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ESG reporting muddled by jumble of standards: IFAC

March 6, 2023

Dive Brief:

  • Ninety-five percent of large companies worldwide release sustainability reports, an increase of four percentage points since 2019, but they use a jumble of inconsistent performance standards that cloud assessments by investors and lenders, two global accounting organizations said.
  • “Even as we see companies increasingly report on ESG and sustainability, the data we’re tracking reveals continuing fragmentation around the world in terms of which standards and frameworks are used,” Kevin Dancey, CEO of the International Federation of Accountants, said in a statement.
  • Eighty-six percent of 1,350 big companies surveyed worldwide use more than one standard for measuring progress in meeting environmental, social and governance best practices, Dancey said, citing a study co-sponsored by the Association of International Certified Professional Accountants “This patchwork system does not support consistent, comparable and reliable reporting.”

Dive Insight:
Global standard-setters — after vetting dozens of measurement frameworks — soon plan to clarify how companies should gauge ESG performance.

The Securities and Exchange Commission intends before May to release a final rule requiring publicly traded companies to report on greenhouse gas emissions and the risks from climate change.

Also, the International Sustainability Standards Board plans by June to release global guidelines for reporting on both sustainability and climate risk. The board is backed by the Group of 20 advanced and developing countries and the sister organization to an accounting rulemaker recognized by 167 regulatory jurisdictions worldwide.

The ISSB baseline is going to be decisive in terms of how cross-border capital is allocated because it’s “comparable, reliable and consistent across jurisdictions,” according to Mark Carney, UN Special Envoy for Climate Action and former governor of the Bank of England. He spoke during a Feb. 17 symposium in Montreal, according to an ISSB release on Monday.

ISSB has based much of its framework on guidelines created by the Sustainability Accounting Standards Board. Use of the SASB metrics increased 29% from 2019 until 2021, the IFAC and AICPA said.

Use of standards created by the Task Force on Climate-Related Financial Disclosures, a cornerstone of the SEC’s proposed rules, rose 30% during the same period.

In feedback regarding the ISSB standards, “companies responded that there is a range of preparedness to use the standards, and that in particular, smaller companies and those in emerging markets need more support to apply the standards,” the ISSB said Monday.

The ISSB plans to provide “reliefs” to small companies, including a longer phase-in period and simpler reporting requirements.

“Not everyone’s sustainability reporting journey will look the same — that’s a fact,” according to Gabriela Infante, director of corporate ESG at T. Rowe Price. “I will tell you candidly that not everyone has this figured out,” the ISSB quoted her as saying.

In the U.S., 93% of companies use SASB, 82% use TCFD, 76% use Global Reporting Initiative standards and 91% use multiple frameworks, the IFAC and AICPA said.

“Significant hurdles remain,” the IFAC and AICPA said, “when it comes to providing consistent, comparable and high-quality sustainability information for investors and lenders.”

The proportion of companies worldwide that gain a level of assurance for at least some ESG data has increased to 64% from 51% in 2019, the two accounting organizations said.

[CFO Dive]

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