have a harder time navigating the complex and evolving regulatory landscape. The message is clear, non-financial issues are a ‘must have, not a nice to have’,” says Marjella, CEO and co-founder of Datamaran, in a statement.