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Can ESG Reporting Standards improve transparency for all investors?

Published: 03 Aug 2021

The ESG reporting world is morning on

ESG reporting standards are rapidly converging on a global framework and standards.  In June, the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) announced their merger to form the Value Reporting Foundation. Last year SASB, the IIRC, the Global Reporting Initiative (GRI), the Climate Disclosure Standards Board (CDSB), and the Carbon Disclosure Project (CDP) agreed to make their standards and frameworks more consistent for different esg factors.  Earlier this month, GRI and the European Financial Reporting Advisory Group (EFRAG) Project task Force agreed “…to share technical expertise to co-construct new EU sustainability reporting standards and contribute to further global convergence.”  ESG reporting frameworks for assessing materiality are also coming together to facilitate ESG global cooperation.  Underscoring the shift to global cooperation to achieve consistent, measurable, verifiable and comparable standards; the leaders at the SEC are increasingly vocal in their support for global standards – just look at Chair Genslers’ comments on July 29 regarding mandatory US ESG disclosures.

The US ESG Debate Is A Red Herring

Some SEC Commissioners’ views that SEC’s legislative mandate does not necessarily allow it to make rules in alignment with international ESG reporting and disclosure frameworks; however, elements of existing rules are relevant.  The SEC’s Regulation S-K states that all material information should be in the 10-K, but that the information does not need to be financial.  SEC Staff Accounting Bulletin 99 clarifies materiality standards and clearly lays a foundation for including ESG elements. Further underscoring this point, the Financial Accounting Standards Board (FASB) recently published an educational paper clearly laying out how and when ESG intersects with financial accounting standards. US companies should already be incorporating material ESG matters into their statements under existing principles and guidelines, if they have an impact on a company’s existing or future financial condition.

In addition to assessing ESG within the context of financial statements, companies have an incentive to link ESG data to corporate strategy, risk and risk management and operations. Any company looking to access capital markets – equity or debt, private or public – will need to provide this context for investors and lenders.  To some degree, it may not matter whether the SEC has a legislative mandate or whether SEC Commissioners can wrap their heads around how disclosures could drive positive change, the world is moving to ESG global cooperation.