The State of ESG – with Rachel Lowe, Matt Toohey and Alyse Mauro Mason

Welcome to Board Perspectives, a podcast series brought to you by Protiviti, a global consulting firm. In this series, we explore numerous challenges and areas of interest for boards of directors around the world. Here is your host, Elise Mauro Mason, a leader in the ESG and Sustainability practice at Protiviti.

Alyse Mauro Mason: Today’s conversation is going to be grounded in where we are and, honestly, where do we go from here? We’re going to discuss the state of ESG around the world — and when I say “around the world,” I truly mean we are around the world. I’m joined today by two dear friends: Rachel Lowe from Proskauer and Matt Toohey from Modern West Advisory. Rachel is joining us from the U.K., Matt is in Canada, and I am in the U.S.

Matt has close to 20 years of experience supporting corporations with sustainability strategy and reporting, predominantly in the energy sector. Matt is also the chief sustainability officer for Modern West Advisory. And Rachel is a lawyer who takes the lead on sustainability, finance, regulation and corporate sustainability reporting requirements at Proskauer, which is a global law firm.

A quick reminder: We are joining you in our personal capacity today to share our experience, our expertise and our insights with you, and although Rachel is a lawyer, she is not providing legal advice today.

Thank you both so much for being here. I’m so excited to be having this conversation with you.

Matt Toohey: Thank you for having us.

Rachel Lowe: Thank you very much.

Alyse Mauro Mason: It’s a really big question — it’s going to be the highlight of this whole conversation. Big questions, and not simple answers. Can we still call it ESG — and a slightly different question: Should we be?

Matt Toohey: Spicy question. I love it. Proceed with caution. If we look backwards, historically, ESG is an invested adoption of sustainability. It’s very performance-driven, so if we think of sustainability as outcomes, we want to improve on climate as a company. Then ESG was an attempt to zoom in on this, around the how-to: What metrics are being tracked? What is our target to achieve a goal or an outcome? But of course, we know ESG has been misused in funds and by companies through a greenwashing lens. The backlash is fair. But then ESG has been politicised and weaponised as “left” or “capitalism” — also not accurate, not really fair.

If we’re thinking about tips or recommendations, what we’ve been advising, or doing with companies, for many years now is to consider the use of language and definitions. In your organisation, what do you mean when you say “sustainability” or ESG”? How are you defining it as a business — its use and its value proposition? If you’re going to use these terms in disclosure, define what you mean. Are ESG and sustainability the same thing to you? Are you just using them interchangeably? Or are you thinking ESG is much more a performance lens, and sustainability is something much bigger?

The world has embraced sustainability through the International Financial Reporting Standards. It’s had wide endorsement, especially from securities regulators, through Iosco, which was pretty big, pretty historic, that everybody’s put their weight behind this and capital markets have put their weight behind this. When in doubt, sustainability is a safer landing.

Alyse Mauro Mason: I appreciate that context, and I love the “when in doubt . . . .” When you say “embraced,” embraced and encouraged, or is it truly just embraced?

Matt Toohey: Yes, it is truly being embraced. When we zoom to a macro level, we’ve got countries embracing this, but when you zoom down and get into regional issues and start to grapple with some of these more macro geopolitical issues, it starts to get contentious and the how-to becomes very tricky.

Alyse Mauro Mason: Fair enough.

Rachel, across the Pond, has the EU turned its back on sustainability? What’s your point of view there?

Rachel Lowe: Not necessarily. As a hedged answer, it’s now in this balancing-act mode where it’s sustainability, it’s green-deal commitments, but it’s also looking in a much sharper focus: Economic competitiveness, regulatory simplification and all these geopolitical trends around defense are hitting the EU, undoubtedly.

