Alphabet soup of standards
Mohammed Mohamoud looks at how organisations are attempting to untangle the web of standards relating to sustainability disclosure
To limit global warming, nations, cities and organisations have set targets to reach net zero emissions. To reduce emissions, you first have to measure them – and, for credibility and auditability, report them.
Due to sustainability’s wide scope, its vast number of sectors and stakeholders, and its distinct national contexts, sustainability reporting has become overly saturated and hard for non-experts to navigate. Fortunately, there is now a conscious effort to address this issue.
A complex landscape
Measuring emissions allows businesses to reduce them and engage with stakeholders on the issue, and enables businesses to be held accountable. However, while mentions of ‘sustainability’ and ‘climate change’ at C-suite level have increased during the past few decades, mentions of ‘emissions’ have decreased. There are several possible explanations for this, with one being the complexity and number of reporting standards, frameworks and benchmarks in existence.
Sustainability reporting covers all environmental, social and governance (ESG) metrics, and there is no shortage of possible frameworks, benchmarks or standards available to organisations that want to disclose and report emissions. They include the Streamlined Energy and Carbon Reporting policy and the Task Force on Climate-Related Financial Disclosures, both of which are currently only mandatory for larger businesses.
Alongside these are voluntary reporting frameworks such as the Global Reporting Initiative, the Sustainability Accounting Standards Board, and the Climate Disclosure Standards Board (CDSB). Businesses are calling for a more standardised and internationally recognised framework.
Attempts to simplify
A single standard would provide clarity for organisations and stakeholders, enable better comparability, and give stakeholders a single approach to use. On the other hand, a single standard may have less flexibility to reflect unique industry requirements, could become too broad and thus provide opportunities for greenwashing, and, if highly rigorous, might be costly for smaller businesses to comply with.
There are two major standardisation efforts: the International Financial Reporting Standards Foundation’s International Sustainability Standards Board (ISSB), and the EU’s Corporate Sustainability Reporting Directive (CSRD). While they are similar, they are built on different principles.
The ISSB was formed at COP26 in 2021, and will benefit from the guidance and expertise of its sister organisation, the International Accounting Standards Board. It brings together other frameworks and standards, namely the Value Reporting Foundation and the CDSB, both of which have already consolidated other frameworks. This means that the ISSB will cover much of the ‘alphabet soup’ of standards already in existence. It has recently concluded its consultation on the climate-focused part of the standards, which will include more comprehensive ESG and greenhouse gas metrics.
The CSRD is a key component of the European regulatory framework. It goes beyond the ISSB in its ambition to reflect ‘double materiality’, as well as in its scope. It is set to include as many as 50,000 SMEs, and mandates audits to improve reliability and maintain reporting completeness and consistency. Where the ISSB serves the investor, the CSRD’s ‘double materiality’ considers not just the materiality of ESG risks for a company’s operations, but also how the company’s operations interact with and impact on the environment and ecosystem.
How will this translate?
The UK has welcomed the ISSB standards and is set to develop its own attempt at covering double materiality under the Sustainability Disclosure Requirements. This will include the UK Green Taxonomy and help investors to make more sustainable choices with the help of labels and classifications that inform investors about a product or entity’s sustainability.
Attempts to simplify and standardise sustainability disclosures are welcome. How they will unfold in a practical sense remains to be seen.
Mohammed MohAmoud, AIEMA, is a sustainability consultant at CGI and an IEMA Futures Steering Group member.