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Institution / Asset owners

A guide to sustainable reporting standards

Accurate corporate reporting is key in the fight against climate change, but with more than 600 standards to potentially work to, it’s enough to confuse even the most hardened bean-counter. We flag those you can’t ignore.

It can be difficult to digest the alphabet soup of reporting standards that have been created. (Photo by Space Monkey Pics/Shutterstock)
      • With so many reporting standards available, we provide an overview of some of the most influential in the marketplace.
      • 80% of listed companies work to at least one sustainability reporting standard.
      • Although consolidation is almost inevitable, this could take years to happen.

For any executive working in sustainable finance, the topics of data management and reporting will inevitably come up. The creation of hundreds of different standard-setters, industry initiatives, frameworks and guidelines in recent years has made life increasingly difficult. One study identified 614 reporting provisions globally, including both regulations and voluntary standards.

Around 80% of all companies worldwide now voluntarily report on sustainability, according to KPMG, which has run a survey since 1993. But because so many use different frameworks, it’s hard to accurately benchmark behaviour.

The push for standardisation is finally under way though. Governments and policymakers across the globe are in broad agreement that a universal reporting standard is necessary. In September 2020, five NGOs – the CDP, CDSB, GRI, IIRC and SASB – that all have their own frameworks (see list below) published a ‘shared vision’ for more harmonised reporting.

Even more significantly, the IFRS Foundation, which sets the global accounting standards used in 140 countries (barring some big names like the US), last year began consulting on whether it should play a role in sustainability reporting too, suggesting the establishment of a Sustainability Standards Board (SSB), to set non-financial reporting standards and sit alongside the existing International Accounting Standards Board (IASB). The response was overwhelmingly positive.

“I think a lot of people underestimate what a huge deal the IFRS Foundation news is,” says Bob Eccles, a reporting veteran and academic. “I’ve been doing this for 30 years and people have never paid enough attention to it or have just said market forces will sort it out. They forget that accounting standards didn’t come from market forces.”

Corralling consolidation

In late March the IFRS Foundation announced it was working with all the major reporting bodies on the new board. A key question for the working group will be whether it focuses on the impact for a range of stakeholders or just investors.

Judy Kuszewski, who chairs the GRI’s (Global Reporting Initiative) global sustainability standards board, says the implications are clear: there will be consolidation, if for no other reason than the fact there’s limited funding for corporate reporting initiatives. “That obliges us all to be open-minded and highly focused on the most practical, value-increasing activities we can,” she says.

Progress towards consensus is positive, but given the complexity of the topic and the importance of getting it right, it’s likely to be some time before consolidation takes place.

In the meantime, Capital Monitor flags a few of the most influential frameworks, what makes them special, and why we believe they will play an important role in any consolidated universal standard in the future. Regulations aside, these are the acronyms and initialisms most often thrown around at sustainable finance events.

Carbon Disclosure Project (CDP)

  • Focus: Environment
  • No. of participants: 9,600
  • Type of participants: Non-financial corporates
  • Audience served: Investors

The CDP was created in 2007 as a product of Davos, to integrate climate reporting into existing accounting practices.

“We’re essentially a disclosure mechanism that allows companies to provide non-financial information in the form of responses to a standardised questionnaire,” says Pietro Bertrazzi, a CDP director. “Through the CDP scoring process we exert some power by creating disclosure norms, but we’re really about nudging companies towards a more environmentally conscious model.”

Approximately 9,600 companies representing more than 50% of global market capitalisation disclosed through its platform and received a CDP score in 2020. While ESG (environmental, social and governance) scores based on self-disclosure have faced some scrutiny – the CDP was criticised when coal infrastructure company Adani Ports’ score was upgraded in February – the CDP says its methodology is fully transparent and that it is constantly evolving its approach to meet market needs. Like some other – but not all – ESG score providers, the comprehensiveness of responses is considered as well as their content.

The CDP “hosts the global secretariat on behalf of” the Climate Disclosure Standards Board (CDSB). While they share an office and resources and certainly complement each other, they are distinct entities tackling different problems. As they put it, the CDP asks companies the questions they need to answer, and the CDSB assists companies in integrating that information into their existing reporting. The two frameworks are independent of each other.

