The future

of sustainability
reporting standards
The policy evolution and the actions
companies can take today
June 2021
Contents
Foreword 2

Introduction 3

State of play: sources of influence 6

Global variations in managing sustainability-related disclosures 8

Global standards outlook: through a macro lens 13

Recommendations for companies 18

Abbreviations 21

Lead authors 22

Contributors 23

Contacts 25

About this report 26

Endnotes 27
Foreword

Foreword
The shared global experience of the past year has illustrated the interconnectedness of our world, our
vulnerability to the environment and the impact of global action.
Public health, climate change, social inequality, diversity The most promising development is the expected launch Foundation, we recognize the need to instill
and inclusiveness are challenges that need global of the International Financial Reporting Standards (IFRS) regional flexibility alongside a global standard.
attention and innovative, collaborative solutions. We Foundation’s International Sustainability Standard Board
The next 12–18 months are an opportunity for action
also need a common language to measure and report (ISSB) at COP26 in November. As the body that sets
and will likely result in developments that represent one
on society’s progress and for the global economy accounting standards in much of the world, the IFRS
of the most significant innovations in corporate
to price externalities such as greenhouse gas emissions Foundation is well positioned to introduce the discipline
accounting and reporting in decades.
and environmental damage, allocate capital and make that exists in financial reporting into sustainability
better decisions reporting, building on the linkage between the various Many businesses are preparing for future sustainability
standards while respecting their different perspectives. disclosures and committing to transparency and
Over the last 18 months, significant progress has been
accountability before they are mandated. Now is the time
made toward establishing global sustainability reporting We strongly support the IFRS Foundation’s proposed
for companies and their leaders to work together with
standards. The future of sustainability reporting creation of the ISSB and the development of robust,
regulators and civil society to achieve consistent, global
standards analyzes this progress across both developed globally consistent sustainability reporting standards.
standards and contribute to this critical process that will
and developing markets and recommends actions At the same time, we support efforts within the
help define corporate reporting and accountability for
companies can take now to navigate and prepare for European Union, United States and other jurisdictions to
the next generation.
emerging sustainability reporting mandates. develop regional standards that respond to local
stakeholder needs and expectations. Like the IFRS

Carmine Di Sibio Ruchi Bhowmik

EY Global Chairman and CEO EY Global Vice Chair, Public Policy

The future of sustainability reporting standards | 2

Section title

Introduction
The number of environmental, social and
corporate governance (ESG) regulations
and standards globally has nearly doubled
in the last five years. Accompanying this
rise are various reporting frameworks led
by the “Group of Five” standard setting
organizations.1 In addition, there are
currently over 600 ESG reporting provisions
globally, with many having differing
interpretations of sustainability.

The future of sustainability reporting standards | 3

Introduction

The high number of guidelines about what ESG Figure 1: Voluntary and mandatory ESG reporting provisions
information is required or recommended to be disclosed
means companies face barriers and strained resource Number of ESG reporting provisions by region, 2020
capacities to focus on quality ESG disclosures. For
Totals by year
instance, publicly listed companies have to abide by Voluntary Mandatory
mandatory financial and nonfinancial2 disclosure Europe 348
requirements issued by regulators and stock exchanges.
Companies must also respond to varying requests for
voluntary disclosures and assessment processes set by North America 104 141 266
ratings providers as the broader investment community 248
and shareholders are calling on companies to provide 16 31
greater transparency around sustainability risks. Africa and Middle East Asia-Pacific

As a result of these different processes and requirements,

33 40 135
there are often significant variations in the information South America
75 99
disclosed about a company’s ESG performance. It is thus
not surprising that there is a disconnect between the 38 37
increased focus on evaluating ESG performance from
investors and the availability and efficacy of standardized
nonfinancial data provided by companies. Source: Van der Lugt, C. T., P. P. van de Wijs, & D. Petrovics. (2020). Carrots & Sticks 2020 - Sustainability
reporting policy: Global trends in disclosure as the ESG agenda goes mainstream. Global Reporting Initiative (GRI)
and the University of Stellenbosch Business School (USB). Available at: https://www.carrotsandsticks.net/media/ 2016 2020
zirbzabv/carrots-and-sticks-2020-interactive.pdf

ESG areas of scope

ESG standards generally encompass the following:

Environmental, e.g., waste management, emissions Social, e.g., human rights, labor rights, working Governance, e.g., ownership and structural
impact, energy efficiency, air and water pollution, conditions, health and safety, employee relations, transparency, shareholder rights, board of
environmental protection, and biodiversity loss employment equity, gender diversity and pay gaps, directors’ independence and oversight, diversity,
and restoration anti-corruption, and impact on local communities data transparency, business ethics, and executive
compensation fairness.

The aim is that these standards help companies to better measure and manage their exposures to ESG-related risks and to become better corporate citizens by
measuring, disclosing and managing the environmental and social impacts they create.

