How to Cope with ESG Reporting Confusion

The range of new reporting standards on ESG risks is causing some confusion in the financial sector. How can firms bring clarity into their data?

ESG reporting is gaining in popularity as businesses come under pressure from customers, regulators and investors to enhance the sustainability of their operations. To help them, organisations offering ESG standards seem to be popping up all over the place. The result is that companies have a host of different standards to choose from when trying to report on ESG.

Competing standards

Here are just some of the competing standards firms can choose from:

·        Sustainability Accounting Standards Board (SASB)

·        The Global Reporting Initiative (GRI)

·        The World Economic Forum’s International Business Council (IBC)

Each of them stems from the admirable goal of helping the financial sector become more sustainable. However, the range of standards being set has the potential to cause confusion for companies. Likewise, the lack of unity among standards makes it very difficult to compare one company’s ESG performance against another. Companies are struggling to decide which standard to adopt while investors struggle to compare one against the other.

The confusion is in part due to the lack of progress made by regulators. The FCA is still in its consultation progress to develop new ESG rules and the EU is still working on the European Sustainability Reporting Standards (ESRS). However, even this work risks creating a fragmented patchwork of standards.

Unity in the process

There is work being done to create the level of unity which has been previously missing, however. The International Sustainability Standards Board is bringing some of the standards together into one place. They are setting up a new working group from various jurisdictions around the world to coordinate between their proposals and the others being worked on around the world.  

This will go some way to delivering the standardisation that is currently lacking. However, in the meantime, companies do need to find an approach to satisfy the growing demand for clarity in ESG reporting, as well as the rapidly evolving nature of this environment.

As regulators adapt their approaches, reporting requirements are likely to change over the coming years. Despite attempts to standardise approaches, variations are likely to continue in different jurisdictions for the foreseeable future. Satisfying the different needs of regulators, investors and customers in different countries will be challenging, and will require firms to stay up to date on the latest developments in regulations, as well as any new standards confirmed.

Ultimately, though, reporting will need to be conducted in a way that provides clarity about how a company approaches ESG, what steps it takes to improve the sustainability of operations and how these are assessed and measured. They will have to engage with all stakeholders, understanding what information they would like to see and how they would like it to be presented.

Reporting will need to be a flexible and evolving process, based on transparency, and information-rich metrics which provide a clear picture of ESG practices regardless of what standards they choose to follow.