ESG Horizon Scanning

The increasing rigour of ESG legislation, regulation and industry standards is creating new challenges and pressures for organisations seeking appropriate risk management and ongoing compliance.

Furthermore, the broadening scope of stakeholder expectations and concerns is driving greater focus within organisations seeking to adopt robust response and disclosure activities, in advance of incoming (hard and soft) law.

The increasing pace and consequences of evolving regulatory and legislative standards can differ immensely across ESG specific issues, regions and industries. While some incoming changes may be subject to long lead times and phased introduction, other directives, revisions and guidance may be unexpected and ambiguous for companies to interpret and respond in a timely manner.

While sustainability teams are responsible for internal advice on the strategic and commercial implications of ESG trends and developments, many organisations will lack the in-house legal expertise to identify and assess the effect of incoming law, the intricacy of technicalities and potential to impact business strategy, operations and supply chain.

Failure to anticipate incoming obligations before they materialise, may result in financial penalties, commercial and reputational damage and implications for directors and officers.

ESG Horizon scanning is the process of anticipating, identifying, and understanding the impact of upcoming change (new regulations, legislation, standards and guidance) through rigorous tracking of emerging global trends.

ESG Horizon scanning is a pragmatic and effective action organisations can take to organise resources to prepare, prioritise and respond with relevant policy, process, and stakeholder communication and engagement.

A client engagement case study

In early 2023, DLA Piper was approached by a prominent New Zealand retailer to design a bespoke ESG Horizon scanning framework and to identify and assess the effects of incoming ESG legislation, regulation and industry standards and understand the potential impact on business operations, supply chain and its stakeholders.

The framework designed provided our client with clear visibility and confidence in the sustainability focused actions of their current ESG regime, and a powerful artefact to engage internal teams on the development priorities for future policy, process, and stakeholder communications.

This engagement was delivered by an integrated team of DLA legal, sector and sustainability expertise across multiple jurisdictions, and creates an artefact that can periodically be refreshed to capture evolving global legislation and standards, and future iterations of the client’s expanding sustainability efforts and strategy.

Our engagement concluded with a prioritised set of recommendations to ensure ongoing compliance and preparedness for any incoming legislation, standards and stakeholder expectations that have implications for the client over the short, medium and longer term.

Our Approach

1. Our collaborative client approach enabled us to identify, assess and plan for changes in laws and regulations that would put them in the best position possible to respond. The four stages of the engagement were intended to:
2. Co-design a bespoke horizon-scanning framework, considerate of the client’s business and sustainability strategy, key stakeholders, global sustainability themes and evolving industry issues
3. Review current and evolving regulatory regimes, legislatures, industry standards and voluntary disclosures against agreed ESG baseline
4. Engage relevant functions across the business with insights and future accountability for implementation relating to future ESG regimes
5. Provide prioritised recommendations to ensure compliance and preparedness for any incoming legislation, standards and stakeholder expectations that may have implications for the client (e.g. strategy, operations, supply chain and other stakeholders)
6.  

The power of collaboration

We believe superior outcomes are achieved through active collaboration with our clients. In the case of the Horizon scanning engagement, our approach enabled the client to:

• actively participate in each stage of framework design to ensure thorough consultation and agreement of material stakeholders and industry specific ESG issues
• build organisational capability through increasing knowledge, expertise and engagement of staff who would be responsible for implementation of engagement outputs and recommendations
• gain full visibility of their regulatory landscape through an ESG lens and appreciate areas of priority legislation likely to affect them in the future
• identify and categorise material ESG issues across their entire operation and supply chain, including global trends in their sector context
• achieve confidence in the path forward to develop the necessary policy, process and stakeholder communications to ensure future preparedness

Stakeholders from within our client’s organisation who participated in the process expressed:

• appreciation of early inclusion & consultation on issues that could impact future resourcing, responsibilities and operations as a result of project recommendations
• increased motivation to proactively engage with the sustainability team as a result of greater awareness of the risks and opportunities from evolving ESG legislation

Conclusion

For organisations seeking to adopt a robust response to increasing ESG legislation, regulation and industry standards, ESG horizon scanning is a pragmatic and effective way to prepare, prioritise and respond. DLA’s global team of integrated legal, sector and sustainability experts can provide comprehensive support of multi-jurisdictional compliance, legislative preparedness and organisational capacity building cross-functional teams.