Risk & Economy » Climate change » Upcoming ESG compliance will be like ‘Mifid II on steroids’, PwC specialist warns

New regulatory regimes will help provide clarity on corporate climate reporting, data structures, and companies disclosures, but firms still have to grapple with the magnitude of embedding ESG guidelines into their business, the head of finance sector team at PwC’s sustainability & climate change practice warned.

“If we thought Mifid II was difficult, then embedding ESG is Mifid II on steroids,” said PwC’s Jon Williams while speaking at the Association for Financial Markets in Europe’s (AFME) compliance and legal conference last week.

Williams warned companies should be careful not to overpromise and underdeliver. “Don’t promise to do something that you have no intention of doing.”

It’s “perfectly valid” for a firm to want to comply with the law and regulation and do the minimum, or instead want to transform and align its business model and strategy to ESG principles, he added.

“The two overlap but are quite different in terms of ambition.”

Last month, ShareAction found that 20 of Europe’s 25 largest banks have pledged to zero out emissions from their portfolios by 2050 at the latest. However, the report revealed only three banks have committed to halve their financed emissions by 2030 to ensure they are on track to meet their 2050 target, while 8 banks have set interim targets for the most carbon intensive sectors.

ESG-related disclosures to help transparency and competition

Pierre-Emmanuel Beluche, head of sustainable finance at French Treasury, said for ESG data to effectively capture and be a reliable tool to understand where the firm sits in its ESG transition, it needs to be integrated into the firm’s corporate governance.

However, there also needs to be greater clarity around the responsibilities between boards of directors and shareholders. Some investors are in fact starting to ask for more information on corporate strategy, which is traditionally left to directors.

Julie Ansidei, head of strategy and sustainable finance unit at Autorité des Marchés Financiers (AMF), said new European regulations will help bring clarity on corporate climate reporting, disclosures, and data structures.

“The new regulatory regime coming from Europe and from other international initiatives will help corporates frame their information and present it to the market in a way that is more standardised and comparable.”

“This will help them have a more equal footing with the competition.”

In the meantime, regulatory developments will provide an opportunity for corporates to review their portfolio of activities and processes, and to look where their efforts are needed internally to move to a low carbon economy, Ansidei added.

Nicola Higgs, partner at Latham & Watkins, said regulators have taken different approaches to monitoring ESG.

“You see a distinction between the European Agenda, which is really pushing disclosure to an ambitious level and there’s a lot of regulatory reform impacting companies and financial institutions.

“But other regulators, the US is a good example, recognise that regulation by enforcement is a very powerful tool.”