ESG Reporting

The following is an extract from an article by Teresa Ko, Trustee of the IFRS Foundation, on this topic:

Sustainability and climate change are the global challenges of our time. In the world of capital markets, asset management and investing, and amongst investors, preparers, financial markets regulators and policymakers alike, there is a growing and urgent demand to improve the consistency and comparability of the figures, data and information in sustainability reporting.

Over the last decade or so, we have seen many sustainability standards initiatives across numerous sectors. Some say there are actually more than 1,700 different metrics available for companies to use, including initiatives from governments and international organisations that promote climate change reporting.

In 2006, when ‘ESG’ was first mentioned by the United Nation, there was US$6.5tn of funds under management. As of April 2018, this has grown to US$81tn in assets under management with net inflows of US$71bn between April and June of this year. All of this is startling considering that there isn’t even a commonly accepted definition of what constitutes a green finance product! Aside from the risks of cherry picking and ‘greenwashing’, the landscape is increasingly chaotic, inefficient and ineffective in addressing our growing concerns around the complex and critical areas of sustainability and climate related risks. Many corporates lament the frustrations, complexity and costs of having to disclose against multiple standards and metrics, which often add nothing to the quality of data or information being provided.

Many people are trying to do something about this. In just four months, we have seen a number of significant developments in this area. In June 2020, we saw Valdis Dombrovskis, Executive Vice President of the European Commission, mandating the European Financial Reporting Advisory Group (EFRAG) to launch technical preparatory work to develop recommendations for a common set of non-financial reporting standards by European companies, taking into account the existing requirements of the Non-Financial Reporting Directive (NFRD).

In August 2020, the CFA Institute, a global association of investment professionals, announced the development of a voluntary, global industry standard to provide greater product transparency and comparability for investors by enabling asset managers to clearly communicate the ESG-related features of their investment products.

In September 2020, five ESG standard-setters (the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB)) pledged to work together towards a comprehensive corporate reporting system. Together with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), these organisations guide the overwhelming majority of sustainability and integrated reporting throughout the world.

A week later, the World Economic Forum International Business Council, comprising 130 multinational corporations, released its white paper prepared in collaboration with the Big Four accounting firms. The paper identified a common, core set of ESG metrics and recommended disclosures capable of verification. Its aim was to raise the level of transparency and alignment to build a more sustainable global economy.

On 30 September, the trustees of the IFRS Foundation published a Consultation Paper to assess demands for a global set of internationally-recognised sustainability standards focusing initially on climate-related risks disclosure, and whether the IFRS Foundation should play a role in developing such standards. As Erkki Liikanen, Chair of the IFRS Foundation Trustees said: this will be a demand driven process.

[...]...This option proposes the establishment of a new Sustainability Standards Board to build on the existing work and developments in the field of sustainability, focusing initially on climate-related matters. The idea is that this new board would operate alongside the existing International Accounting Standards Board (IASB), which sets the IFRS Standards, and under the same three-tier governance structure of the IFRS Foundation.... Continue reading

The following is an extract from an article by Teresa Ko, Trustee of the IFRS Foundation, on this topic:

Sustainability and climate change are the global challenges of our time. In the world of capital markets, asset management and investing, and amongst investors, preparers, financial markets regulators and policymakers alike, there is a growing and urgent demand to improve the consistency and comparability of the figures, data and information in sustainability reporting.

Over the last decade or so, we have seen many sustainability standards initiatives across numerous sectors. Some say there are actually more than 1,700 different metrics available for companies to use, including initiatives from governments and international organisations that promote climate change reporting.

In 2006, when ‘ESG’ was first mentioned by the United Nation, there was US$6.5tn of funds under management. As of April 2018, this has grown to US$81tn in assets under management with net inflows of US$71bn between April and June of this year. All of this is startling considering that there isn’t even a commonly accepted definition of what constitutes a green finance product! Aside from the risks of cherry picking and ‘greenwashing’, the landscape is increasingly chaotic, inefficient and ineffective in addressing our growing concerns around the complex and critical areas of sustainability and climate related risks. Many corporates lament the frustrations, complexity and costs of having to disclose against multiple standards and metrics, which often add nothing to the quality of data or information being provided.

Many people are trying to do something about this. In just four months, we have seen a number of significant developments in this area. In June 2020, we saw Valdis Dombrovskis, Executive Vice President of the European Commission, mandating the European Financial Reporting Advisory Group (EFRAG) to launch technical preparatory work to develop recommendations for a common set of non-financial reporting standards by European companies, taking into account the existing requirements of the Non-Financial Reporting Directive (NFRD).

In August 2020, the CFA Institute, a global association of investment professionals, announced the development of a voluntary, global industry standard to provide greater product transparency and comparability for investors by enabling asset managers to clearly communicate the ESG-related features of their investment products.

In September 2020, five ESG standard-setters (the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB)) pledged to work together towards a comprehensive corporate reporting system. Together with the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), these organisations guide the overwhelming majority of sustainability and integrated reporting throughout the world.

A week later, the World Economic Forum International Business Council, comprising 130 multinational corporations, released its white paper prepared in collaboration with the Big Four accounting firms. The paper identified a common, core set of ESG metrics and recommended disclosures capable of verification. Its aim was to raise the level of transparency and alignment to build a more sustainable global economy.

On 30 September, the trustees of the IFRS Foundation published a Consultation Paper to assess demands for a global set of internationally-recognised sustainability standards focusing initially on climate-related risks disclosure, and whether the IFRS Foundation should play a role in developing such standards. As Erkki Liikanen, Chair of the IFRS Foundation Trustees said: this will be a demand driven process.

[...]...This option proposes the establishment of a new Sustainability Standards Board to build on the existing work and developments in the field of sustainability, focusing initially on climate-related matters. The idea is that this new board would operate alongside the existing International Accounting Standards Board (IASB), which sets the IFRS Standards, and under the same three-tier governance structure of the IFRS Foundation.... Continue reading

Topic Contributors

Professor John Coffee

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Fellow, Research Member

Adolf A. Berle Professor of Law

from Columbia Law School

Professor Luzi Hail

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Research Member

Professor of Accounting

from The Wharton School, University of Pennsylvania

Professor  Zacharias Sautner

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Research Member

Professor of Finance

from Frankfurt School of Finance & Management

Professor  Rajna Gibson Brandon

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Research Member

Professor of Finance

from University of Geneva

Professor Joseph McCahery

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Research Member

Professor of International Economic Law and Professor of Financial Market Regulation

from Tilburg University Faculty of Law and Tilburg Law and Economics Center

Professor Laura Starks

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Research Member

Seay Regents Chair of Finance

from McCombs School of Business

Professor Christian Leuz

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Fellow, Research Member

J. Sondheimer Professor of International Economics, Finance and Accounting

from The University of Chicago - Booth School of Business