One step closer to a single global ESG standard?

Against a backdrop of ever increasing different ESG reporting metrics and standards, calls for convergence and a "single global standard" have been gaining momentum. In this latest development, the body which regulates over 95% of the world's securities market has thrown its weight behind the IFRS's 2020 proposal to achieve just that.

To understand the relevance of this, it's worth thinking back to the reasons behind the surge in demand for ESG information. This ties into the global response to the climate emergency and the transition to a greener global economy. Policy makers worldwide are seeking to drive greater allocation of capital towards businesses and technologies that are managing climate risks. Better data is at the crux of this, and so it is no surprise that an abundance of different sustainability related metrics and reporting standards have emerged.

While well intentioned, the challenges this creates are clear. Investors continue to say they need more and better data to be able to assess and compare companies. Companies don't know which of the many voluntary reporting frameworks and metrics to use. The result feels frustrating and inefficient.

So when last September, the IFRS consulted on whether and how it might develop its own sustainability reporting standards, it was little surprise that the responses showed a “growing and urgent demand to improve the global consistency and comparability in sustainability reporting”.

Off the back of this, the IFRS is expected to produce a proposal and roadmap for a global sustainability standard by Sept 2021. The hope is to establish a "Sustainability Standards Board" (or SSB) ahead of COP26 which is now taking place in Nov 2021.

So what does the recent IOSCO announcement have to do with anything? 

Significantly, IOSCO - the International Organization of Securities Commissions - has affirmed that it supports the IFRS initiative.

ISOCO believes it can play a pretty key role in mobilizing market acceptance of any new IFRS standards. Not an unfounded claim when you recall the fact that IOSCO regulates over 95% of the world's securities market.  IOSCO is seen as the leading international policy forum for securities regulators and is recognized as the global standard setter for securities regulation. 

It can also look back 20 years ago, when it endorsed the IFRS financial reporting standards, to see the scale of impact its endorsement and collaboration can achieve.

IOSCO will work with the IFRS as it develops a plan for the establishment of an SSB. Until an SSB's conclusion and adoption, however, companies and their stakeholders (particularly institutional investors) will continue to be challenged by the existing diet of an ESG alphabet soup.