The Maze of Corporate ESG Reporting Standards

TCFD, GRI, SASB, IIRC, PCAF, CSRD, ISSB – the list of acronyms in the world of Sustainability Reporting Standards is… long. And growing. 

In part this is a recognition of corporate leadership in assuming responsibility for their environmental, social, and governance (ESG) impacts. Widespread reporting certainly has the potential to increase our understanding and insight into how to improve sustainability. Yet most companies aren’t delivering on their climate aspirations.

The Limitations of Current Sustainability Reporting Standards

As the acronyms above indicate: there are several reporting standards that companies can follow – and the vast majority are voluntary. The most common ones include the Task Force on Climate-Related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), the Partnership for Carbon Accounting Financials (PCAF), and more. Oftentimes, it’s independent groups, such as investor collectives, nonprofits, or consortiums of NGOs, who develop and run these standards. 

There are several challenges, which broadly fall into three categories: 

1. Comparability: Since companies can pick any framework, reporting remains inconsistent. The scopes and boundaries of what is included in any given report differ – often sizably. Without shared context, clear methodologies, and third party auditing, neither regulators nor consumers are in a position to truly compare reported efforts, which limits the ability to hold companies accountable.
2. Rising Emissions: The private sector is responsible for roughly 80% of global greenhouse gas emissions, which is why there has been a lot of attention on improving the transparency of its environmental impact. The pressure from both investors and consumers has incentivised thousands of companies to voluntarily disclose. Yet, the focus on ESG reporting distracts from the fact that global emissions continue to rise. In other words, increased reporting is not a proxy for actually reducing negative impacts.
3. Greenwashing: Since reporting is largely voluntary, doing so is often presented in and of itself as a leadership initiative. By emphasizing selected environmental or social efforts, corporate actors capitalize on the growing demand for sustainability. However, polished, marketing-focused pitches are primarily directed at maximizing profits instead of genuinely driving necessary change. The Science Based Targets initiative (SBTi) recently sharpened its net-zero definition to ensure that carbon neutral claims cannot be achieved by solely investing in carbon offsets – precisely to ensure that sustainable businesses put people and the planet before profit.

Harmonized ESG Standards Are Here, but Widespread Action is Lacking

The challenges with the status quo of corporate sustainability reporting are well known. During COP26 in November 2021, the call for more harmonized and transparent ESG reporting standards was not only reiterated but addressed by both the European Commission and the International Financial Reporting Standards (IFRS) Foundation. 

Thereafter, the EU proposed a Corporate Sustainability Reporting Directive (CSRD), making reporting and auditing of environmental, social, and governance issues mandatory for about 50,000 EU-based companies.

The IFRS unveiled the creation of the International Sustainability Standards Board (ISSB) at a similar time, but unlike CSRD it is not mandatory. While it is meant to develop “a comprehensive global baseline of sustainability-related disclosure standards,” a “global baseline” is hard to achieve if nobody has to follow its guidelines. 

Although many countries have moved to mandate carbon reporting since 2021, the reach is often limited to a smaller selection of large companies or certain industries. The EU has an advantage in that it has the power to enforce regulations for many countries simultaneously. The onus to follow the EU’s lead now relies on individual nations across the globe.

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There is no doubt: we do need widespread, comprehensive, and standardized corporate sustainability reporting. But what we need even more is decisive and meaningful climate action. Whether companies – and countries – see new reporting standards as an opportunity to start considerably reducing their climate footprint remains to be seen.

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