Legal Alert: Environmental, Social, and Governance (ESG), Its Legal Regulation
The Financial Regulatory Commission of Mongolia (“FRC”) approved the revision of the Corporate Governance Code (“Code”) on March 23, 2022. Additionally, in August 2022, the FRC established Environmental, Social, and Governance (ESG) or sustainability reporting standards and guidance documents (“Guidelines”). These initiatives aim to enhance the transparency of companies registered in the Mongolian stock market, issuers considering registration in the future, and organizations seeking to improve their reporting practices. In other words, the FRC suggests that even unlisted organizations can utilize the Guidelines for evaluating their sustainability reporting status, as well as identifying and addressing any issues.
In recent years, the credibility of an organization’s long-term success has been increasingly evaluated based on the positive impacts it generates within the framework of ESG principles. Moreover, investors are increasingly utilizing ESG criteria to assess a company’s social and environmental impact before investing.
ESG, and its importance
Long-term financial performance
Considering ESG indicators is becoming common practice when seeking financial resources or securing loans, the European Bank for Reconstruction and Development takes into account green projects or environmental friendliness when assessing loan eligibility.
The reputation of the organization
Adhering to ESG principles allows an organization to showcase its dedication to sustainability, social responsibility, and ethical business conduct, ultimately bolstering its reputation. Consequently, the brand’s overall reputation can experience a boost, along with increased trust from loyal customers and investors.
Risk management
It assists companies in risk mitigation by identifying potential ESG issues before they escalate into significant challenges.
Increase competitiveness
Companies gain a competitive advantage by attracting environmentally friendly customers. Because consumers and customers are willing to pay more for eco-friendly products.
Examples of ESG criteria
Environmental
- Climate change
- Loss of biodiversity
- Waste and pollution
- Energy efficiency
Social
- Human rights
- Employment condition
- Occupational safety and health
- Confidentiality and Data Protection
- Customer satisfaction
Governance
- Tax Strategy
- Corruption and bribery
- Business ethics
- Board diversity
