Sustainability reporting will test the will of regulators

Sustainability reporting is developing quickly, and for it to deliver maximum value requires the creation of globally consistent sustainability reporting standards. Consistent and comparable reporting will strengthen capital markets by helping investors and business leaders make more informed decisions and refresh their focus on building long-term value for business and stakeholders.

Two years ago, KPMG along with other members of the Big Four, working together with the World Economic Forum and its International Business Council, co-developed a set of Stakeholder Capitalism Metrics, generating momentum and galvanizing private sector support for this important agenda.

Since then, this movement has taken a leap forward. Following its formation at COP 26 in November 2021, the International Sustainability Standards Board (ISSB) has released two proposed standards with comments due in July. In parallel developments, the SEC and EFRAG have recently released separate proposed standards with comments due in June and August, respectively.

The vision of the ISSB is for a global baseline of investor-focused sustainability reporting that local and regional jurisdictions (such as the US and the EU) can build on. Local jurisdictions, standard setters, investors, and companies have a window of opportunity to work together to realise this so-called ‘building blocks approach’. This approach will ensure that the objective of globally consistent and comparable information for investors and other stakeholders is achieved.

It’s been encouraging to see various regulatory bodies and standard setters acknowledging the importance of working together as best they can to move on parallel tracks—keeping an eye on each other as they do it.

In May 2022, the ISSB’s newly formed jurisdictional working group (which includes the SEC and EFRAG) met and acknowledged the significant compatibility between their proposals. They also noted that they need to understand the differences between the proposals and the potential impact on stakeholders. I believe this is a positive first step.

In addition, the ISSB and the GRI are collaborating to coordinate their work programmes and standard-setting activities. Both recognise the importance of connectivity between sustainability reporting designed to meet the needs of the capital markets and that for a broader group of stakeholders.

Finally, the IFRS Foundation has had the advantage of being able to build on existing expertise, including the TCFD framework and SASB standards. It has considerable institutional support – from the G7, G20, IOSCO and the Financial Stability Board – as well as from companies and investors around the world.

Achieving a global baseline – not simply minimizing differences – will test the will, determination and commitment of regulators and jurisdictional standard setters from around the world. Many jurisdictions have political mandates and are bound by decisions of national and regional bodies – so their challenge is to achieve compatibility between their legal mandate and the global consensus.

The reality of a ‘building blocks approach’ – with jurisdictions setting supplemental standards that serve their specific needs – will require continuous dialogue and flexibility, alongside a heavy dose of pragmatism. A common vision and coordinated path to achieving alignment – in principles, in structure, and in measurement – is required.

By taking that approach, a global sustainability reporting ecosystem that is efficient and effective could be attained.

What gets measured gets managed – this summarizes the underlying purpose of creating globally consistent, comparable standards. A successful global sustainability reporting ecosystem will help businesses better understand their own value, while mobilizing our capital markets to help support solutions to the many societal issues we face.

Building a more resilient, sustainable marketplace answerable to more stakeholders helps to do that, and getting the parameters right benefits us all. The more we work together to ensure consistency and accountability, the better.

That’s why KPMG has compiled this report, Comparing sustainability reporting requirements, to help you navigate the different requirements – and to encourage your involvement in this important undertaking.

A version of this article previously appeared in Financial News.

Update: the three frameworks discussed in this article – the ISSB Standards, ESRSs and SEC climate rule – are all now final. See Comparing sustainability reporting requirements for more information.