10 most common questions financial authorities are asking regarding ESG

1. How does ESG impact financial returns?

Financial authorities are interested in understanding whether a focus on ESG principles might affect a company's financial performance, either positively or negatively.

2. What is the importance of sustainable business practices?

Questions around the importance of sustainability, the motivations behind it, and the time horizon for ESG initiatives are common.

3. How are ESG risks integrated into decision-making processes?

Authorities are looking at how financial institutions incorporate ESG risks into their strategy, investment, credit decisions, and risk management[3].

4. What are the company's commitments to diversity, inclusion, and human rights?

There is a focus on social aspects of ESG, including how companies address these issues within their workforce and broader operations.

5. How is environmental impact measured, particularly carbon emissions?

Measurement of environmental impact, including Scope 1, 2, and 3 greenhouse gas emissions, is a key area of inquiry.

6. What governance structures are in place for ESG oversight?

Questions about the governance aspect of ESG often include inquiries about board composition, director education on ESG issues, and whether new committees are needed to oversee ESG.

7. How are ESG-related disclosures and reporting managed?

Financial authorities are interested in the processes and controls that support ESG reporting and whether these disclosures are defensible and auditable.

8. What is the company's approach to ESG in its supply chain?

There is a focus on understanding how companies assess and monitor their supply chain practices to ensure they align with ESG principles.

9. How are ESG strategies and performance vetted and monitored?

Questions about the independent assessment of ESG standards and the potential need for oversight by regulatory organisations are common.

10. How is the company preparing for future ESG regulatory changes?

Authorities are interested in how companies future-proof their ESG frameworks to adapt to evolving economic realities and regulatory standards.

These questions reflect a broad range of concerns that span the environmental, social, and governance dimensions of ESG. Financial authorities are increasingly focused on how companies are integrating ESG into their overall strategy and operations, as well as how they measure, report, and improve their ESG performance.