The world has seen a substantial increase in sustainability reporting regulations.
A report that assessed the regulatory landscape for sustainability reporting has found that environmental, social, and governance (ESG) disclosure has never been more prominent across the world; firmly sitting in the mainstream of disclosure for organizational performance. While we can see that the market implications of certain ESG topics are becoming more evident, interest in the quality of disclosures is also becoming more important.
The fifth edition of Carrots & Sticks (C&S) provided a comprehensive analysis of the latest trends in reporting provisions. Overall, it covered 614 reporting requirements and resources, which is a substantial increase on the 383 assessed in the previous report in 2016, across over 80 countries, of which 60 of the world’s largest economies were part of. An addition for 2020 is the insights and context gathered through interviews with policymakers, who provided their views on good practices in phasing for ESG disclosure requirements.
Key findings of C&S 2020 include:
- The Sustainable Development Goals (SDGs), as a global list of key material topics for our planet, have become a globally-recognised reference for sustainability reporting policy. Still, explicit references to the SDGs in disclosure requirements remain limited, but they are often implied through themes addressed. Links to responsible business, employment, and accountable institutions (SDGs 12, 16 and 8) are generally ubiquitous; reference to public health and education (SDGs 3 and 4) is low, which is something anticipated to change after the COVID-19 pandemic.
- Europe still drives the ESG disclosure agenda, accounting for 245 reporting instruments. Asian markets, with 174 instruments, are increasingly active; North America has a low number of reporting provisions with just 47, but this merely reflects the lower number of national jurisdictions in North America. Meanwhile, at a country level, higher numbers of reporting provisions, including reporting requirements and resources, were found in countries such as the UK, Spain, USA, Canada, Brazil, Colombia, and China.
- The majority of reporting provisions are issued by governmental bodies, and that has risen by 74% since 2016 to almost 400; engagement by financial market regulators, including central banks, has also grown significantly. Provisions targeting the private sector, particularly large and listed companies, account for somewhere near 90% of the C&S 2020 listing. Provisions that apply to SMEs and the public sector have remained largely unchanged since the previous C&S stock take, back in 2016.
- Alignment in the sustainability reporting field still falls short, and much closer collaboration is needed between standard setters, reporters, information users, regulators, and policymakers. Closer collaboration would enable organisations to streamline requirements and improve the quality of disclosure. The overview by C&S 2020 illustrates that agreement on the preferred disclosure venue or format, for example a certain type of report or other, is still lacking.
Carrots & Sticks is an initiative of GRI and the University of Stellenbosch Business School (USB), with contributions by the UN Environment Programme (UNEP).
GRI Chief External Affairs Officer, Peter Paul van de Wijs, said:“As the pandemic focuses the attention of policymakers on how to achieve resilient and climate-friendly economies, the importance of measuring the impacts of companies and encouraging sustainable practices increases. It is positive therefore that both the range and depth of ESG reporting provisions around the world has grown substantially.
Yet questions remain on how to address gaps, particularly in the context of the SDGs, and improve coordination to support more consistent disclosure. To address this twin challenge – spreading the practice of disclosure and driving up the quality – needs strengthened reporting requirements, for which GRI will play an enabling role.”
Senior Lecturer Extraordinaire at USB, Cornis van der Lugt, Senior Lecturer Extraordinaire, USB, said: “Stock exchanges and central banks are becoming more active in pursuing non-financial reporting requirements. This shows how the economic and market implications of diverse ESG topics are becoming more evident. The obvious example is climate-related disclosures. After 2020, the systemic implications of public health and infrastructure weaknesses is likely to receive more attention as well.
The regulatory landscape both reflects and drives perceptions of what are key material themes. Related is the question of the target audience. The landscape continues to display confusion about where best to disclose information and who is supposed to be using different types of information.”