ESG Governance and Sustainability Reporting

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Summary

In this discussion, David Shaw interviews Alex Kotsopoulos, a partner in RSM Canada LLP’s ESG advisory practice, about the evolving landscape of ESG governance and sustainability reporting and how companies, particularly in the middle market, can navigate emerging regulatory frameworks.

Key Takeaways:

• The Third Wave of ESG Reporting
  ESG reporting is transitioning from a voluntary to a mandatory framework, driven by global regulations. The goal is to:
  1. Improve quality and comparability of ESG disclosures.
  2. Hold companies accountable for sustainability commitments.
  3. Combat greenwashing by ensuring companies follow through on ESG claims.
• The Evolving Regulatory Landscape

• Companies must differentiate between required vs. optional ESG actions.
• Regulatory frameworks are overlapping, making it possible for companies to streamline compliance and reduce duplication.
• The EU’s Corporate Sustainability Reporting Directive (CSRD) and California’s climate disclosure laws align with other global regulations, offering companies an opportunity to leverage common requirements and lower compliance costs.
• Sustainability as a Value Creation Opportunity

• Boards play a critical role in ESG strategy, helping companies align sustainability with financial performance.
• Companies that integrate ESG into their long-term strategy tend to be better governed, more resilient, and more risk-aware.
• Organizations can benefit from tax credits and incentives for decarbonization, reducing the financial burden of sustainability initiatives.
• Middle Market Companies & ESG

• 75% of middle-market companies have made significant progress in ESG implementation.
• Many firms are aligning with regulations while also investing in technology and internal controls to improve reporting quality.
• ESG audits and disclosures can be costly, so companies are adopting tech solutions to streamline compliance and reduce costs.

Conclusion

ESG reporting is no longer just about voluntary commitments—it is now a regulated and strategic necessity. Boards and companies must focus on compliance, efficiency, and long-term value creation to remain competitive in an evolving business environment.

Transcript

David Shaw:
ESG has become something of a political flashpoint, yet many companies and investors continue to prioritize sustainability in their decision-making. So how should boards think about sustainability in terms of value creation?

To discuss this, I’m joined by Alex Kotsopoulos, a partner in the ESG advisory practice at RSM Canada LLP. Alex, you’re the co-author of an article called Welcome to the Third Wave of Sustainability Reporting, in which you discuss corporate social responsibility and the rise of ESG as two significant waves. What defines this third wave of sustainability reporting?

Alex Kotsopoulos:
Thanks, Dave. The third wave of sustainability reporting marks a shift from voluntary to mandatory ESG reporting. Governments and regulators worldwide are now implementing standardized disclosure requirements, ensuring consistency and quality in sustainability reporting.

This shift is designed to:

1. Improve the quality and comparability of ESG disclosures.
2. Hold companies accountable for their sustainability commitments.
3. Combat greenwashing by verifying that companies follow through on their ESG claims.

Essentially, we’ve moved from a voluntary reporting framework to a regulated, mandatory one, and that’s where we are today.

The Current Regulatory Landscape

David Shaw:
What challenges are companies facing in this new regulatory environment?

Alex Kotsopoulos:
The biggest challenge is education—companies are trying to understand what they must do versus what is optional. Many are navigating different reporting frameworks, but the good news is that there’s significant overlap between regulations.

For example:

• California’s climate-related disclosure laws align closely with those in other regions.
• The EU’s Corporate Sustainability Reporting Directive (CSRD) shares common elements with other global frameworks.

Companies should leverage these similarities to streamline compliance, reduce duplicated efforts, and lower costs.

Sustainability as a Value Creation Opportunity

David Shaw:
We’ve discussed ESG and sustainability as a value-creation opportunity. How should boards approach this?

Alex Kotsopoulos:
Boards play a critical role in ensuring sustainability initiatives contribute to long-term value creation. Their responsibilities include:

1. Strategic Oversight – If a company commits to decarbonization (e.g., net-zero goals or science-based targets), the board should ensure the company maximizes tax credits and incentives to do so cost-effectively.
2. Holistic Thinking – Companies that embed sustainability into their strategy tend to be better governed, more strategic, and more resilient in the long term.
3. Risk Management – ESG-conscious companies often have stronger risk management practices, helping them navigate market disruptions more effectively.

Ultimately, sustainability-focused companies tend to outperform financially over time because they are better at anticipating and managing long-term risks and opportunities.

ESG in Middle Market Companies

David Shaw:
You recently conducted an RSM survey on middle-market companies and ESG. How are these firms approaching sustainability?

Alex Kotsopoulos:
Our latest survey shows that 75% of middle-market companies have made significant progress in ESG adoption. Key trends include:

1. Regulatory Alignment – Many are proactively adapting to new ESG regulations and ensuring compliance.
2. Improved ESG Reporting – Companies are enhancing the quality of their sustainability disclosures by implementing stronger internal controls and technology solutions.
3. Cost Efficiency & Technology Adoption – ESG reporting often requires audit or assurance, so middle-market firms are leveraging technology to reduce compliance costs and enhance transparency.

There are great technology solutions that can help companies lower compliance costs, improve disclosure quality, and simplify audit processes.

Closing Thoughts

David Shaw:
Fascinating. Thank you for your insights, Alex.

Alex Kotsopoulos:
Thanks, David. I appreciate the discussion.