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In 2021, we looked at the potential of Environmental, Social, and Governance (ESG) reporting as well as the shortfalls in the status quo of reporting standards, namely comparability, continuously rising emissions, and greenwashing.
With efforts such as the IFRS Foundation’s International Sustainability Standards Board (ISSB) and the European Union’s Corporate Sustainability Reporting Directive (CSRD) taking shape in 2022, what else is on the horizon in terms of transparency and corporate leadership?
Apart from the EU and the ISSB, there are some 30 regulatory bodies across at least 11 jurisdictions looking at new or upcoming legislative proposals that tighten corporate ESG reporting standards. Consultations are also taking place in Canada, Chile, China, Hong Kong, India, Malaysia, New Zealand, Singapore, Thailand, the U.K., and the U.S. All of them, in their own shape and form, are pursuing harmonisation efforts with heightened attention on the “E” in ESG.
Hong Kong, the U.K. and the European Union are currently at the forefront with comprehensive mandatory disclosures, including on broader societal impacts for private and listed companies, entering into force as early as this year, 2022. This push is crucial. We need to increase transparency to be able to hold businesses to account on their environmental impact. Climate action is urgent and following the successes of the Fridays for Future movement, societal awareness is finally translating into consumer demand, investor oversight, and regulatory attention.
The environment must be front and center. That means we need more data and insight into corporate activities to speed up –and scale– targeted climate action. We need better data and insight to be able to understand and compare what is working, and what isn’t; as well as better data and insight to keep track of ripple effects.
Generous estimates put the global number of corporations voluntarily disclosing their environmental impact at 30-50,000, though it is probably less than that. However, in 2022, we are very likely to see a massive increase in disclosures – both voluntary and mandatory. As well as in response to market pressures.
One of the trickle down effects of increased regulatory attention and a growing understanding of the importance of taking responsibility along the entirety of a company’s value chain – is the amount of small and medium-sized enterprises (SMEs) that will start reporting. SMEs may not be required to disclose their impact, but they are often key suppliers for big corporations. In order to transition towards a net-zero economy, regulated corporations will also need to push for net-zero supply chains. That in return, is only possible, if their suppliers assess and report their greenhouse gas emissions and transition with them.
These market dynamics also suggest that B2B engagement will be a critical vehicle for climate leadership and increased transparency.
The anticipated spread of corporate reporting suggests that a more common language around environmental impact is emerging. The more companies disclose their emissions and broader impacts, the harder it will be to brush over irregularities in methodology.
Greenwashing and glossy marketing pitches capitalise on the lack of widespread insight into what materiality means and how to approach value chain emissions – notably when it comes to categories, such as manufacturing, purchased goods and services, and the use of sold products.
There is hope that the accelerated pace of corporate reporting will first, boost general awareness, second, firmly embed environmental efforts into corporate success, and finally move the needle on tackling the climate crisis.
