A flick of the baton and the strings stir to life. A grand sweep of the arms and the other instruments strike up in perfect harmony. The maestro on the podium skilfully unifies the musicians, sets the tempo, and directs the sounds of the ensemble.
Balancing harmony is an art. Transposed to the context of sustainability reporting, understanding the artistry behind the harmonisation requires an appreciation of the complexities of reporting instruments and the different viewpoints on how sustainability reporting should be orchestrated.
The year 2020 has been notable for a whirlwind of sustainability reporting developments. This article will look into two key aspects of the discussions: Firstly, whether there is a need for mandatory environmental, social, and governance (ESG) reporting; and secondly, what standards and frameworks should be used, and whether and how they should be harmonised.
A rising chorous of debate
Most of the current vast range of reporting instruments to support corporate issuers in sustainability reporting are voluntary. While companies of all sizes and sectors are encouraged to report their disclosures, there have been heated debates over whether mandatory reporting leads to the desired outcomes.
Mandatory sustainability reporting for all companies under the same set of standards is ambitious because different sectors face unique material priorities and are at different stages of the reporting journey. It is challenging to derive a set of performance indicators that all companies and stakeholders across sectors and jurisdictions find material. The different requirements adopted in different regions also increase the complexity for corporate sustainability reporting. There are also concerns that mandatory reporting could limit the sustainability efforts of some companies.
Nevertheless, the shift from voluntary reporting to government-regulated reporting is gathering pace. Pressure is rising with public interest and investor activism for corporate responsibility, as well as the belief of governments that transparency will speed up progress towards stable markets and an inclusive, sustainable economy. This can be demonstrated by the announced intention of New Zealand and the United Kingdom to make declarations in line with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) mandatory.