In conversations about sustainability with ESG experts or with corporate professionals, one question always comes up: when will sustainability information and reporting become more standardised? The demand is definitely there and more and more stakeholders think that the diversity of sustainability reporting guidelines contribute to the confusion around ESG (Environmental, Social and Governance) reporting rather than simplifying it.

A few years ago, the situation was simpler. When sustainability reporting as a common corporate practice surfaced in the ‘90s, Global Reporting Initiative (GRI) quickly appeared and started to rule the reporting scene. Their guidelines from G1, published in 2000, to the Standards published in 2016, were the most comprehensive guidelines. Even though there were other guidelines as well, none could achieve such an uptake as GRI. The more successful ones were rather sector-specific guidelines which filled the void of missing industry specific definitions, but remained niche by nature.

However, part of the success of GRI was that even though sustainability reports became must-haves for large companies, stakeholders did not ask many questions when it came to content and accuracy.

This lasted until recently when the new ESG trend started. This was when investment professionals started to be interested in how sustainability information can help in understanding corporate performance. But even though they launched the full arsenal of their IT, data gathering and analytics tools, it quickly became clear that the materiality and accuracy of the reports is just not adequate.

This issue with the content is one of the main reasons why there is still a significant deviation between the ESG scores calculated by the different rating agencies and investors.

There is an increasing feeling among ESG and sustainability professionals that this problem can only be fixed if significant improvement can be achieved in how sustainability information is reported. However there is less of an agreement about how it should be fixed. There are different approaches, none of which has surfaced as the best yet.

One possibility is to make the reports more sector specific. This thinking led to the creation of the reporting guideline by the Sustainability Accounting Standards Board (SASB). Another – rather supplementing than competing – approach is to harmonize or even unify the existing diverging reporting guidelines and to have one sustainability reporting standard either globally or at least regionally.

Some initiatives have already started. One of the most notable was when GRI and SASB announced their collaboration in 2020. However, as they wrote, this collaboration was rather about “to demonstrate how some companies have used both sets of standards together” than to make one unified standard.

Anyhow, when it comes to unified reporting standards, many can ask why it could only come from existing sustainability standard setting organizations. Why not from financial standard setting organizations? Financial reporting has a longer history than non-financial reporting and there is a widely used and accepted, unified international standard that is complementary to national standards and ensures that corporate accounting is comparable cross-border for corporate, regulatory and financial actors as well. This is the International Financial Reporting Standards.

Even if the above sounds obvious, not much has been heard about IFRS or other accounting standard setting organizations.

At least until recently.

In 2020 the IFRS Foundation published a ‘Consultation Paper on Sustainability Reporting”, a public consultation about its potential role in setting sustainability reporting standards. It started in September and lasted until 31 December 2020.

The consultation was general and asked questions in three areas:

  • whether there is a need for global sustainability standards;
  • whether the IFRS Foundation should play a role; and
  • what the scope of that role could be.

The interest from respondents was even more revealing than the consultation itself. Not only the number and variety of the respondents, but also the fact that many of the answers were publicly communicated on websites or in press releases showed how relevant it was.

A compelling sign of this interest is the YouTube channel of the IFRS foundation. The videos there typically have a view count in the range of few hundred. Except the one about the sustainability reporting questionnaire which has been viewed 3,8 thousand times until the publication of this article.

Some common patterns can be seen in the answers. The most important of them is that most organizations praised IFRS Foundation’s plan to create or play a leading role in a ‘Sustainability Standards Board’ (SSB) as a global standard setter for sustainability reporting.

But the big question still remained open: what are the plans of the IFRS Foundation in the field of the sustainability reporting?

We do not have the final answer but it seems the IFRS Foundation heard the voice of the respondents. Things have been moving fast recently and the IFRS foundation’s website now offers one of the most interesting content if somebody is interested in the possible future of sustainability reporting.

In the beginning of February 2021, the IFRS Foundation started to discuss the answers received in the consultation. Based on the answers received, the trustees agreed that

“there is a need for a set of globally recognized sustainability standards” and for the IFRS Foundation “to play a role in the development of these standards”.

This sounds quite obvious.

In early March, they agreed about the key strategic directions of the new Sustainability Standards Board (SSB) to be set up.

And at the end of March on a new meeting, the IFRS Foundation went one step further and set up a Working Group. The working group’s role is to provide “structured engagement with existing standard setters”. It is chaired by the IFRS Foundation and its members include the TCFD, SASB, CDSB and WEF*. It seems the work has been kicked off and when it comes to sustainability reporting.

Interestingly GRI and CDP are only mentioned as organizations that the working group will ‘engage closely’ with throughout the process

This might signal a significant shift in ESG and sustainability reporting that has been dominated by GRI for decades.

Last but not least, one recurring statement in the press releases is that the IFRS Foundation has an established timeline. Its goal is to set up the Sustainability Standards Board before the United Nations Climate Change Conference COP 26 in November 2021.

The one thing that its certain is that there will be only few more interesting topics than this in the close future when it comes to sustainability reporting. Here on SNEU, we will try to follow the new developments.

*TCFD: Financial Stability Board’s Task Force on Climate Related Financial Disclosures, SASB_ Sustainability Accounting Standards Board, CDSB: Climate Disclosures Standards Board, WEF: World Economic Forum

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