With so many companies focused solely on the bottom line, with an unwavering emphasis on profit over people or the planet, many see regulations as a positive step towards reducing our impact on the planet. Increased regulation has the potential to combat climate change by speeding up the adoption of climate positive practices and requiring companies to reduce their negative impacts. However, the jury is still out on whether regulation in and of itself is a force for good.
Regulations may be well intentioned, but their implementation can present challenges and costs that are disproportionate to the benefits, and if they are inorganic efforts, they are a breeding ground for climate change and sustainability denialists.
Developing and implementing a comprehensive sustainability strategy, and the reporting that comes with it, is costly. As a result, until regulation and concrete timelines are announced in many jurisdictions, some organisations are not prioritising climate mitigation on their business agenda.
BDO in Chile believes that when implemented well, regulation can help to protect people and the environment, as well as create a level playing field for businesses.
In Colombia, BDO ESG leader Paula Giraldo says regulation helps create awareness of the importance of including ESG factors into a business’ operations faster and more effectively. But for us to see the changes sooner rather than later, the different actors need to be truly committed. She stresses that it is not only business that needs to step up: the state and private individuals as well as the education sector need to contribute to sustainability becoming a common language in society.
Giraldo also highlights that it is not only large companies, on which regulation is often focused, that need to make changes. In Colombia, micro, small and medium-sized companies constitute more than 99% of companies in the country, generate approximately 79% of employment and contribute 40% of GDP (ANIF, Center for Economic Studies) – they must also generate positive action for climate change.
Joaquín Tribolo from BDO in Argentina supports this and says the inclusion of small and medium-sized enterprises will be a major step forward in advancing countries' ESG goals.
Ákos Veisz at BDO in Hungary doesn’t believe regulation is the best approach, but concedes it is currently the only short-term tool to encourage businesses to consider sustainability, mitigate harm to the environment, care for stakeholders and people, and conduct business ethically. Regulations compel entities to include externalities and possible risks into their operations that they may only consider later. “My concern is how to reach a minimum level of global cooperation so as to not water down efforts by companies that take the hard path. Market-based solutions can be much more effective and longer-lasting and I hope we will see more of these in the future,” he says.
Morten Thuve from BDO in Norway has a different view. He is seeing increased awareness among clients as reporting requirements are helping to force controls into boardrooms. He does note that climate change does not respect borders and that small countries such as Norway are dependent on all countries – and companies - doing the right thing.
Josephine Tam from BDO in Singapore stresses that solving the climate crisis that we all face will require the cooperation of governments and businesses. Governments can set priority areas that businesses should focus on in the form of regulations. Singapore, as an island state, is extremely vulnerable to the ire of climate change, and the regulator, Singapore Exchange (SGX) has made great strides in this regard, broadening the scope, requiring all listed companies to report on climate from FY 2025 and all large non-listed companies to do so from FY 2027. She is hopeful that the greater emphasis on sustainability reporting in Singapore will result in Singapore companies ‘greening’ their value chain.
In the Netherlands, clients have embraced regulations and some are choosing to use the directives and standards of the CSRD even though they are not in scope of the regulations yet. They want to be transparent and create a more sustainable company, and they don’t only see this as merely a compliance exercise. With the phased approach to CSRD, some companies are relieved as they have more time to implement the reporting requirements properly.
In conclusion, it’s worth heeding the sentiment expressed by Matthias Hrinkow from BDO in Austria who believes disclosing and reporting on a company’s activities won’t change a lot of CEO’s behaviours and it won’t combat climate change. Companies need to do something with the information, such as implement steps to reduce their carbon emissions. This is where the hard work starts. But clients and consumers will now have more information to take informed decisions on whether to continue buying a company’s products or services, and this is where we will start to see the impacts of disclosure (or non-disclosure).