The benefit and necessity of training in preparation when implementing ESG legislation

As a consultancy, we can publish extensive reports on new legislation and which steps you have to take to implement it, but are these - given the technological developments - still the questions our clients have? And can we, as a consultancy, still provide added value on that point? Of course, it's not just us with this question: many organizations will have to demonstrate their agility in order to respond to the increase in the deployment of AI apps, for example.   Where I think we can always continue to add value as a consulting firm is with the combination of personal contact, specific expertise and storytelling based on our own experiences (just ask ChatGPT!). So, I am happy to share with you one of the important aspects we have encountered in various sustainability projects.

New and complex subject matter 

With the advent of the Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy and the CSRD, many new sustainability regulations have come into effect. The subject matter is new and complex because it involves new definitions (which do not always correspond within the various directives), new concepts (e.g. dual materiality) and because a large number of requirements from multiple directives are interrelated and take effect in a relatively short period of time. 

Partly because of the intricacy of the legislation and its scope, most financial institutions must establish an entire project and an implementation strategy. This is because a good project structure including clear governance, a project sponsor and team facilitates a good impact and gap analysis. This helps to clarify what the institution needs to focus on during implementation and, if all goes well, ensures that one can always recall why certain decisions were made.  

Necessary knowledge 

The implementation of this new legislation therefore demands a lot from employees: learning to work with new definitions, making new concepts their own, and being able to translate those concepts into impact for the organization. What you would want to avoid as an institution is that when you carry out business impact assessments or sustainability risk assessments, you still spend a lot of time explaining definitions and concepts. Because once you've gotten the stakeholders together in one room to do an assessment, you don't want to waste any more time on definition issues about what constitutes a sustainability risk, for example. You would want the focus to be on the impact a risk has on the business or investment.  

What can make a positive contribution in the situation outlined above is ensuring that everyone has a basic knowledge before the substantive discussions begin. We have experienced ourselves that sometimes, for example due to time pressure, you are tempted to want to have the substantive discussion as quickly as possible, but employees are not at all ready for that at that moment.  

Therefor it can help to first bring the basic level of knowledge about these new terms and concepts of importance to stakeholders and those involved, for example by means of a basic training course, possibly supplemented by more substantive training sessions. The employees who are involved in the project on a daily or weekly basis often benefit, in addition to the basic training, from more substantive sessions that help them master the material that they have to work with in concrete terms. Consider, for example, getting clear on the objectives and data requirements of the various ESRS standards (CSRD) or knowledge needed to determine the materiality of ESG topics: how to do that and what does it mean if a qualitative or a quantitative materiality assessment is done.  

The proper use of training in an implementation process remains people work. We believe that even more than with other legislation such as the AIFMD (Alternative Investment Management Directive) and MiFID (Markets in Financial Instruments Directive), it is necessary to support employees with the right knowledge during the preparation phase. It can prevent frustration about the progress of the project, or between employees because of the various knowledge levels on the substantive assessments that need to be done. 

As a consulting firm, we have the opportunity to see how institutions sometimes handle the implementation of legislation the same way, but also differently. We can bring those experiences back into training and projects. We are also still learning, but a little less "artificially”. 
 

Curious about other experiences, keep following us or contact us at info@4esgconsulting.nl