Inching towards one set of ESG reporting standards
After decades of deliberation, cat fights and false starts, the various sustainability reporting standards could soon be harmonised.
The driving force is the financial community’s belated interest in all things Environment, Social and Governance (ESG), especially climate change. Investors want to see believable and comparable carbon emissions data – something lacking from the great outpourings in sustainability reports.
The Foundation is considering feedback on its proposal to set ESG standards, starting with climate change reporting. Speculation is that these could be ready in time for the UK hosting of COP26, the UN’s annual climate change jamboree in November.
If this comes to pass, it will split the reporting standards world in two: USA – using the Sustainability Accountancy Standards Board (SASB) guidelines; and the rest of the world, using IFRS. While not totally unified, at least such an outcome will be better than the current mish mash of standards and metrics.
Quick landscape summary
Here is a quick summary of the current mix of existing and expected standards.
Five leading ESG standards organisations have said they are to collaborate. These are:
The Global Reporting Initiative. This is the grandaddy of the pack which produces standards to satisfy multi-stakeholders and which investors find woolly.
SASB − the US-focused newcomer which has made quick progress, supported by Michael Bloomberg. SASB standards and metrics are designed for investors.
CDP (formerly known as Carbon Disclosure Project), which against all expectations has been highly successful in getting companies to disclose their emissions voluntarily. But these self-declarations are not necessarily robust enough for investors.
Not part of the mix (or not yet) is the World Economic Forum’s efforts to set ESG standards, instigated by the big four accountancy firms (self-interest loosely declared).
Because of different world views and massive egos involved, cooperation between the different standard setters has been somewhat fractious in the past. It seems unlikely that the collaborating group’s deliberations will be swift enough to outrun the IFRS Foundation if it decides to set ESG reporting standards.