The future of sustainability reporting standards | 4

Introduction

Growing momentum The bigger picture

Given the lack of consensus over what reporting Initiatives by institutional bodies such as the IFRS
information is required and the need for comparability Foundation to harmonize disclosure will have to confront
across and within jurisdictions, there has been a a host of political and regulatory issues arising from
growing momentum towards a global harmonization of national and regional divergences, influenced by an
sustainability-related financial reporting standards in ecosystem of stakeholders with different interests. This
the last 18 months. The most promising development report explores this broader political context, which
is the IFRS Foundation’s ISSB, set to launch at COP26 encompasses a diverse set of actors — ranging from
in November 2021. Building on existing frameworks individuals to public and private institutions — who play
and endorsed by the Group of Five, the World Economic a salient role in shaping the sustainability reporting
Forum International Business Council (WEF IBC) and the debate. Actors embedded in this ecosystem approach the
International Organization of Securities Commissions conversation with varying degrees of influence and often
(IOSCO), the ISSB will be tasked with developing and different objectives. Furthermore, each actor is operating
maintaining global sustainability-related financial in a political context that will ultimately affect the future
reporting standards that are relevant to enterprise direction of the global sustainability reporting discourse.
value. The IFRS Foundation’s extensive consultation with The report concludes by outlining recommendations
stakeholders has concluded that there is an urgent need for how companies can navigate this dynamic and
to accelerate the establishment of a high-quality, global, evolving terrain.
sustainability-related financial reporting framework.3
I n their 5 June communique, the G7 Finance Ministers
and Central Bank Governors expressed support for the
ISSB and called for mandatory climate-related financial
disclosures based on the Task Force on Climate-related
Financial Disclosures (TCFD) framework. The IFRS Foundation has concluded that there is an urgent
need to establish a global sustainability reporting framework.

The future of sustainability reporting standards | 5

State of play: sources of influence

State of play: sources of influence

implement progressive changes in the E, S and G spheres. Figure 2: Sources of influence
The sustainability reporting movement
There are also top-down pressures from regulatory and
originated out of civil society and gained The global sustainability
standard setting actors that are promoting compliance
prominence among a small number of socially and/or behavioral shifts through policy and best practices reporting ecosystem
responsible, activist investors who aspired guidelines. Meanwhile, investors are directly influencing
for companies to disclose their impact on companies to improve their ESG disclosures through Supervisory and
broader stakeholders. ownership stakes and capital allocation.4 regulatory bodies

The various players in this sustainability reporting Politics Standard setters

In the past several years, the dynamics of the ecosystem can be broadly defined into three primary and policy Stock exchanges
sustainability debate has dramatically shifted, with categories of stakeholder influence, with each possessing ESG rating agencies
mainstream investors noting that sustainability issues different aims and objectives (see Figure 2: Sources of
impact risk, return and value of companies over the long influence).5
term. This has resulted in mainstream investors wanting
comparable, consistent and reliable information about Political and policy influencers interact closely with
a company’s sustainability performance. This change is business influencers in a two-way fashion, whereas Media
influencing securities regulators to become involved and, societal actors have engaged with political/policy and
Society NGOs
likewise, corporate boards to seriously think about and business influencers in a one-way stream.6 Within each of
Academics
react to sustainability issues. The IFRS Foundation’s ISSB the three primary sources of influence, the subcategory
proposal would not have come to fruition if mainstream influencers interact closely with each other. For instance,
investors had not demanded sustainability information. within politics and policy, regulatory bodies and standard
setters may influence one another. Furthermore, within
Pressures to produce higher-quality sustainability each subcategory, the relevant actors can likewise Investment
reporting can be understood from both below and above. influence their own stakeholders and/or supply chain community
From a bottom-up perspective, members of society partners (e.g., Apple’s supplier responsibility code).7 Associations
Business
are pressuring political/policy and business actors to Large-cap/
multinational
enterprises

Source: Oxford Analytica research

The future of sustainability reporting standards | 6

State of play: sources of influence

“
While the degree of closeness between political/policy developing reputational authority in order to better
and business influencers can vary by jurisdiction, in most influence the debate and motivate government,
Western jurisdictions there is a clear delineation between corporate and broader societal action.12 Influencers in
political/policy on the one hand and business influencers the G space, in principle, have used these tactics as well
on the other. This is reflected in the different roles played but also rely on their own peer individual networks13 as a To prosper over time, every
by national regulators and business associations. major source of influence for change. Current and future
strategies for influencing a global sustainability standard company must not only deliver
Looking ahead, ESG reporting will continue to be heavily
influenced by the sustained efforts of societal actors who
will be a subset of these mechanisms.
financial performance, but
advocate for, and shape, best reporting practices. A good Partially underpinning these tactics of influence is
example of this is the history of the climate change and a philosophy of stakeholder capitalism.14 From this also show how it makes a
environmental protection movement in the 2000s.8 The
expectation is that, in the long term, societal actors will
perspective, a company’s purpose is to create and
maximize long-term shareholder value and consider
positive contribution to society.
continue to play this pivotal role. its impact on all stakeholders,15 including employees, Companies must benefit all of
customers, suppliers and local communities. Some
Over the last two decades, influencers in E, S and G
high-profile executives, stock exchanges16 and sovereign their stakeholders, including
have employed different mechanisms and strategies
for advancing the sustainability discourse. For example,
wealth funds17 have actively taken on the responsibility
to embrace this philosophy and aim to influence the
shareholders, employees,
influencers in the E and S space have traditionally used
tactics such as naming and shaming,9 direct lobbying
debate on global sustainability. customers, and the communities
and petitions,10 shareholder/investor activism,11 and in which they operate.
Larry Fink
Chairman and Chief Executive Officer, BlackRock
2018 Letter to CEOs

