The great challenge of adopting ESG (Environmental, Social and Governance) communication lies in the adoption of comparable parameters between companies and organizations that guarantee auditability and comparability and, consequently, credibility, which adds value to the enterprise, vis-à-vis consumers and investors. .
In a first step towards consolidating global standards for measuring ESG impacts, the International Integrated Reporting Council (IIRC) – an international alliance of regulators, investors, companies, standards bodies, accounting professionals and NGOs – and Sustainability Accounting Standards Board (SASB) announced in November 2020, the merger of the two organizations in order to unify standards, after months of discussion between the various players around the world.
“Information is the lifeblood of good decision making. Capital markets are hungry for information linked to business value creation, but cannot easily digest what comes from a fragmented reporting landscape,” says Robert K. Steel, Chairman of the Board of Directors of the SASB Foundation, in a statement on the fusion of sustainability parameters under the aegis of the Value Reporting Foundation, created in the middle of last year.
“This merger is an important step for companies and investors to communicate clearly and easily on the issues that matter most to financial performance,” said Charles Tilley, CEO of the IIRC .
But reaching these global standards poses challenges for the coming years and a broad need for disclosure to the market. The various actors that now decide to unify standards of results, impact and sustainability will need to deepen their approaches, given the range of objectives, to some extent, also diverse.
“The merger will advance the work of CDP, CDSB, GRI, IIRC and SASB in the discussions contained in the September 2020 Statement of Intent to Work Together for Comprehensive Corporate Reporting , which outlines a vision for a comprehensive corporate reporting system. . By integrating the IIRC and the SASB – two entities that enable the creation of business value – this merger demonstrates a drive to simplify the corporate reporting landscape. The Value Reporting Foundation, created within the scope of this merger, may eventually integrate other entities focused on creating business value, and the Foundation and CDSB have jointly signaled an interest in starting exploratory discussions in the coming months. This was a clear signal that the market demands a change.
Marcella Ungaretti, partner and head of ESG research at XP Inc., believes that the ESG agenda still lacks a single global standard and points out that only 23% of exchanges around the world require the disclosure of an ESG document.
“We see that there are potential challenges arising from the great efforts that will be necessary for institutions to ensure that the proper disclosures of ESG data are carried out, while we recognize this evolution as necessary. In this sense, we emphasize that it takes time for companies to adapt to the new regulations and standards, since, when it comes to the ESG theme, there is no silver bullet, but efforts on the part of all agents during the evolution in this journey, in which each institution is in a stage”, Marcella told the DEEP newsroom .
Still, Ungaretti sees this evolution as necessary.
“In our view”, he adds, “we believe that the changes imposed by regulations and new standards are and will increasingly play an important and central role in guiding institutions towards best ESG practices.
We view the lack of disclosure of ESG data and metrics as one of the main challenges on the ESG agenda today, and we positively recognize this move towards unification of standards. In Brazil, in 2021, we have already seen moves by market agents to use internationally recognized initiatives, a movement that we see as important, necessary and we hope that it will only accelerate forward”, he concludes.
Universalization and unification discussions move towards ISSB standards
International investors with global investment portfolios are increasingly demanding high-quality, transparent, reliable and comparable reporting from companies on climate and other environmental, social and governance (ESG) matters.
As a result of discussions on unifying ESG parameters, the Trustees of the IFRS Foundation announced, during COP 26, the creation of a new standards-setting board – the International Sustainability Standards Board (ISSB) – to help address this issue. demand. It is an ongoing process that should add value to the standards of ESG practice globally. The advances made so far point increasingly to the importance that the actors themselves, interested in this communication, see for global commitments to be assumed.
“This is a particularly opportune time to discuss where we are and where we are heading with regards to ESG information disclosure. With the announcement of the creation of the International Sustainability Standards Board – ISSB , on November 3, 2021, on the occasion of COP26, held in Glasgow, with the support of the G20, IOSCO (International Organization of Securities Commissions), and FSB (Financial Stability), Board), among others, the expectation is that we will move towards the establishment of global disclosure standards that promote consistency, comparability and transparency”, said Amaro Gomes, Master in Accounting and Finance from Lancaster University (United Kingdom) and advisor to DEEP .
In a webinar on the subject , Amaro highlighted the importance of the country and Brazilian companies advancing in the progress of tasks such as strategy integration, risk management, systems development, among others, as the ISSB standards will still take a few years and the The task of dealing with climate risk and social issues is difficult. Attention is given to the challenge of developing a way to integrate financial and ESG reporting, capturing and treating ESG data in ways that go beyond the qualitative spectrum and have a quantitative and more strategic impact on the lives of companies.
“The importance of the development and adoption of regulation and standardization of the disclosure of information on ESG is evident and how beneficial this movement is for the market, for society and for the planet. The discussion is urgent and there is still a long way to go, but great steps are already being taken”, said Gomes.
DEEP will monitor this entire process. Soon we will bring new insights into what is to come as a result of this universalization process .
