Navigating environmental, social, and governance (ESG) requirements can be a challenge. No two places are exactly alike and when it comes to ESG reporting standards there’s debate whether industries and geographies should all be held to the same standards. Our panelists tackle this issue in our webinar rewind series.
Q: Do you expect – or should there be – international, country, and/or industry-specific ESG reporting standards?
Megan Pillsbury, Vice President of Business Development for The Climate Service, S&P Global Sustainable1
ESG reporting standards are, in most regions where they exist, still loose in their definition. That’s for a good reason in that - if we are too presprictive too soon, we risk creating ineffective standards. But there is also a risk that we are moving too slowly to drive changes that’s critical to minimizing the risks of climate change. Tighter standards make them more comparable, but they also risk missing nuances across sectors or as risks evolve. So regulators work hard to find that happy medium to create the right regulations as quickly as possible.
Companies prefer standardized regulation to minimize compliance costs, while investors prefer standardized reporting to make investments more comparable and decision making easier. Unfortunately regulators tend to somewhat align on general ideas but address regional nuances in a way that can complicate compliance.
This is always the dilemma of standardizing versus ensuring you’re catching all the nuances to make an appropriate decision around a particular company, geography, or industry.
Kevin Bourne, Managing Director, Head of Investment Research, S&P Global Sustainable1
So, the convergence of standards over time, everyone hopes, will happen. And I do not doubt that as the problems become more acute, the need to measure the impact of risk of the issues will increase and our need across industries and finance to work with common standards will also increase.
Now, the regulatory bodies are not necessarily agreeing on what these common standards should be because of the political differences in different countries over the correct question set and what type of questions can be answered.
One interesting area where I saw convergence is with engagement between China and the EU. There was a lot of information sharing and cross-pollination of thinking on how to introduce and structure reporting standards. That has always stuck in my mind that two huge economic blocks got together and thought about what could be done to bring these standards closer together.
But at the moment, no, we do not have a common standard. There is an attempt with many involved parties to create a baseline for this, as is from the International Financial Reporting Standards (IFRS). They have a framework they’ve created called the International Sustainability Standards Board (ISSB).
They’re trying to create a baseline and then work with people to align the baseline with the regulatory standards over time. I think that’s a fantastic idea. I know there are broad supporters of this, and I think it’s a good idea. And I think the markets would appreciate it.
There are still, and will always be, differences through regulation because of politics in various countries, but I think we’re on a journey toward convergence.