Just as company boards have to manage the range of competing pressures, the EU and its 27 member states are no different. They have chosen to postpone their key legislation of the CSRD, the Corporate Sustainability Reporting Directive, and the CSDDD, the Corporate Sustainability Due Diligence Directive. As we move across this year, they’re going to revisit the actual substantive requirements of them. You’ve got some politicians rejoicing at this, and you’ve got other politicians lamenting what’s happening here.

The real test of whether the EU has turned its back on sustainability, as you framed it, or not will be how these new substantive requirements get shaped across the rest of the year. There’s a lot of political grandstanding going on at the moment. You’ve got Socialist Democrat MEPs saying that this is fundamentally undermining the green deal, human rights law. On the other hand, you’ve got right-wing politicians saying that this is leftist ideology that’s crippling Europe’s economy.

We’ve had five years of this legislation being negotiated, and now it’s very urgently being reviewed and looked at. It’s trying to cut through some of that political grandstanding and the noise as well, and a watch-and-wait to see what happens.

Alyse Mauro Mason: Rachel, I know you can’t predict the future — none of us can. But with the 531 votes that came out of Parliament for the stop-the-clock that happened today, on April 3, that overwhelming majority, do you envision something similar as we progress to more of the comprehensive and substantive parts of the amendments that are being proposed?

Rachel Lowe: You know, that was a thumping majority — it was resounding from the MEPs. But I think all the noise from, particularly, the left, the Socialist group, you know, they’re the second- largest group — they’re not unsubstantial in the European Parliament. They want the real core aims of material impacts, risks and opportunities on sustainability matters to still be analysed and reported on by a broad range of businesses. When it comes to the fight — the debate on the substantive requirements — it’s not going to be as plain sailing as the delay has been. We’ll see.

Alyse Mauro Mason: More exciting times to come. And then, Matt, you know, our friend from the north, what’s happening on a climate and sustainability perspective in Canada? What’s happening for you?

Matt Toohey: Thank you for calling us friends. We’re absolutely friends. Canada can be quite boring, to be honest with you, and quiet. But it is not the case currently. I’ll answer this in two frames: one through the policy lens, which is quite impactful for companies right now, and one more on the disclosure side of things. We have a federal election coming up at the end of this month, and we have fairly two diverging views on climate and sustainability.

Of course, the order of the day is economic competitiveness. If you zoom back to Europe and what Rachel was talking about, it’s very much landing here as well. I don’t think climate policy will be a big factor in this election. But of course, it is important to a lot of voters, and we have pretty diverging views. We have Mark Carney, who is quite familiar from a European perspective.

Rachel Lowe: He’s our guy from the Bank of England, Matt.

Matt Toohey: He’s your guy, but Canada’s guy for many. Of course, we know Mr. Carney was Mr. TCFT. He was the head of the Financial Stability Board, so very well-known in sustainability circles. The TCFT, obviously, became the IFRS S2, the climate disclosure rule. That was a very good standard. He is quite bullish on climate.

The other side is quite vague, but a lot of the rhetoric has been around “Let’s kill the carbon tax” — the consumer carbon tax was attacked through rhetoric for some time. Mr. Carney came into power and killed that consumer carbon tax immediately, so it became nonpolitical. Now the conservative government has gone towards “Let’s scrap the industrial carbon-pricing system in Canada,” which has big implications for capital because, for example, in Alberta, we’ve had this industrial carbon-pricing system since 2007. We’ve got a lot of capital and projects tied up in this.

It will be quite interesting to see how this shakes out. It is certain climate policy will be evolving in the wake of this election, and it’s very hard for companies to navigate because it’s already quite fragmented and challenging to deploy capital around emissions reductions. We’re recommending companies focus on looking at these future scenarios around policy and stress-testing your assets against some of the potential regulatory changes.

