Two of the world’s most influential ESG standards bodies are working toward a common approach for disclosures, an effort to improve reporting, reduce costs and streamline due diligence for companies.
The International Sustainability Standards Board and Global Reporting Initiative will jointly launch a pilot project in Singapore Monday to create common ground for Asian companies to report on their environmental, social and governance impacts.
The initiative is the first of several planned collaborations between ISSB and GRI. With global ESG assets on track to exceed $53 trillion by 2025, making up more than a third of total assets, investors have been increasingly frustrated by the lack of standardization in sustainability reporting that has made it harder to judge a company’s ESG credentials.
The goal, said GRI Chief Executive Officer Eelco van der Enden, is to demonstrate “that there is no longer effectively an alphabet soup when it comes to reporting. This will also contribute to tremendous cost reduction since the landscape becomes clearer.”
Currently, 81% of listed companies in the Asia-Pacific region report in line with GRI’s guidelines, which cover how companies impact people and the environment. In contrast, ISSB’s standards are more focused on how sustainability factors affect a company and its investors.
One of the advantages of aligning standards, proponents say, is in deal-making. Most investors now include ESG in their mergers-and-acquisitions strategies; in the due diligence process, material findings often led to deal cancellation, according to a KPMG survey of over 200 M&A practitioners in the U.S. and Europe, Middle East and Africa.
The wide variety in ESG standards and disclosure guidelines currently available to companies muddies the deal-making landscape, said ISSB Chairperson Emmanuel Faber. “The whole idea behind a more limited number of very substantial languages and frameworks for sustainability reporting is that, that will transpire into actual decision making,” he said.
Faber also said time horizons are not taken into consideration sufficiently and sustainability disclosure standards will help address this, and encourage consistent and effective public policy.