ESG Reporting & Sustainable Investing: The Role of Exchanges & Regulators

ESG reporting has gained significant importance in recent years as organizations recognize the need to integrate sustainability and responsible practices into their operations. It enables companies to be more transparent about the risks and opportunities they face. The increasing significance of sustainability reports is backed by the demand from investors and other stakeholders for companies to provide greater transparency regarding their sustainability, as well as their environmental, social, and governance approaches. To address this growing concern, global and regional regulations have been introduced to ensure transparency and accountability in ESG reporting.

At the global level, organizations often refer to frameworks such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD), the Carbon Disclosure Standards Board (CDSB), and the International Integrated Reporting Council (IIRC) for guidance on ESG reporting. These frameworks provide standardized guidelines for reporting on various ESG factors, including carbon emissions, labor practices, diversity and inclusion, and board composition.

Additionally, organizations operating in specific regions must comply with regional regulations tailored to their jurisdiction. The European Union (EU) has some of the world’s most advanced ESG regulations of any economic region. For instance, in 2014, the European Union implemented the Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR) to ensure consistent and comparable ESG reporting among its member states. However, starting from 2023, the NFRD will be replaced by a new ESG reporting directive called the Corporate Sustainability Reporting Directive (CSRD). The CSRD will extend the scope of companies obligated to comply to approximately 50,000 companies in the EU, corresponding to 75% of the EU’s companies’ turnover.

Furthermore, under the banner of the ‘European Green New Deal,’ Europe is implementing a set of measures designed to fight climate change, support sustainable innovation, facilitate a just and inclusive transition, and make Europe the first climate-neutral continent by 2050. Similarly, other regions such as North America, Asia, and Australia have also introduced regulations and reporting guidelines to promote ESG transparency.

These global and regional regulations aim to foster sustainability, ethical practices, and responsible investments by compelling organizations to disclose their ESG performance, enabling investors, stakeholders, and the public to make informed decisions and drive positive change. The United Nations Sustainable Development Goals (SDGs) serve as a guiding framework, encouraging organizations to align their strategies with sustainability and social progress. The Task Force on Climate-related Financial Disclosures (TCFD) provides recommendations for disclosing climate-related risks and opportunities to financial systems.

In the United States, the Securities and Exchange Commission (SEC) proposed implementing new rules in 2021 to enhance ESG reporting and disclosure. These rules aim to enhance the regulatory framework for disclosures concerning investment funds and investment advisers’ environmental, social, and governance-related (ESG) investing strategies. Similarly, other countries and regions, including Canada, Australia, India, and Singapore, have introduced or are developing their own ESG reporting requirements.

In 2021, the Nairobi Securities Exchange launched ESG Disclosure Guidance and mandatory reporting to improve and standardize ESG information reported by listed companies in Kenya. These guidelines provide a tactical approach to ESG reporting that meets international standards, along with additional guidance on integrating ESG considerations into listed companies’ organizations. This helps capture significant opportunities for stakeholders while managing critical business risks. The consistent application of these guidelines will improve Kenya’s capital markets by providing the information investors now demand for decision-making and capital allocation.

Compliance with ESG reporting requirements has become essential for businesses aiming to demonstrate their commitment to sustainability and responsible business practices. While specific compliance requirements may vary depending on the jurisdiction and industry, there are common elements that companies typically need to address. These include identifying and measuring key ESG indicators, establishing reliable data collection and reporting processes, ensuring accuracy and transparency in reporting, and adhering to relevant reporting frameworks or standards such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). Additionally, regulatory bodies and stock exchanges in some countries are implementing mandatory ESG reporting obligations, further emphasizing the importance of compliance. By meeting these requirements, companies not only fulfill their obligations but also enhance their credibility, attract socially responsible investors, and contribute to the overall sustainability agenda.

Stock exchanges and financial regulators play a crucial role in promoting environmental, social, and governance (ESG) reporting, recognizing the growing importance of sustainable investing and the need for transparent information. These institutions have taken proactive measures to encourage companies to disclose their ESG practices and ensure that investors have access to comprehensive and standardized information for informed decision-making.

Stock exchanges, at the forefront of capital markets, introduce listing requirements and guidelines that incentivize companies to disclose their ESG metrics and performance through sustainability reports or integrated annual reports. Working closely with stock exchanges, financial regulators establish frameworks and regulations that mandate or encourage ESG reporting, ensuring compliance and consistency in reporting standards. Through their collective efforts, stock exchanges and financial regulators drive the adoption of ESG reporting, shaping a more sustainable and socially responsible investment landscape while fostering transparency and accountability in the financial markets.


Author: Victor O. Nyakinda

Victor is the Climate Action Lead at Fie-Consult