Then, on the disclosure side, it’s been quite interesting. We have the Modern Slavery Act, which companies need to now comply with. We have a very sweeping and stringent new set of greenwashing laws, which is causing a lot of confusion, and there’s been a lot of greenhushing: A lot of companies have pulled reporting. We have a newly formed sustainability standards board, the CSSB, and voluntary use is now live of the IFRS S1 and S2 standards through what we’ve called CSDS 1 and 2. And then we do have a pending rerelease of the climate disclosure rule through our regulators called NI 51-107. Despite all this noise, there’s a lot going on, on the disclosure, but a lot of people are guessing right now about when and if this new disclosure will be released and what it will look like.

Going over to your side, Alyse, the SEC climate disclosure rule has a big impact here, and the economic-competitiveness piece is also very top of mind. For regulators, they’re probably thinking through this angle very seriously, and do we need a climate disclosure rule at this point in time?

It’s up in the air. It’s very challenging. Whichever way we go, capital markets are looking to manage risk and climate risk. A good strategy for companies is, you need to build greater discipline on governance, accountability processes, controls, data-quality systems tied to climate. That’s a foolproof strategy right now.

Alyse Mauro Mason: I love what you just said about the evolution. I feel like we’ve been in this evolutionary moment for quite a long time, and that’s the existence of being on this planet. There will continue to be an evolution. From the U.S. perspective, there’s a lot happening. On March 27, the SEC voted to end the defense of climate disclosure rules, which was at the 8th Circuit. March 31, the U.S. Office of the Comptroller of Currency withdrew their principles for climate-related financial risk and management for large financial institutions. There is, to your point, so much going on, but there’s still so much that is below the headline. There’s all these headline grabbers and what I’m calling like a great reframing period.

But the basic principles of sustainability remain. It’s almost this concept of getting back to the basics, reminding our customers and reminding our clients and businesses around the world, “Why did you embark on this journey in the first place?” For most, it wasn’t a compliance exercise. For most, it was a business-resilience and an operational-excellence activity and initiative that evolved into a compliance and a regulatory element.

With everything that’s happening, new things are coming out of Canada. Things are being reimagined, relooked at, and there is this level of uncertainty, but we will figure this out. We will figure this out together around the world.

What I’m hearing from both of you so far in this conversation is, sustainability isn’t going away. When in doubt, come back to the grounding principles of what this means for your business. I love that. Mat.t Thank you so much for sharing that.

Rachel, thinking about the last month or so with the EU omnibus, words come to mind when people read the headlines, and two words are simplification or deregulation. How are you seeing this? Is this truly simplification, or is it potentially deregulation?

Rachel Lowe: We don’t know exactly the European Commission’s proposals — and they’re just that; they’re proposals at the moment that will need to go through the legislative process in the European Union. But right now, they do lean to deregulation as a descriptor. They are proposing to reduce by 80% the number of companies in scope. That will be scaling down from 50,000 to 7,000 companies. They’ve also called on EFRAG, the European body that developed the CSRD reporting standards, to significantly simplify and reduce the requirements. This is sweeping change, and significant in terms of what they want. Can it strictly be called a deregulation completely? Probably not, because it’s not a full dismantling of these pieces of legislation. It’s a reshaping, a recalibration. It’s just how deep and fast that really goes. It is a watch-and-wait.

The useful thing for companies is, the accelerated timeline will give them some certainty. EFRAG have been tasked with coming up with the new reporting standards by Halloween, the 31st of October — an easy one for companies to get in the diary. And it could be that the recalibration is useful. You just spoke about thinking about back to basic principles: Where is your business resilience? What’s your operational excellence? And if there is a limited, more targeted number of points to analyse and report on to work out what are the impacts, risks and opportunities for your business, maybe there is some advantage to that. We’ll have to wait and see.

Alyse Mauro Mason: That’s a really important perspective that it is this reshaping, rethinking, and not true deregulation. That’s part of the grabbing headlines that people read, and they think of it as, “This is deregulation.” There is some of that happening in the U.S. There are repeals happening. There are things being withdrawn. But with that also comes an increase in state-level laws that we’re seeing in legislation being passed — so California, although there is ongoing litigation with some of the climate laws, so SB253 and 261. Other states are coming out with state-level legislation — to name a few, Colorado, New York, Maryland, Massachusetts, Vermont — and similar to what’s happening in Canada.

