Sustainability Reporting: Is Convergence Possible?

Abstract

In this essay, we discuss the factors influencing the likelihood of convergence in corporate sustainability reporting. We identify several factors that negatively influence the probability of convergence in the short term. The first factor is the heterogeneity of concepts and definitions surrounding sustainability (e.g. ESG, CSR). This heterogeneity of definitions is pervasive at three levels: (1) across organizations claiming legitimacy in sustainability reporting standard-setting, (2) within standard-setting organizations over time, and (3) across firms reporting about their activities. A second factor is the large number of organizations claiming legitimacy in sustainability reporting. A third factor is related to a diversity of reporting requirements among three influential international standard setters (i.e. EFRAG, ISSB, SEC), leading to various corporate reporting choices. A fourth factor is the diversity in the objectives of standard-setting organizations. Overall, we believe that due to these sources of diversity, the probability of convergence in sustainability reporting appears limited, at least in the short term, although we identify progress in carbon emissions reporting.

Keywords:

• sustainability reporting
• ESG
• corporate social responsibility
• standard setters
• ISSB
• EFRAG

Acknowledgments

The authors acknowledge helpful comments from Gilad Livne (Associate editor), Lenny Kessler, CFA, and Jean-Paul Gauzès (Past President EFRAG). The views expressed in this article are those of the authors, and not those of our interviewee.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Source: https://www.cdp.net/en/articles/media/cdp-reports-record-number-of-disclosures-and-unveils-new-strategy-to-help-further-tackle-climate-and-ecological-emergency (Last accessed: February 27, 2023).

2 For simplicity and clarity, we use ‘sustainability reporting’ as a generic term to encompass all of the other concepts, even though we later discuss some key differences between them.

3 http://www.sasb.org/wp-content/uploads/2019/05/SASB-Conceptual-Framework.pdf?source=post_page (Last accessed: February 27, 2023).

4 For instance: ‘The annual A4S Summit is a unique global gathering to catalyze action on sustainability in the finance community’. See: https://a4ssummit22.vfairs.com/en/#about (Last accessed: February 27, 2023). On FAQ section of the website, A4S explains that global finance community professionals ranging from CFOs, CIOs, pension fund chairs, regulators and business schools are likely to attend its annual conference (see: https://a4ssummit22.vfairs.com/en/#faq Last accessed: February 27, 2023).

5 474, 70 and 62 occurrences, respectively, in European Union (2022).

6 84 occurrences in ISSB (2022a).

7 See European Union (2019).

8 Source: https://www.ifrs.org/news-and-events/news/2022/12/issb-describes-the-concept-of-sustainability/?utm_medium=email&utm_source=website-follows-alert&utm_campaign=immediate (Last accessed: February 27, 2023).

9 See: https://www.hbs.edu/impact-weighted-accounts/design-methodology/Pages/default.aspx (Last accessed: February 27, 2023).

10 ‘Large undertakings, and small and medium-sized undertakings, except micro undertakings, which are public-interest entities as defined in point (a) of point (1) of Article 2 shall report information on the key intangible resources and explain how the business model of the undertaking fundamentally depends on such resources and how such resources are a source of value creation for the undertaking.’

11 The directive refers to ‘double materiality’ in § 29.

12 Last accessed: February 27, 2023.

13 For research on CDP, see Matisoff et al. (2013).

14 For research on GRI, see Larrinaga and Bebbington (2021); Abeysekera (2022); de Villiers et al. (2022).

15 For research on IIRC, see Adams (2015); Flower (2015).

16 For research on SASB, see Grewal et al. (2021); Parfitt (Forthcoming).

17 For research on TCFD, see O'Dwyer and Unerman (2020).

18 Last accessed: February 27, 2023.

19 These requirements or instruments include policies, regulations, guidance, frameworks, codes and standards.

20 Original source: Carrots and Sticks website (https://www.carrotsandsticks.net/, Last accessed: February 27, 2023). This website, which is the result of a collaboration among GRI, the United Nations Environment Program and the University of Stellenbosch Business School, ‘contains a database of mandatory and voluntary instruments that either require or encourage organizations to report sustainability-related information.’

21 See: https://finance.ec.europa.eu/publications/sustainable-finance-package_en (Last accessed: February 27, 2023).

22 https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en#review (Last accessed: January 12, 2023).

23 See: https://www.efrag.org/Activities/139/IAS-39-and-IFRS-7-Amendments-Reclassification-of-Financial-Instruments (Last accessed: February 27, 2023)

24 https://www.efrag.org/Activities/2105191406363055/Sustainability-reporting-standards-interim-draft# (Last accessed: February 27, 2023), https://www.efrag.org/lab3 (Last accessed: February 27, 2023).

25 See: https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FWorking%2520Paper%2520ESRS%25201%2520General%2520Provisions.pdf&AspxAutoDetectCookieSupport=1 (Last accessed: February 27, 2023).

26 See: https://www.ifrs.org/content/dam/ifrs/project/sustainability-reporting/consultation-paper-on-sustainability-reporting.pdf (Last accessed: February 27, 2023).

27 See: https://www.ifrs.org/groups/international-sustainability-standards-board/ (Last accessed: February 27, 2023).

28 https://www.ifrs.org/news-and-events/news/2022/10/issb-unanimously-confirms-scope-3-ghg-emissions-disclosure-requirements-with-strong-application-support-among-key-decisions/ (Last accessed: February 27, 2023).

29 Source: https://www.usaspending.gov/agency/securities-and-exchange-commission?fy=2022 (Last accessed: February 27, 2023).

30 See : https://www.sec.gov/rules/proposed/2022/33-11042.pdf (Last accessed: February 27, 2023).

31 See: https://www.sec.gov/news/press-release/2022-46 (Last accessed: February 27, 2023).

32 https://www2.deloitte.com/us/en/pages/audit/articles/esg-sec-proposed-climate-disclosure-requirements.html (Last accessed: February 27, 2023).

33 https://news.bloomberglaw.com/securities-law/sec-climate-rules-pushed-back-amid-bureaucratic-legal-woes (Last accessed: February 27, 2023).

34 https://www.danone.com/content/dam/danone-corp/danone-com/investors/en-sustainability/reports-and-data/cross-topic/un-sdgs-danone-contribution-2019.pdf (Last accessed: February 27, 2023)

35 https://www.se.com/ww/en/about-us/sustainability/sustainability-reports/ (Last accessed: February 20, 2023)

36 Source: https://www.redefine.co.za/investors/integrated-reports/latest-integrated-reports (Last accessed: February 27, 2023).

37 Source: https://totalenergies.com/sustainability/reports-and-indicators/csr-reports (Last accessed: February 27, 2023).

38 Source: https://www.adidas-group.com/en/sustainability/transparency/reporting/ (Last accessed: February 27, 2023).

39 https://www.energymonitor.ai/finance/reporting-and-disclosure/the-great-reclassification-of-sustainable-funds (Last accessed: February 27, 2023).

40 https://www.cfainstitute.org/en/about/press-releases/2021/cfa-institute-releases-global-esg-disclosure-standards-for-investment-products (Last accessed: February 27, 2023).

41 Baumüller and Sopp (2022) outline the development of the principle of materiality in the European accounting framework.

42 See: https://gsh.cib.natixis.com/our-center-of-expertise/articles/navigating-the-sea-of-proposed-climate-related-disclosures-a-deep-dive-into-the-sec-s-issb-s-and-efrag-s-proposals (Last accessed: February 27, 2023). This element was confirmed by Jean-Paul Gauzès in our interview.