Reckoning or Reward: Will New ESG Disclosure Regulations Startle Natural Brands?  

Environmental, Social, and governance reporting has been under way for over two decades. Often dismissed as green washing, many ESG statements seemed to cherry-pick good deeds while glossing over suspect practices. As of 2024, however, natural brands must be ready to disclose a comprehensive set of supply chain metrics along with strategies to improve them. Whether using a full investor-grade ESG score or a softer “non-financial statement”,  a company’s character and valuation will depend on how they measure up in direct comparison with their peers.

The key to understanding ESG disclosures is simple: every industry sector must measure and report on the same set of issues, which makes side-by-side comparisons possible. Analysts at the big investment funds state that 90% of a company’s value is now based on non-financial measures. Profit is still required, but not at the expense of the planet’s health or the welfare of workers, communities, and animals. Simply put, it’s in the best interest of money to ensure the Earth and civil society survives into the future so the next generations can enjoy their wealth.

In February 2023, the nation members of the International Financial Standards Board unanimously adopted a set of required disclosures for each of 77 different industry sectors. Dozens of longstanding and competing frameworks have been rolled into the International Sustainability Standards Board. Each country is now rushing to implement and enforce the framework within its jurisdiction. The European Union is ahead of the curve, while the US Securities and Exchange Commission will be somewhat slow to act — but act it must.

Most of the international conglomerates that do business with the EU are already issuing regular ESG disclosures, since ESG reports are a de facto requirement for global commerce. Many still believe ESG is solely focused on carbon emissions and greenhouse gasses. Yes, that is where the SEC is starting. Not only will large US companies have to report their Scope 1 emissions under their direct control, but they will also need to report on the emissions of their suppliers under Scope 2 and the emissions of the Scope 3 activities that provide energy, raw materials and logistics to those suppliers. However, the full Environmental, Social, and Governance framework now in place under ISSB measures activities far beyond a carbon footprint.

CPG brands that use agricultural inputs may need to provide upwards of 1500 data points covering Leadership and Governance, Business Model and Innovation, Environment, Social Capital and Human Capital. The data covers such issue areas as food safety, animal welfare, labor practices, biodiversity, water use, and others, must be accurate and auditable. For most companies, the baseline ESG assessment will end up confirming the obvious. Many natural brands don’t know how their practices in the supply chain affect each of these outcomes. Their default answer will often be, “Well, actually, we are just starting to think about it”.

Leave a Reply

%d