Implementation and enforcement of ESG rules focus in 2024

Policymakers and regulators in 2024 will focus more on implementation and enforcement of the new rules after last year’s frenetic development of ESG regulation across the globe, according to Linklaters ESG Legal Outlook 2024.

The law firm says there are still plenty of new ESG initiatives in store, but it “expects the pace of regulatory change to slow down somewhat, which should give regulated entities some much-needed space to catch their breath and figure out what changes need to be made to their business strategies and operations, as well as to their underlying corporate governance systems and processes.”

Linklaters says: “Despite speculation in various camps about the future of ESG as a whole, we believe ESG is just growing up, with all the teething problems that entails. The pace of change across the globe is not identical in all regions. We have also seen growing politicisation and anti-ESG backlash in some corners of the globe. In addition, the forthcoming elections in 2024 in the EU, US and UK are bound to have a profound effect on ESG policy and regulation going forward.”

However, it is clear that the evident worsening impacts of climate change and nature depletion, alongside the ongoing geopolitical and economic uncertainty, will all continue to play a crucial role in the global ESG agenda, says the law firm.

The momentum on getting to net zero is likely to continue into 2024, Linklaters says, noting that: “Increasing stakeholder scrutiny and tightening regulatory frameworks (including the new EU Carbon Border Adjustment Mechanism [CBAM], which is likely to be replicated in the UK) are also pushing companies to examine their net-zero credentials, ambition and transition planning even more closely. This brings the need for transparency to the fore, heightens legal risk and is giving rise to a noticeable increase in related regulatory investigations and litigation, including on greenwashing claims.”

On disclosure frameworks, Linklaters highlights the Task Force on Nature-related Financial Disclosure (TNFD), “which aims to do for nature what the TCFD did for climate. A great deal will depend on how widely the new framework is taken up in 2024 by the private sector and national regulators. A need to align climate and nature was one of the takeaways of COP28, and there is a clear view now that nature and biodiversity risks and opportunities have the potential to have very significant financial impacts if not addressed properly – so we expect this to be a key focus in 2024 both for businesses and policymakers.”

Greenwashing will remain a high priority for regulators and activists, with governments remaining at risk of being challenged over their climate action (or inaction) and a number of significant cases against corporates continuing through the courts, including in the US, EU, UK and elsewhere.

“Regulators across a number of jurisdictions have made it clear that greenwashing remains a priority, with ongoing regulatory investigations in Australia, the UK and elsewhere, as well as new EU legislation emerging on the substantiation of green claims. Also, the increase in sustainability disclosures required under new disclosure regimes (e.g. the CSRD in the EU) could also give rise to increased litigation,” says Linklaters.

It points out that claimants continue to explore new and innovative causes of action in relation to ESG issues, including under securities laws and in relation to fiduciary duties of pension fund trustees, and directors.

For diversity, equity and inclusion (DEI), the pace of change at which the diversity landscape evolves can be challenging for global employers, as they seek to develop meaningful global strategies that reflect business objectives, while also being compliant with local laws and reflecting differing regional areas of focus, says Linklaters.

“In 2024 we expect to see many organisations press ahead with their DEI agendas in response to an increased regulatory focus (at least in the UK), government initiatives, increased activist pressure and standards set by non-government organisations, with a greater focus on inclusion, equity and diversity reporting,” says the law firm.

It adds that across the EU, the focus currently remains on gender as employers start to prepare for the implementation of two key legislations: the EU Pay Transparency Directive and the Women on Boards Directive. In contrast, says Linklaters, 2024 may also see some organisations stall or revisit their DEI initiatives in response to political pressure and legal challenges, such as in the US where there are increasing challenges to affirmative action measures.

The inaugural ESG Insight and Intelligence Conference will take place in London on 26 June. This event will examine the European regulatory demands associated with ESG, look at the impact on the corporate risk profile and consider how these risks can be managed more effectively. It will also drill down on the increasing demands and disclosures requirements placed upon insurance buyers by insurance carriers. For more information, please visit https://events.commercialriskonline.com/ESG-24