Lack of a standardized ESG reporting system is the biggest threat to effective ESG disclosure


Duff & Phelps, A Kroll Business, the world’s leading provider of governance, risk and transparency solutions, publishes a study revealing that almost half (45%) of valuation experts believe that the absence of a standardized and recognized measurement is the greatest threat to effective environmental, social and governance (ESG) information for companies.

Highlighting the problems caused by the lack of a standardized system, respondents revealed that they currently use a wide range of frameworks, with no system having a clear majority. Of those surveyed, 14 different frame combinations were used. Some of the most popular current ESG frameworks include the Global Reporting Initiative (GRI) used by 33% of respondents, the Sustainable Accounting Standards Board (SASB) at 32% and the Task Force for Climate related Financial Disclosures (TCFD) at 25%.

The survey was conducted in partnership with the International Valuation Standards Council (IVSC) to better understand what professionals working in valuation perceive as the biggest threat companies face in terms of ESG reporting. effective and the motivations behind effective change.

Andrew Probert, Managing Director, Sustainability Accounting Advisory Services at Duff & Phelps, said: “The results dive into the challenges professionals face in effective ESG reporting. Of the available frameworks, all of which are currently voluntary guidelines, none provides a comprehensive overview of ESG reporting, meaning many companies use more than one. Without a consistent approach to business reporting, it is difficult for stakeholders to compare opportunities fairly and effectively.”

“With that in mind, it’s no surprise that nearly half of respondents today see the lack of a standardized and recognized measurement system as the biggest threat to effective ESG information for companies. G7 support for TCFD ESG disclosure frameworks reflects the spirit of the times, but it is the first step in a very long ladder towards standardization.

“Until the TCFD, the IFRS Foundation’s Sustainability Accounting Standards or other government regulations such as the European Commission’s Corporate Sustainability Reporting Directive become mandatory, the need for enhanced due diligence , such as carbon audits, supply chain analysis and investigation of human rights abuses as part of an investment decision-making process will only increase. to instill confidence in stakeholders to ensure companies are up to date with changing demand.

In addition to the lack of a standardized system, 21% of respondents believe that the indifference of business leaders is the biggest threat to effective ESG communication. Followed by limited controls on greenwashing (17%) and too much regulation (11%).

The motivations behind adopting effective ESG controls are equally diverse. More than a third (35%) of respondents said an improved reputation was the main driver of their ESG strategy and investment, almost a quarter (24%) indicated an increase in the valuation of business. Interestingly, despite the positive impact on evaluation that accompanies effective controls, the third most common motivation was a sense of moral obligation (17%).

Andrew Probert concluded: “There is a clear consensus that the status quo needs to change, so it is interesting to see that many professionals still view CEO indifference as a primary threat to effective ESG disclosure. . Hopefully the noises coming from the G7 leaders’ summit in Carbis Bay will start to tone that down.”

“G7 support for the TCFD is important and if the framework becomes mandatory it will combat the recognized threats of indifference and greenwashing. However, it is important to remember that the TCFD is only a framework, it still remains a long way to go to implement comprehensive and standardized guidelines.The TCFD framework is also not without flaws – it is a climate-focused approach and does not effectively target the social and governance aspects of climate change. ESG.”

“Without a standardized framework for reporting standards, we will continue to see companies mixing and matching various guidelines, which will hamper the long-term process in the field. We are still seeing high-profile cases of failed IPOs and increased divestment attributed to poor credentials in all areas of ESG.”

“Despite concerns, increased pressure on industry and government for effective ESG reporting is driving positive change at all levels. As we look to COP26, we hope to see G7 proposals for a mandatory and standardized ESG reporting ratified, laying the foundations for an effective and reliable reporting system moving forward.

To note: The survey was conducted on May 28, 2021 at IVSC’s Putting Value at the Core of ESG event. The data was collected from a sample of more than 150 respondents, made up of evaluation professionals.


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