Making overtures in a crowded ESG ecosystem

Most companies aim to align with international ESG reporting standards for better consistency and comparability. However, the overabundance of reporting instruments in the global market is raising awareness from corporate reporters, investors, and policymakers. This has led to increasing calls for the realignment of existing reporting frameworks, the creation of a new unified body to lead the sustainability reporting agenda, or the adoption of a new set of universal ESG metrics. 

In 2020, five global sustainability and integrated reporting standard and framework-setters co-published their shared vision of what is needed for progress towards comprehensive corporate reporting. They have committed to providing joint market guidance on how their frameworks and standards can be applied in a complementary way. 

The organisations involved are the Sustainability Accounting Standards Board (SASB), a non-profit organisation that sets voluntary financial reporting standards, the International Integrated Reporting Council (IIRC), which promotes communication about value creation in corporate reporting, the Global Reporting Initiative (GRI), whose sustainability reporting standards are used in more than 100 countries, CDP, which runs a global disclosure system for environmental impacts, and the Climate Disclosure Standards Board (CDSB), an international consortium of businesses and environmental NGOs.

To further advance the shared vision, the SASB and the IIRC later announced their intention to merge into a unified organisation, the Value Reporting Foundation, to help simplify the corporate reporting system.

Harmonising for a stirring finale

Other approaches considered by the corporate sector are to set up a new body to govern sustainability reporting standards, or to adopt a new set of universal ESG metrics. The accounting profession is one of the groups which have been pushing for a more harmonised reporting framework. This can be demonstrated through the release of a consultation paper on sustainability reporting by the International Financial Reporting Standards (IFRS) Foundation, a non-profit organisation established to develop and facilitate the adoption of a single set of globally accepted accounting standards. 

The paper sets out possible ways the foundation might contribute to the development of global sustainability standards by broadening its current remit beyond the development of financial reporting standards. One of the options is establishing a new sustainability standards board. This approach is supported by the International Federation of Accountants, the global organisation for the profession. 

The World Economic Forum is also taking a lead in aligning sustainability reporting. In collaboration with four accountancy firms – Deloitte, EY, KPMG and PwC – the forum released a set of universal ESG metrics and disclosures with the aim of establishing a single, global ESG reporting standard. These metrics leverage existing frameworks including those developed by the CDSB, the GRI, the SASB, the TCFD, and many others. The project is spearheaded by the forum’s International Business Council, a coalition of 120 multinational companies. 

As the ESG reporting landscape evolves, some trends to watch are the IFRS approach to sustainability reporting, the coordination among leading standard-setters towards a cohesive framework, the response to the International Business Council’s new standards, changes in regulatory reporting requirements in different markets, and sentiment from the investment and ESG community.

Sustaining the rhythm for harmonisation is a joint effort that will require alignment from the global ESG community in promoting consistent and reliable ESG disclosure, just as orchestras require musicians to pool their collective creative abilities to become the living whole of the music.