Will ESG reporting get more streamlined?

Will ESG reporting get more streamlined?
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ESG
The key environmental, social and governance (ESG) reporting challenge for issuers and investors alike is the sheer variety of frameworks, disclosure standards, metrics and performance indicators. On top of it, thousands of ESG screens, ratings and indices, all with different methodologies and with various degrees of success, try to help investors navigate in the ESG world to ensure ESG risks and opportunities are appropriately managed. 

Over the past few years, investors, governments and other relevant institutions have been coming together in an attempt to streamline sustainability reporting and support corporates in understanding the financial impact of ESG risks and opportunities. 

In September this year, five global ESG organisations - CDP, CDSB, GRI, IIRC and SASB, have joined forces to release a shared vision titled ‘Working Together Towards Comprehensive Corporate Reporting’. The intent to work together demonstrates momentum towards a comprehensive framework that all businesses can look to. The first objective is to establish a globally agreed set of sustainability topics and related disclosure requirements, based on evidence of demand among various stakeholders for a disclosure solution. The second objective it to develop ‘a filter’ that acknowledges the specific user whose primary goal is economic decision-making. The group participants have committed to engage with all stakeholders to achieve this vision and are currently asking market participants for feedback. If implemented, companies’ sustainability disclosures would be streamlined and embedded in their annual reporting suite.  

In another attempt to streamline ESG reporting, the big four consultancies - PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte have all backed a framework led by the International Business School (IBS), titled Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. The set of universal ESG disclosures includes 21 core metrics and 34 expanded metrics that IBS members are encouraged to adopt. Each of the metrics exists within four pillars - governance, planet, people and prosperity.  
 
It is crucial that these institutions and organisations collaborate to support businesses on the road to a carbon neutral, human-centred recovery, and the momentum behind the cause is stronger than it ever has been before. The success of these new frameworks will depend on their widespread adoption and further refinement, so that all major economic players adhere to the same rule book. 

While comprehensive and stakeholder focused ESG disclosures are still primarily voluntary, the first signs of changing tides have started appearing, with focus on climate change reporting. Australia, Canada, UK, France, Japan, and the European Union are all working towards some form of comprehensive and consistent climate risk reporting for companies.  

And last month, New Zealand became the first country in the world to require the financial sector to report on climate risks. The requirement would apply to publicly listed companies and large insurers, banks and investment managers, and will encourage 90% of New Zealand businesses to consider and gain a better understanding of climate impacts on their operations. Reporting will be against a standard developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and will apply from 2023. 

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ESG