A standardised ESG disclosure framework can potentially transform ESG reporting and perceptions, globally
Environmental, social and governance (ESG) disclosure has become a hot conversation topic over the past few years. In the USA, companies have seen increased pressure from investors and stakeholders to reveal their ESG practices and their impact, while globally, the pressure has been consistent across specific industries and sectors. In June 2020, the Global Reporting Initiative released a draft standard for ESG disclosures for the oil and gas industry, and there are multiple frameworks across different sectors that are not consistent and there are more on the way. While having a disclosure framework is a solid step towards showcasing ESG investment and results, it’s becoming equally clear that having one uniform, globally recognised framework is a necessary step towards embedding ESG good practice.
The multiple frameworks currently in play tend to cover different aspects of ESG with regards to specific industry needs and aren’t consistent in their result. A single framework that’s focused specifically on mandatory and specific ESG factors can potentially help in achieving comparative results. It can also minimise the risk of greenwashing – the truth hidden behind industry obfuscation rather than laid out in black and white. The other challenge is that by having multiple frameworks in play there is no real clarity around the specific factors that define true ESG reporting and how the different sectors abide by them. The knock-on effect there is that because of the lack of ESG disclosure, the financial institutions that rely on these disclosures for regulatory requirements face an uphill battle.
Currently, the ESG disclosure framework landscape is fragmented and disconnected. The different frameworks currently in use are the SASB, TFCD, and the Global Reporting Initiative, among others. Their varied approaches and mixed requirements only serve to emphasise the need for standardised reporting.
The orchestrated approach
What would work is the creation of a cross-sectoral ESG disclosure framework that’s capable of operating across multiple jurisdictions and that ensures consistency throughout. A standardised approach that would ensure all companies were focused on the same end goal, while still allowing for the minute and relevant changes to sector-relevant approaches and requirements.
This is a step that isn’t going to be easy to take. With so many different types of reporting standard, and cooks in the proverbial kitchen, which one would be given the right to take the lead? Which one would be ultimately determined to be best practice? The answer lies in building a solution that’s both durable and global, one that can pull in the expertise and understanding from all frameworks and sectors to allow for a more robust and agile approach to ESG reporting. This could result in the creation of an international reporting standard that can be used by both financial institutions and corporates to deliver measurable and relevant results.
To achieve this goal, the relevant international standard setting organisations need to make a sustained effort towards embedding practical steps towards creating a cross-sectoral ESG disclosure framework. They need to focus on creating an acceptable ESG disclosure standard that can not only shift how ESG is balanced within the organisation, but the value it delivers in terms of reputation.