The ESG Review: ESG standards take a big step forwards

ESG and its applicability to genuine business value have been through the mill in recent weeks, inflamed by the onset of war and the mixed response by corporations, investors and fund managers.

This week, let’s bring it back to earth with a bureaucratic bump. But an important one.

Two of the big hitters in ESG frameworks have agreed to join forces over their capital market and multi-stakeholder standards-setting, and programmes of work. The International Financial Reporting Standards Foundation will align its nascent International Sustainability Standards Board with the GRI’s Global Sustainability Standards Board.

Above all, the alliance will aim to ensure that standards are compatible, rather than contrasting in their overall approach or in certain factors. In making the announcement, both talked of a desire to harmonise sustainability progress reporting and reduce the bureaucratic burden on businesses.

But the real step forward here is the way that this can accelerate alignment across all standards to the point where, potentially, a clear and single picture emerges.

As this piece in Bloomberg put it, “The urgency of finding transparent, robust, decision useful data has only increased as the sector continues to grow.” The calls for common standards and their meaningful application to true sustainable transformation have snowballed too, as have dissenting voices questioning whether the ESG movement has been found out by the reaction towards the defence sector since war broke out, as raked over again by the Wall Street Journal.

The two standards bodies linking up in this way to consolidate their approaches “will provide a two-pillar international sustainability reporting – a first pillar representing ISSB’s investor-focussed capital markets Sustainability Disclosure Standards, and a second pillar of GRI’s multi-stakeholder focussed standards”, according to a Lexology summary.

Together with SASB’s merger with the ISSB, it’s looking like the much-anticipated consolidation in the standards world is finally gathering pace.

As we dig further into annual results reporting season over the coming weeks, it will be interesting to see the tone of companies in some sectors towards ESG commitments and progress.

This piece in FT Adviser, meanwhile, covered several interesting investor perspectives on current views towards ESG, its priorities and its drawbacks. In particular, that interest rates and inflation in the near future may not only make for choppy markets but greater difference in the ESG drives of business depending not just on their sector, but on their stage of development and growth ambitions. “A good ESG company may well struggle in the next few years if it is growth orientated, whereas the structural tailwinds behind clean energy and energy security will put that sub sector into a different trajectory,” it concluded.

Just as the standards picture may be becoming clearer, so might the assessment of corporate value by investors become more nuanced.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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