The engine that powers sustainable organisations
Sustainability reporting is growing rapidly – companies, investors, and regulators are grappling to understand numerous standards and frame works. At the same time, new ones are being proposed. For the most part, country developments have taken place in parallel to each other, with hardly any effort to align or consult between jurisdictions. The result is lack of coherence and comparability due to a lot of variance between regulatory standards.
On 27 April 2022, the International Sustainability Standards Board (ISSB) launched a working group to bridge differences between ISSB’s exposure drafts and the sustainability reporting standards of various local jurisdictions. The working group is represented by experts from the world’s largest economies to get their feedback on compatibility with local standards.
The initiative is commendable as global markets benefit from integrating ESG standards. Closer alignment allows companies to compare themselves using a common language on sustainability, including standardized measurement approaches.
In China, where carbon disclosure guidelines are lacking, companies may need to revise their approach to align with European standards, which have stronger regulatory commitment, particularly in climate reporting and TCFD recommendations. Similarly, US companies may face more pressure for disclosures as American law catches up. The ISSB is likely to adopt commonly used ESG criteria from other countries. Several nations are already following TCFD disclosures, and China released its own draft carbon disclosure standards in 2021, showing openness to exploring widely accepted norms.
In short, companies should prepare to familiarise themselves with frameworks not previously practised. With an aligned global baseline, competitive advantage arising from lower ESG standards will be minimised, and they may find investors asking for information beyond the scope of established in-country laws. The investing community will have an easier time making decisions based on ESG performance, creating an overall boost to sustainable investing and responsible finance. Capital flows will find a clearer and more efficient path to ESG funds.
The working group is a stepping stone to larger scale cooperation between more jurisdictions. The IFRS Standards are intended to be a global baseline for ESG disclosures, and dialogue facilitates relevance for the stakeholders involved.
Hope is pinned on the ISSB as the leading effort to coordinate harmonisation between ESG disclosure standards. We are seeing the balance of differences move towards an equilibrium that will bring greater clarity for all.