Wading Through the Alphabet Swamp of ESG Reporting
In our last story about Breaking Through the ESG Reporting Quagmire, we discussed how ESG reporting was lagging behind other dimensions of embedding ESG principles into business processes and practices. One of the key reasons is that there are no clear reporting standards. Although the European Green Deal is developing a comprehensive taxonomy, multinationals are faced with a torrent of reporting requirements for each geography that they are doing business in.
To make a broad comparison, think about the label ‘organic’ or ‘bio’ in our grocery stores — there is no common definition of what this means, and what it entails. Different countries have different definitions, and what we end up with is this…confusion for the consumer.
Reporting Standards are a Bottleneck
In the ESG measurement action cycle, the first action is Report, followed by Monitor, Plan, and Act. Well, this is exactly where the problem is. Without consistent and efficient reporting and tracking mechanisms, a company will never be able to monitor, plan, and act on ESG initiatives in a holistic and systemic manner. There are too many standards to comply with already, as represented by the alphabet swamp of reporting protocols, standards, and directives.
The Breakthrough Moment for ESG Reporting
The breakthrough moment for ESG reporting happened at the World Economic Forum (WEF) in 2019, through the International Business Committee (IBC). The committee agreed on a set of common metrics to measure the Environment (Planet), Social (People), (Principles of) Governance, and (Common) Prosperity. The IBC consists of about 150 companies including the major consulting firms such as Accenture, Bain, BCG, Capgemini, Deloitte, Ernst & Young, KPMG, McKinsey; software giants such as SAP and Salesforce; Stock listing agencies such as Nasdaq, Six, and the London Stock Exchange; and multinationals such as Nestle and Unilever.
The clinching proposition was to create metrics with clear rationales and tied to standard measurement protocols as formulated by agencies such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and others. These metrics form the underpinnings of reporting directives for various government and regulatory authorities anyway, and so it formed a welcome bridge between understanding what the requirements are and how to meet them.
…But Taxonomy Is Still Being Formulated
The EU has introduced the 9 pillar framework for ESG to help simplify and harmonize definitions through 3 dimensions:
- This taxonomy prevents companies from being deceitful through ‘greenwashing’ or perpetuating unsubstantiated or misleading claims about sustainability and benefits of their products, while increasing market awareness of sustainability.
- Achieve regulatory neutrality through harmonization of new disclosure rules across the EU member states.
- Level the playing field by specifying the products and services managed by the new rules.
Adopt the Common Underpinnings of Reporting
But the questions our clients have is relevant — “if regulation is a moving target, how do I formalize my reporting requirements?” We suggest using the WEF-IBC metrics framework to get to the common underpinnings of reporting: the Global Reporting Initiative (GRI). We found that of the 24 ‘core’ metrics from the WEF, 17 are GRI-based; and of the 33 ‘extended’ or ‘voluntary’ metrics, 14 were GRI-based.
Recommendation: Start Using GRI as Your Basis for Reporting
Using this backdrop of regulatory requirements and compliance protocols, and the lack of clarity of EU reporting rules (much less SEC rules), start using GRI formulation for your data gathering and reporting. GRI is also very much in touch with EU reporting rules, and will adapt them as necessary, so using GRI, you should be in safe hands for your reporting requirements.