Climate Disclosure Standards Board (CDSB)

  • Focus: Environment
  • No. of participants: 374 companies in 2017; no more recent data available
  • Type of participants: Non-financial corporates
  • Audience served: Investors, shareholders

The CDSB provides a principles-based framework that helps organisations to present environmental information in mainstream reports for investors. It’s fully aligned with the TCFD and supports compliance with the EU’s Non-financial Reporting Directive. According to the double materiality concept coined by the European Commission, there are two distinct ways of looking at ESG issues: how they affect a company’s performance, and how a company’s actions in turn affect society. The CDSB framework considers both.

It doesn’t have its own detailed and specific metrics, but instead brings together other frameworks, including the SASB and GRI (see below for both), as well as information disclosed via the CDP. Companies can then report the information gathered using the CDSB structure as a guide.

The CDSB has expressed an interest in joining talks with the SASB and the IIRC on their planned merger to create the Value Reporting Foundation.

Global Reporting Initiative (GRI)

  • Focus: Sustainability
  • No. of participants: Approximately 10,000
  • Type of participants: Governments, financial institutions, non-financial corporates
  • Audience served: General stakeholders

The oldest of the set, the GRI was founded in 1997 in the US in response to calls for corporate transparency after the Exxon Valdez oil spill.

Around two-thirds of all companies globally use the GRI’s standards and, according to the GRI, they’re designed as an “easy-to-use modular set” that create a common language for organisations to report on their sustainability impact in a consistent and credible way. Companies start with the universal standards, then select their own material topic standards: economic, environmental or social.

GRI standards are focused on how a company’s actions affect society – rather than how external factors affect the company – which makes it an effective framework for reporting to a much broader range of stakeholders than just investors.

There is no formal disclosure element so establishing an exact number of users is difficult, but the GRI estimates it at around 10,000. This also means there is no oversight function – but companies can choose to make their reports available via a database on the GRI website.

International Financial Reporting Standards (IFRS) Foundation

  • Focus: Financial, soon sustainability
  • No. of participants: N/A – not yet operational
  • Type of participants: Financial institutions, non-financial corporates
  • Audience: Investors, shareholders

For decades now the IFRS Foundation has published a single set of globally accepted accounting standards as part of the International Accounting Standards Board (IASB). They’re used in 140 countries, and while the US is not one of those, the IASB works with the Financial Accounting Standards Board to align the standards as closely as possible with the US’s Generally Accepted Accounting Principles, or GAAP.

In 2020 the IFRS Foundation began consulting on whether it should expand its remit to also cover sustainability reporting, with the creation of a Sustainability Standards Board (SSB). This is seen as a major step towards one globally accepted set of sustainability reporting principles, which can then be modified at a national or sector level where required.

The IFRS Foundation received 577 responses to its consultation, overwhelmingly in support of the proposition. Hundreds of institutions, policymakers and other stakeholders, including the International Organization of Securities Commissions, have all expressed support for the SSB in recent months. The IFRS Foundation has now convened a working group whose members represent many of the institutions in this list, and a formal announcement is expected around COP26 in November 2021 – or sooner.

International Integrated Reporting Council (IIRC)

  • Focus: Sustainability
  • No. of participants: Approximately 2,500
  • Type of participants: Financial institutions, non-financial corporates
  • Audience served: Investors, shareholders

The IIRC was formed in 2010 and is entirely principles-based. According to the joint statement, while the GRI, SASB, CDP and CDSB set the frameworks and standards for sustainability disclosure, the IIRC provides the integrated reporting framework to connect sustainability disclosure with financial disclosure. It essentially sees itself as the convenor of the other frameworks.

In 2020 the SASB and IIRC announced plans to merge, creating the Value Reporting Foundation. The merger is expected to close by June 2021.

Sustainability Accounting Standards Board (SASB)

  • Focus: Sustainability
  • No. of participants: 778
  • Type of participants: Financial institutions, non-financial corporates
  • Audience served: Investors

The SASB originated in the US in 2011 and, like the IIRC, is focused on “enterprise value creation” with one stakeholder in mind: the investor. Unlike the GRI, SASB standards identify sustainability-related risks and opportunities affecting a company, including its balance sheet, income statement, market valuation and cost of capital.

