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Consolidated global reporting: the harmonisation of ESG reporting frameworks

January 17, 2023

Sustainability reporting is full of acronyms. This is a direct sign of the abundance of global standards in the market, all different means towards the same end. Alas, investors want clarity, regulators want unity, and companies want finality. Everyone is a bit befuddled, and the market is ripe for a breakthrough.

In this article, we explore current efforts to consolidate the ESG reporting landscape, particularly the interoperability of the European Sustainability Reporting Standards (ESRS), Global Reporting Initiative (GRI) Standards, International Integrated Reporting Council (IIRC), and Sustainability Accounting Standards Board (SASB) Standards. 

We also discuss the soon-to-launch International Sustainability Standards Board’s (ISSB) Sustainability Reporting Standards and its implications for integration with the other.

Challenges in the ESG reporting landscape

At the ecosystem level, ESG reporting is a fragmented web of different frameworks and standards for sustainability. This creates confusion on what standards to use, and often misalignment arises between investors seeking an understanding of companies’ ESG performance and the companies that are reporting on their performance. 

Most reporting standards overlap with one another on various aspects of ESG, but they also differ in the details of how and what to report such as the metrics used. Fundamentally, the principles and focus of each vary, with some emphasising the link between ESG and financial performance more than others. 

It is this that stymies comparability of ESG performance across companies, something that is critically needed by the investing community to make informed decisions and manage sustainability-related risks and opportunities. 

Harmonisation of reporting frameworks

Due to the challenges of having multiple reporting standards, efforts are being made to move towards a more coherent and unified approach to reporting. Regulators have played a big part in these efforts, as seen in new laws such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and the UK’s Sustainability Disclosure Requirements (SDR), both of which aim to increase the transparency of ESG information and reduce greenwashing by integrating requirements under a single framework. 

Meanwhile, the independent standards GRI and SASB have also made moves towards integration. In 2021, the SASB merged with the IIRC to form the Value Reporting Foundation (VRF). Further to this, the VRF and the Carbon Disclosure Standards Board (CDSB) have been absorbed into the ISSB under the IFRS Foundation, which is the primary body working to develop a comprehensive global baseline of reporting standards that can be used by the capital markets. 

Following that, the GRI has also agreed to work with the ISSB on alignment. All eyes are now on the ISSB to pave the way for a much-awaited universal standard that will resolve the challenges of the current reporting landscape and bridge the differences.

While harmonisation is ongoing, the respective standard setters will still maintain their standards, with developments happening concurrently. It should be noted that the independent standards are all quite interoperable, in the sense that they can complement each other loosely. However, most companies adopting a mix of two standards usually strive to meet the requirements of one standard while using the other to supplement reporting in instances where it may be lacking in the first. 

For example, a metals and mining company fulfilling GRI criteria to provide disclosures to a range of stakeholders may use the SASB Standards to add depth to the complexity of issues in their industry that has a material financial impact.

Challenges of harmonisation

There are two prevailing approaches among existing standards. The first is an industry-based approach, where reporting guidelines are structured sectorally; and the second is a topical approach where reporting is focused on material issues. 

The consolidated framework will have to strike a balance between the two, making room for topical depth and industry focus but also universal applicability. How the ISSB plans to integrate these areas remains to be seen. It will most likely lean towards double materiality given its investor-driven mandate where financial information is important, but with consideration of the GRI Standards which is more stakeholder-driven, may adopt a loose approach to double materiality.

The other challenge of consolidation is the materiality approach. EU-centred reporting frameworks have mostly emphasised double materiality, whereas the US-oriented SASB Standards, now part of the ISSB, use the single materiality principle. 

This is a significant divide and raises questions as to whether this could lead to a split between two worlds - the EU approach and the US approach, which would contradict the goals of global harmonisation. Further, this could create incentives for both approaches to push their agendas, given that the dominant reporting approach may decide the future relationship of business to ESG (i.e. one that is centred on impacts to stakeholders vs. impacts to the company).

Benefits of harmonisation

A harmonised reporting framework will:

  • Be immensely conducive to investment activity and the development of ESG investing at large, making accurate ESG information widely available to the market
  • Enable comparability, which is key to investment decisions
  • Allow companies to benchmark progress among their peers
  • Set the stage for global comparability
  • Facilitate sustainable financing and access to capital
  • Promote transparency in ESG management, supported by clear, quality disclosures 
  • Prevent greenwashing and information asymmetry

Regardless of the outcome of harmonisation efforts, one thing is certain: the newly consolidated global framework will be data-driven, which is the principal factor underlying transparency across all the standards. The demand for accurate and investor-quality data will become more pronounced as ESG reporting develops. 

The strength of a company’s reporting in a harmonised future hinges on two things: 1) the ability to understand and fulfil the new reporting criteria; 2) the ability to collect and disseminate relevant data. For most companies, the real challenge remains unchanged from the present - their reporting will only be as good as their data.

How we help

  • We guide you to fulfil the criteria of the relevant standard through automated reporting.
  • We contact your stakeholders on your behalf and simplify the collection of relevant data internally and with external stakeholders including your supply chain.
  • We receive information from your stakeholders without jeopardising business-critical information, only showing one level up and one level down.
  • We facilitate data exchange with stakeholders and ensure that necessary and accurate information from the supply chain arrives with minimal effort.
  • We provide a centralised platform to manage all your data, pulling data from enterprise software such as ERP, HRM, EMS, etc.
  • We offer insights powered by data analytics, enhancing your understanding of your supply chain, ESG performance, and reporting strength.
  • We automate follow-ups to data sources, reminder emails and calculations and free up more time for you to do other things.

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