93% of firms use a mix of ESG standards, thwarting uniformity efforts: IFAC

Dive Brief:

The share of U.S. companies that use more than one standard for disclosing sustainability performance has surged to 93% from 60% in 2019, the International Federation of Accountants said, noting that the hodge-podge of frameworks may confuse capital markets stakeholders.
The lack of uniformity “leaves investors and lenders in a bind when it comes to having consistent, comparable and high-quality sustainability information at hand,” David Madon, IFAC’s director of sustainability, policy and regulatory affairs, said in a statement.
The largest global companies report on sustainability with more depth and breadth than in prior years, and 69% obtain assurance on at least some of their disclosures compared with 51% in 2019, IFAC said. Still, “a global best practice has yet to emerge,” it said, describing a report co-conducted by the American Institute of CPAs and Chartered Institute of Management Accountants.

Dive Insight:

Like IFAC, Securities and Exchange Commission Chair Gary Gensler has underscored the need to ensure uniformity and consistency in corporate reporting on environmental, social and governance best practices.

Upholding the principle of comparability, Gensler has championed a proposed climate disclosure rule that the agency’s five-member commission plans to consider in an open meeting on Wednesday. Their vote would occur nearly two years after the agency released the proposal.

The SEC has repeatedly postponed the vote while reviewing more 16,000 public comment letters. Much of the opposition focuses on a requirement that companies measure and disclose so-called scope 3 carbon emissions by vendors and customers.

Opposition to scope 3 disclosure has prompted some experts and corporations to predict that the SEC will blunt or delete the requirement from the final rule.

Investors with a total of $130 trillion in assets under management have asked companies to disclose their carbon emissions, according Gensler.

Democratic lawmakers are also calling for more transparency on climate risk and other points of sustainability, triggering a backlash from Republican legislators, business organizations and more than a dozen state attorneys general.

CFOs who try to answer the growing pressure for information on sustainability must choose from several inconsistent reporting frameworks that vary in detail and scope. The patchwork opens opportunities for companies to “greenwash,” or take advantage of ambiguities to exaggerate their sustainability credentials.

The proposed SEC rule and guidelines from the International Sustainability Standards Board build on reports recommended by the Task Force on Climate-related Financial Disclosures, which describes 11 types of disclosures across four “pillars”: governance, strategy, risk management, and metrics and targets.

The SEC also encourages use of the Greenhouse Gas Protocol, an accounting and reporting standard for GHG emissions.

The ISSB in June released standards for reporting on climate risk, corporate governance and other sustainability-related factors, providing uniform guidelines to companies and investors.

U.S. companies report on sustainability using several standards and frameworks, with 75% deploying guidelines from the Global Reporting Initiative and 72% following the Sustainable Development Goals, according to IFAC.

The patchwork of measurements and frameworks persists despite efforts to promote uniformity because different standard-setters pursue different goals, Madon said Monday in an email response to questions.

ISSB has “taken a financial materiality approach” while creators of GRI and European rules “have taken a societal impact approach,” he said. “Because of this, companies have been incentivized to use different standards and frameworks to address different audiences.”

Also, companies have adopted more detailed guidelines to provide more informative disclosures, Madon said, noting the popularity of TCFD and principles from the Task Force on Nature-related Financial Disclosures (TNFD).

Finally, the biggest efforts to create a uniform set of standards — such as the ISSB and rules in Europe — are at an early stage of implementation, he said.

The SEC climate disclosure rule probably will not reduce the tendency of U.S. companies to use a mix of sustainability standards and frameworks, Madon said. “However, the SEC climate disclosure rule will make climate disclosure more consistent and comparable.”