The SASB and GRI are currently working together to make it easier for companies to use both sets of standards – which are designed to fulfil different purposes and are based on different approaches to materiality – simultaneously. In a statement it says a number of companies are already doing this, including ArcelorMittal, Diageo and Nike.

In 2020, the SASB and IIRC announced plans to merge, creating the Value Reporting Foundation. The merger is expected to conclude by June 2021.

Taskforce on Climate-related Financial Disclosures (TCFD)

  • Focus: Climate risk
  • No. of participants: 1,500-plus supporters; unclear how many reporting
  • Type of participants: Governments, financial institutions, non-financial corporates
  • Audience served: Investors, lenders

The TCFD is quite different from the other organisations referenced here, which has been the source of considerable confusion. Firstly, it’s not an organisation, but a set of high-level recommendations put together by market participants with separate day jobs. It was convened by the Financial Stability Board following requests for the board to consider climate change as a financial risk.

Many on this list are focused on the disclosure of existing practices; the TCFD recommendations encourage companies to consider how they will manage the financial impact of future risks, such as heatwaves or extreme flooding events.

While it’s widely reported that more than 1,500 companies have publicly voiced their support for the TCFD recommendations, this figure can be misleading – it does not mean they report on them. Of a sample of global companies surveyed by KPMG, 18% reported in line with TCFD recommendations in 2020. The TCFD’s own 2020 status report found that the quality of reporting had improved by just 6% since 2017, suggesting a considerable gap between stated intention and tangible action.

Where relevant, all of the organisations discussed in this list integrate TCFD standards into their own frameworks, and governments are slowly beginning to adopt them too. The European Commission’s extensive work in this space, centred on its taxonomy for sustainable activities, integrates TCFD, and the UK government will require companies to disclose in line with it from 2025.

UN Principles for Responsible Investment (PRI)

  • Focus: Sustainability-linked investment decisions
  • No. of participants: Approximately 3,000
  • Type of participants: Governments, financial institutions, non-financial corporates
  • Audience served: Investors, asset owners

The PRI is “the world’s leading proponent of responsible investment”, encouraging investors to use responsible investment to enhance returns and better manage risks. According to the website it is “supported by, but not part of, the UN”. In 2020, the collective assets under management of PRI signatories was $103.4trn, making it the world’s largest voluntary sustainability initiative.

The six principles, launched in April 2006, are broad and not especially specific – an example being “we will be active owners and incorporate ESG issues into our ownership policies and practices”.

As principles, they’re different to the reporting frameworks on this list, but the PRI also encourages signatories to report on their responsible investment activities annually.

UN Sustainable Development Goals (SDGs)

  • Focus: High-level sustainability
  • No. of participants: 193 countries
  • Type of participants: Governments, financial institutions, non-financial corporates
  • Audience served: General stakeholders

The SDGs are an extremely high-level set of objectives put forward by the UN as part of a “shared blueprint for peace and prosperity for people and the planet, now and into the future”. The 193 member states of the UN officially adopted them at a New York summit in 2015.

There are 17 key goals focused on five areas: people, planet, prosperity, peace and partnership, and they include zero hunger, quality education, clean water and sanitation, and affordable and clean energy. Behind each goal is several measurable targets tied to specific dates.

Again, these are high-level goals set by the UN, so they differ significantly from reporting frameworks created by NGOs. They’re included here, though, because around two-thirds of global companies connected their business activities to the SDGs when reporting, and they’re also used extensively as guidelines for corporate sustainability programmes.

KPMG notes that despite its huge influence, corporate reporting on the SDGs focuses entirely on positive contributions with a lack of transparency on the negatives. For instance, while 72% reported against the “decent work and economic growth” goal, just 9% referenced “life on land”. This is an inherent flaw of the entirely voluntary framework.

Elizabeth Meager

Policy editor

Elizabeth Meager is the policy editor of Capital Monitor, a position dedicated to making sense of the slew of investment and corporate regulatory changes surrounding sustainability.