Sustainability Reporting Standards: Will they nail it or fail it?
The world of sustainability reporting is undergoing rapid change with reporting standards being developed both at the international and European levels. Will these new standards nail it and ensure high quality, comparability, accuracy, and verification of corporate sustainability disclosures? Or will they fail? ECOS has analysed both drafts.
Sustainability reporting is a tool for companies to communicate their progress and plans for creating social and environmental value. It also creates accountability vis-a-vis stakeholders such as employees, investors, civil society, regulators, customers, etc. Unfortunately, sustainability reporting has not brought about the positive change it has the potential to bring. This is because the way companies measure and report their sustainability performance is nonstandard, incomplete, imprecise, and often misleading.
A key solution is to standardise sustainability reporting. Luckily, the need for this has already been acknowledged both at international and European levels.
Last summer, the International Sustainability Standards Board (ISSB), and the European Financial Reporting Expert Group (EFRAG) published their first set of draft standards to gather input through public consultation.
The ISSB and EFRAG draft standards will determine what type of information companies will be required to disclose, therefore shaping corporate sustainability disclosures for the years to come. If done right, sustainability information can lead to improved company performance and be meaningful to investors, governments, and NGOs. If done wrong, corporate reporting will continue to be a box-ticking exercise that will consume resources very much needed to drive real change in the mindsets of the corporate world.
The one-million-euro question is: will these standards nail it or fail it?
Although it is hard to predict the future, it is clear that a lot of work needs to be done to ensure the standards succeed and create a harmonised reporting system which produces quality, comparable, accurate and useful sustainability performance data. To get there:
- The ISSB needs to ensure its standards require companies to report impact data, go beyond climate, and incorporate climate-related disclosures that are sufficiently granular to be meaningful.
- EFRAG needs to continue its clever work to improve the overall architecture of its standards, expand its guidance to conduct robust and science-based materiality assessments, and accurately reflect the concept of the circular economy to help undertakings embed an understanding of the principles of the circular economy in their strategies.
Piqued your interest? Read our full analysis HERE.
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