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If you’re even remotely new to environmental, social, and governance (ESG) reporting and disclosures, your head might be spinning in your attempt to figure out which set(s) of rules you need to or should follow. Don’t feel bad. A lot has been going on in this area. As I write this column today, April 26, SCCE is holding our third virtual ESG and Compliance Conference, and two separate sessions were devoted to ESG reporting. It’s clearly a very hot topic.
Over the years, numerous standard-setting bodies have emerged in the ESG field. Most have been focused on investors—information that would be important for investors to make informed investment decisions regarding company value. Other stand-setting bodies focused on the noninvestor stakeholder or the general public—information in the interest of public accountability.
Recent consolidation efforts will help to streamline some of these reporting expectations and may even reduce (or at least stabilize) the cost of compliance, particularly in connection with standards that are primarily investor-focused. In November 2021, a new organization, the International Sustainability Standards Board (ISSB), was created by the International Financial Reporting Standards Foundation (IFRS Foundation), which also oversees the International Accounting Standards Board (IASB). This new body will issue standards but has also committed to a consolidation of the Climate Disclosure Standards Board (CDSB), completed in early 2022, and the Value Reporting Foundation (VRF), which houses the Integrated Reporting Framework and Sustainability Accounting Standards Board (SASB) Standards.
Another important standard-setter is the Global Reporting Initiative (GRI), whose focus is on the general public rather than investors. In March 2022, a collaboration agreement was reached to coordinate GRI’s work programs and standard-setting activities—through its Global Sustainability Standards Board (GSSB)—with those of the ISSB. No consolidation is taking place, but improved alignment of investor-focused standards with public interest standards of GRI has the potential for significant benefits.
A third category of standards is also emerging—from regulators. This development places ESG reporting firmly on the plate of compliance, if it’s not already considered a compliance requirement. The European Commission in 2021 proposed a Corporate Sustainability Reporting Directive (CSRD) that will amend nonfinancial reporting requirements in place since 2014. Further plans involve creation of a European Financial Reporting Advisory Group (EFRAG) Sustainability Reporting Board that will develop reporting standards for the European Commission.
In case keeping up with these standards (and abbreviations) seems too easy, the U.S. Securities and Exchange Commission recently proposed new climate disclosure regulations—a mere 511 pages of them. We’ll send you the quiz on those rules next week.