Global reporting standards on ESG

The Securities and Exchange Commission is working on getting companies to report their carbon footprints. — Bloomberg

NEW YORK: Environmental, social and governance (ESG) investing passed a milestone as the first ever set of global reporting standards was unveiled, paving the way for companies across jurisdictions to disclose uniform climate and sustainability information.

The voluntary framework, published by the International Sustainability Standards Board (ISSB), is intended to reshape ESG reporting norms in much the same way as the International Financial Reporting Standards did two decades ago.

The ISSB framework will also affect the information companies include in their financial reports, so that these better reflect ESG risks.

The absence to date of a global ESG reporting framework has resulted in “a very confusing landscape,” for businesses and their investors, Sue Lloyd, vice-chair of ISSB, said in an interview.

With the new standards, “investors can be confident that, when they compare companies, they’re doing that on a like-by-like basis when they’re making their investment decisions.”

The standards, which comprise separate frameworks for climate and sustainability reporting, mark the culmination of a years-long effort.

The acronym ESG was first coined back in 2004 by a team affiliated with the United Nations.

In the years that followed, however, regulators were largely missing in action and the label got attached to an ever-larger number of financial products and activities, ultimately morphing into a multi-trillion dollar business.

In recent years, regulators in Europe, the United States and Asia have tried to bring order to a market in which greenwashing – the mislabelling of ESG products – had become a widespread concern.

The EU has created a taxonomy and was also the first to unveil an ESG rulebook for investors. It’s now moving forward with regulations for companies, as part of a complete package that ultimately redraws the lines of capitalism.

In the United States, the Securities and Exchange Commission is working on getting companies to report their carbon footprints.

Those efforts include requiring that firms report absolute emissions data, which has met opposition from JPMorgan Chase and Co, Exxon Mobil Corp, Chevron Corp and Goldman Sachs Group Inc, among others.

Hostility toward ESG from the Republican Party has also complicated efforts to formulate ESG rules in the United States.

By one measure, global ESG regulations have soared 155% over the past decade, according to ESG Book, a sustainability data and technology firm.

Lloyd said that “paradoxically,” there is “quite a lot of information around.” But that information exists within “a very confusing landscape,” because of the “frameworks with different approaches, different areas of focus,” she said.

Brian Moynihan, chief executive officer of Bank of America, called the ISSB standards “an important first step toward developing a global baseline of comprehensive market-driven sustainability standards.”

The development means “that capitalism and the markets can continue to focus on long-term, sustainable development.” — Bloomberg