Yes, there’s a rethinking and a reframing around the world. But there are also new elements of regulation from a sustainability perspective and a climate perspective coming to light — not to even counteract some of the things that are happening, but what I like to think is strengthening. The good and the bad and the continued evolution of this is never going to be a stoppage of time. This will continue to be the case as we go forward.

Rachel, you touched on this, and it’s not a secret that the omnibus has been grabbing a lot of headline attention and leaving many companies perplexed with, what does it mean for them, and where do they go from here? What should they be continuing to work on? What could they take a pause on? But it’s not the only headline. What other legal and regulatory hot spots are of concern, or that people should be aware of, that boards and businesses should be thinking about in this moment?

Rachel Lowe: Elise, Matt, you’ve touched on both of them that I would pinpoint to. It’s been the quiet but significant and steady global momentum of the ISSB standards. U.K., Canada, Australia, Japan, Singapore, Brazil, South Korea — many jurisdictions now have a set timetable to adopt or endorse these standards.

From a U.K. perspective, the Labour government is set to endorse these standards in the summer. Our regulator, the Financial Conduct Authority, is saying that listed companies, large financial institutions, need to be ready because our regulator is ready to pivot from the TCFD to the ISSB.

And whilst there’s super fragmentation politically and across so many pieces of legislation, and with the EU undergoing an, evolution as you described it, Elise — and the U.S. is a whole other picture of division and conflict at times on this subject — it seems like the ISSB is just steadily carving through that with real momentum and could really seize this opportunity to be the global baseline in the next year or so. So voluntary reporting now, but mandatory reporting is on its way for so many key jurisdictions. It’s maybe not a headline grabber at the moment, but it will be impactful when jurisdictions are making this mandatory.

On the other side, perhaps more headline grabbing is what’s happening in the U.S. You described these state-level developments. I run the U.S. ESG state tracker, despite being a Brit, in our firm, and there is a relentless flurry of activity, and we’ve got the blue-state backlash underway. Every day, there’s this introduction of new laws that may or may not get passed, but all of them have a slightly different feel and shape around the GHG emissions that these blue states might want others to report on and look at. Again, for companies, it’s working out exactly what you’re in scope of, exactly what you can do from a GHG-emissions or sustainability perspective, and then how that fits within this myriad of legislation.

Alyse Mauro Mason: The ISSB, hopefully, is going to provide people comfort. That’s going to be super helpful. We’ve talked a lot about, obviously, the U.S. and the U.K. and what’s coming out of EMEA and Canada. Is there anything to share in Japan and the APAC region and what we can expect to see there?

Rachel Lowe: Several of those jurisdictions have significantly committed to the ISSB. Several of them have got their own taxonomies of what it means to be a sustainable investment or a sustainable activity. If you have footprints in those jurisdictions, it’s worth looking at those and taking stock. For example, we have a client that is very active with regards to LNG ports, and LNG is not seen as always a sustainable activity, but in certain of these Asian jurisdictions, certain activities around it are deemed to be sustainable. Getting that jurisdictional lens, if you are a large, international business, there may be some slants that you can focus on.

Alyse Mauro Mason: Thanks so much, Rachel.

Given everything that’s going on with sustainability, Matt, how do we balance short-term pressures? That could be economic competitiveness, political pressure with climate and sustainability action.

Matt Toohey: The thread is evolving here and coming along nicely. It’s risk. You have to go back to basics. You made that great point, Elise. What is the basic principle of business? We manage risk. If you’re thinking through a risk lens, this is just another risk we have to manage. Climate is very material. You think about cybersecurity. It’s easy to say, “We’ll get to that, and we will manage that.” But that’s fine until you have a cyber attack.

