Orchestrating the Rhythms of Sustainability Reporting
Orchestrating the Rhythms of Sustainability Reporting

It isn’t easy for everyone to sing from the same hymn sheet when it comes to sustainability reporting: The scores keep changing and the instruments are being constantly adjusted. But when it’s done well, effective reporting brings a crescendo of palpable benefits.

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. 


The United Kingdom plans to make declarations in line with recommendations from the TCFD mandatory by 2025.

The TCFD was established by the Financial Stability Board of the G20 to develop guidelines on disclosing climate-related financial risks and opportunities. Although voluntary until now, the TCFD is a good example of a globally-supported framework that translates non-financial information about climate into financial metrics, in turn enhancing investor dialogue on the financial implications associated with climate change. 

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.

Timeline of key developments related to sustainability reporting in 2020

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.