Intl. News: Spotlight on ESG, Impact & Sustainability


ESG is understood to be an acronym for “environmental, social and governance,” but the term can be challenging because it’s used to describe similar but distinct communities of practice, including corporate social responsibility, socially responsible investing, corporate sustainability and impact finance.

In the 1980s, pension investor concerns for social and environmental issues evolved into what became known as socially responsible investing, which screened out investments that raised concerns over various human rights and environmental issues. This eventually spurred a corporate social responsibility (CSR) movement, pressuring corporations to take responsibility for the negative external impacts of their operations.

A global sustainability movement also began in the 1980s seeking to reconcile economic development with the protection of social and environmental balance. This was adapted in the private sector into corporate sustainability, an intentional strategy to create long-term value through improved social and environmental impact. Corporate sustainability differs from CSR in that the latter is often not driven by strategic business imperatives.

The investor perspective on financially material aspects of corporate sustainability coalesced under the term ESG, as famously used in a 2004 United Nations report issued by a coalition of 20 major financial institutions. The report included recommendations on integrating ESG value drivers into financial market research, analysis and investment. This was the birth of ESG, which has blossomed into an important asset class in worldwide financial markets.

Although ESG has become politically fraught in the United States, internationally ESG regulation is becoming pervasive. This issue details these global developments, which, with the potential to more closely align business imperatives with social good, are fundamentally altering standards of corporate responsibility and investment decisions and analysis.


The Rise of International ESG Disclosure Standards

David A. Cifrino

The US Securities and Exchange Commission (SEC) is expected to adopt final rules requiring detailed disclosure by companies of climate-related risks and opportunities by the end of 2023. The newly-formed International Sustainability Standards Board (ISSB) is expected to adopt two reporting standards in June: one on climate-related risks, and a second on other sustainability related information. Regardless of how much harmonisation there will be between these and other ESG disclosure standards, it is clear that mandatory, standardised sustainability reporting by corporations will increase significantly worldwide over the next few years.

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EU Corporate Sustainability Reporting and Due Diligence Directives

Dr. Philipp Grenzebach

The Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD) came into force on 5 January 2023. It requires companies to provide information regarding their sustainability strategy, and environmental, social, and governance issues. This information includes, for example

  • The company’s sustainability objectives, strategies, and policies
  • The main risks to which the company is exposed in relation to sustainability issues
  • The due diligence process in place for identifying and handling sustainability issues
  • The primary actual or potential adverse impacts (Principal Adverse Impacts) relating to the company’s value chain, the measures taken to prevent any actual or potential adverse impacts, and the outcome of those measures
  • The role of administrative, management and supervisory bodies in relation to sustainability issues

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Overview of ESG Regulation of Financial Products in The European Union

Frank Müller

As a result of the 2015 Paris Agreement and the United Nations Sustainable Development Goals, which entered into force almost simultaneously, the European Union put sustainability issues high on the political agenda. In the March 2018 Action Plan on Financing Sustainable Growth, the European Commission set out 10 measures to steer capital flows toward a more sustainable economy. The financial system is to play a key role and will be comprehensively restructured so that private capital can be specifically channelled into sustainable investments.

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Financing the UNSDGS: The Role of Impact Funds

Ranajoy Basu | Fausto Giacomet

The 2030 UNSDGS, adopted in September 2015, is based around 17 sustainable development goals, such as alleviating poverty (Goal 1), providing quality education (Goal 4) and taking climate action (Goal 13).

The only way to try to get near the US$ trillions necessary to achieve these goals is through the aggregation of funding from the widest possible sources—philanthropists, development finance institutions, multilateral development banks, institutional and retail investors—and the widest range of financial instruments. These include impact funds, “performance based” impact bonds, and other innovative financial mechanisms that catalyse public and private sector partnerships towards targeted environmental and social interventions.

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The Impact of The EU Green Deal on Value Chains

Raminta Dereskeviciute | Ludovica Rabitti

In order to achieve climate neutrality by 2050, the European Union has set out an ambitious legislative agenda packaged as the European Green Deal.

A myriad of existing environmental laws are being amended and new regulations are in the pipeline. These will impose stricter compliance standards for products traded within the European Union and require supply chains to deliver on efficiency, greener technologies, and traceability of products and activities, while improving communication between parties within the supply chain.

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ESG In Leveraged Loans

Mark Fine

With more focus on environmental, social and governance (ESG) issues across asset classes, it is unsurprising that leverage finance has also increasingly focused on ESG. According to Reorg, 50% of the European leveraged loans in 2022 included sustainability linked features.

Borrowers and lenders have an equally heightened desire to demonstrate a commitment to ESG progression, as their own investors and limited partners are focusing more on ESG and require enhanced reporting. This ties in with the heightened international regulatory oversight outlined in this issue, which is driving companies to increase their reporting generally, and which continues to grow, as shown by the Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD) coming in to force in January this year. As regulation increases, investors will seek more information.

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The View From France

David Revcolevschi | Claire Chabat

Listed companies in France have long been subject to reporting and disclosure requirements designed to promote corporate social responsibility and, more recently, sustainable growth and sustainable finance, in the interests of shareholders and stakeholders. Since the implementation of the 2014 EU Non-Financial Reporting Directive (NFRD) into French law in 2017, only large companies listed on the regulated Euronext Paris market have been obliged to publish nonfinancial information (in a statement included in the management report) and information on their diversity policy as it applies to the board of directors. There have also been a number of other national legislative obligations covering gender representation and equality.

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The ESG Disclosure Landscape Across Southeast Asia and India

Ranajoy Basu | Siddhartha Sivaramakrishnan

The ESG regulatory and transactional environment in Southeast Asia and India continues to evolve quickly. Sustainability standards are becoming mandatory in corporate and financial reporting, social and labour standards are being enhanced across the region, and green and sustainable financing flows remain strong.

Investors are demonstrating increasing willingness to challenge board directors on their companies’ climate performance and scrutinise climate risk management disclosures and emissions reduction plans. Key government policy initiatives include supporting energy transition, reducing environmental barriers to trade, and strengthening environmental risk management.

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New Sustainability Disclosure Rules in Japan

Eric S. Klee | Sayana Kurachi

On 31 January 2023, Japan enacted a mandatory sustainability disclosure rule for companies listed on the stock exchange in Japan, including foreign companies. Companies must make the required disclosures in their Annual Securities Registration Statements (ASRS) and Annual Securities Reports (ASR) for the financial years ending on or after 31 March 2023. Sustainability disclosures should include environmental, social, employee, human rights, anti-corruption, anti-bribery, governance, cybersecurity, and data security policies and activities, to the extent material to the company.

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