It’s the same with climate, but a little bit more vague at times for companies. We know in Canada we could have a $125 carbon price in the next few years, but a lot of businesses think that just won’t happen if there’s government change. But it is a scenario you should be planning for. You can’t say that we didn’t think this was coming. If it does come, we have physical risk, and that is increasing — fires, floods. If you have infrastructure, you’re in the potential pathway of this coming, potentially soon — and hopefully not.

The severity of reputation risk will increase for companies that have high ambition but a lack of action, so, back to basics. Think risk. And we know this is pretty financially material. If we’re mitigating this risk, it’s challenging in the short term, but we are protecting medium- and long-term competitiveness.

Also, less is more for companies. Can you simplify disclosures with an information-useful lens? Focus on what is truly material. Think integration.

I don’t want to get into the EU stuff, but I often wonder, “Did the EU just go too far with double materiality, when we’re trying to get up to speed on the basics of sustainability tied to financial materiality? Can we just focus there?” Think about integrating disclosure into MDNA or 10(K) or strategic reports, and that sets us up for the future. To Rachel’s point around mandatory reporting, we’re simplifying, but less could be more.

But in where we are currently, economic resilience and sustainability performance, they’re no longer separate priorities. Initiatives that lower emissions or resource use, there are levers to reduce operational costs and maintain competitiveness, especially when we’re thinking about trade-exposed sectors.

You talked about what’s coming, and CBAN is one that’s a hot topic here in Canada — Carbon Border Adjustment Mechanisms — because that’s coming in Europe. And Mr. Carney has talked about introducing CBAN here and in Canada, I’ll stop there. Hopefully, that’s helpful.

Alyse Mauro Mason: Absolutely. And sticking with the climate is very material for everyone. I’m sure there’s somewhere where somebody will make a counterargument to that. But the reality is, it is a risk you have to manage. That’s not a new risk — it’s just becoming a more increased acute and chronic risk than it has been in different periods of time in this business universe, on this business planet.

Rachel, building off what Matt just mentioned, how can businesses and boards keep on top of legal and regulatory change and thinking about that from a technology and tools lens and outside of this ethos of sustainability?

Rachel Lowe: There’s such a range of methods that you can go about doing this with, and there are some AI tools out there. You could ask ChatGPT every day if you wanted to. You can subscribe to alerts, whether it’s from consultancy firms such as from you guys or law firms, or getting ad hoc legal advice when one of those headlines we’ve mentioned grabs you.

But for many clients we see, the best practice is looking at your governance around who is responsible for keeping that monitoring going of which legislation and regulation you are in scope of? Who has that responsibility, and what does the escalation look like? If something is seen to bite or seen to be a challenge for you to comply with, what’s the appropriate committee it goes to? When does it need to go to the board? Ensuring that that is mapped out is very helpful. Then, in terms of for that person who will be doing the monitoring, it’s often setting up the baseline tracker jurisdiction by jurisdiction: What’s the scope? Are you in and out, and then doing a monthly top-up or if something’s come out, then doing an ad hoc top-up on that too?

Alyse Mauro Mason: With the use of tools, whether it be AI or leveraging the great thought leadership that both of you put out on a regular and timely basis — I’m not sure how any of us sleep, actually. There’s an immediate press release, and we digest it and we read it and then we make sure we share it with our customers, our clients, and with the broader community. Knowledge is power, and the quicker people have access to it, the better. People can go about their day. And all of us, we do a really good job of distilling the information that’s out there — and this conversation today is part of that. It’s bringing the joint conversation together, and hopefully, this helps people along the way.

Matt, there’s a concept of, where can we go when the center cannot hold? Thinking about that through that lens, do you have some practical tips on how to navigate this current state of reality?

Matt Toohey: I like that frame: “where the center cannot hold.” That’ll give me pause for reflection the rest of the day. Three things come to mind: Avoid the headlines. A lot of the headlines right now, it’s confusing. You have very diverging views on the state of corporate climate commitments. As an example, you’ve got GFANZ sector-alliance pullbacks crowding the headlines. It’s easy to think these things are dying. But then I did read a report from PwC recently showing that out of 4,000 companies, climate commitments have accelerated in 2024.

So what is the truth? The hard truth is that we’re still experiencing extreme weather events. The risk is real, from physical risk, from transition risk. Commitments and policies still exist globally and regionally, but they are fragmented. They’re challenging. They do have implications, which we’ve spoken to here. And investors are still integrating this stuff. Products continue to evolve. So it is a big risk bucket.

But I always think through the opportunity lens. We always come back to that, and there’s a lot of uncertainty right now, and things could be put on pause. A great example is the SEC climate disclosure rule. But here’s a great opportunity for boards and executives: Take the time, and use it wisely. How can we get ready for the SEC climate disclosure rule? I don’t think many companies were truly going to be ready. There are aggressive timelines, and I could be wrong, but here’s an opportunity to use the time wisely to get ready.

Also, the power of education is huge. Take that time to educate yourself on climate and sustainability. Remove bias and try and get under the hood of some of these issues that could affect your business from a 360-degree lens. We know that the world is a system, and we’re starting to think more in systems. This is a helpful way to think through some of these blind spots we have as companies.

Alyse Mauro Mason: One of the things that’s so important is, yes, we think about back to the basics, and we think about risk, but when you start mapping risk, you’re also identifying opportunities. There are so many elements of that exercise. Whether it is mapping out your risk or doing a gap assessment against various regulations, you’re seeing the state of your business.

If the state of ESG and sustainability is in flux, use this time — the grace of time — to further mature your sustainability elements within your company to drive back to that sustainable business mindset and business resilience and operational excellence. If you don’t have the regulatory pressure, how are you going to use this time? How are you going to use this moment?

What I hear — and I’m sure you both do as well — from many sustainability leaders over the last couple of years is, the regulatory pressure was really heavy, and it was getting them away from some of that strategy they really enjoy and crave, and I’m reminding people of those conversations: “The moment is now. You’re getting what you wished for.” Helping companies navigate, what is the best thing to do next?

That is for the maturity. It’s thinking about the risk, leveraging technology, managing your data better, having controls and proper governance over the evolving ESG data set, which is fast. We didn’t get into it too much today, but it’s an area that pulls from so many elements of the business, and getting a handle of what that data is and what it means.

Matt, you said it perfectly earlier: Sometimes less is more. We might be collecting this information, but does it need to be disclosed? The sky’s the limit when it comes to ESG data and what you can be tracking and what you should be disclosing. It’s a conversation for another day, which I would love to have with both of you.

Rachel, to close out our conversation today, what are three key takeaways we hope the audience and boards leave with today?

Rachel Lowe: This is my take on what you guys have shared and what input I’ve made. There are three key messages that have come across to me: One is revisiting, the next is monitoring and educating, and the third is the application. Breaking those down, it’s revisiting what sustainability means to you as your business. What do you understand that to be? And then the monitoring and the educating. As Matt said, it’s taking that pause, educating on those sustainability topics whilst perhaps some of the legislation is having a pause and monitoring its developments. And then it’s the application — that risk- and opportunity-based application of either your mandatory requirements or voluntary frameworks, and how do those risks and opportunities play out for your business model, products and services?

Alyse Mauro Mason: That was beautiful. And Rachel and Matt, thank you so much for joining this conversation today. I want to leave everybody with some state-of-mind concepts: The unknown does not need to be unfamiliar. We may not have been in this exact moment before, but we have been through similar times in the past. Hang in there for the hard conversations, assert facts over fiction and have those facts on the ready as a sustainability leader or as an adviser to sustainability teams. When there are rough seas, they tell you to locate your eyes on what is steady: Try to get back to the basics, and try to remember why you embarked on the sustainability journey in the first place.