The future of sustainability reporting standards | 7

Global variations in managing sustainability-related disclosures

Global variations in managing

sustainability-related disclosures
Jurisdictions are taking different a company should report on two aspects:
approaches to sustainability reporting. • Influencing enterprise value: sustainability topics
This is demonstrable in terms of how they that influence enterprise value. The main audiences
define materiality, as well as how different for impact inwards are investors, lenders or other
jurisdictions approach E, S and G separately creditors. This is the traditional understanding of the
term “materiality.”
in their frameworks.
• Influencing people, the environment and the
Materiality, a long-established financial accounting
economy: sustainability topics with broader influence
concept, has been a bedrock feature of securities law
on the economy, the environment and people (including
and regulation. The US Supreme Court defined it as
human rights according to the GRI definition).20 The
information that, if disclosed, “would have been viewed
main audiences for impact outwards are governments,
by the reasonable investor as having significantly altered
consumers, business partners, employees, civil society
the ‘total mix’ of information made available.”18
organizations and local communities.
The definition of materiality used in the United States is a
flexible concept capable of evolving along with investors’ Dynamic materiality, as described by the WEF,21 is
needs. Other key global actors, most notably the about anticipating how present and future issues can
European Union (EU) and the WEF, are using alternative become financially material across industry or
definitions and applications of materiality to nonfinancial for a specific company. That is, what is financially
considerations and introduced concepts such as “double immaterial to a company or industry today can become
materiality” and “dynamic materiality.” material tomorrow.

The Group of Five has introduced the related concept

Understand your audience: different of nested materiality to explain three reporting lenses,
ESG disclosures may be relevant to from broad to narrow, which sustainability matters can
different stakeholder groups move between over time: (1) a company’s impact on all
sustainability matters (the economy, the environment
The concept of double materiality, first introduced
and people); (2) sustainability matters that impact
by the European Commission,19 is based on a view that
enterprise value; and (3) core financial information.22

The future of sustainability reporting standards | 8

Global variations in managing sustainability-related disclosures

Two views of sustainability disclosure The EU adopted a proposal in April 2021 that will
requirements and priorities: the United replace reporting requirements under the Non-Financial
Reporting Directive (NFRD), which currently require large
States and the EU
The United States and the EU are taking different
public-interest companies with more than 500 employees
to disclose environmental, social and employee-
Most large companies based
paths toward sustainability reporting. This is largely related matters, such as anti-bribery, corruption and in the EU and EU subsidiaries
the result of differences in governance, legal traditions human rights performance.25 The proposed Corporate
and the balancing of domestic interests. Up to now, Sustainability Reporting Directive (CSRD)26 will extend of foreign companies will fall
the United States has relied on a principles-based
approach, tied to the concept of materiality, with respect
the scope to include large companies27 and all companies
listed on EU-regulated markets in the EU (except listed
within the scope of the CSRD
to mandatory sustainability disclosures. In addition, micro-enterprises). The CSRD brings sustainability
voluntary sustainability reporting is being driven by reporting closer to financial reporting by requiring
market demand. On the other hand, the EU generally
emphasizes regulatory measures to enforce materiality
“limited assurance” of sustainability information by a
company’s auditor or an independent assurance services
50,000
considerations, which is consistent with its stated provider. Later, there will be the option of moving estimated number of
institutional priorities and past jurisprudence.23 forward to “reasonable assurance”— the standard of companies in scope
assurance provided for financial information. Companies
In the United States, the US Securities and
within the scope of the CSRD will have to comply from
Exchange Commission (SEC) currently requires public
January 2023
financial years starting on or after 1 January 2023.
companies to disclose certain ESG information, such
as a description of human capital resources and any Of further note is that the EU is developing a very
measures or objectives on which management focuses, specific taxonomy28 and action plan29 for sustainable effective from financial years starting
if it is material to an understanding of the business. In finance. The classification system will have a large on or after 1 January 2023
addition, the SEC issued guidance in 2010 regarding impact on what economic activities are able to attract
how the US securities laws and regulations may require funding under the EU Green Deal.30
disclosures of climate-related information, depending
on a company’s circumstances. The SEC is also actively
considering new regulatory initiatives. However, there
is general agreement that the level of information that
companies are compelled to disclose under the existing
regulatory framework is significantly lower than in a
number of other developed markets. The SEC recently
has taken several actions relating to climate and ESG
reporting, including a public request for information
regarding potential new climate disclosures and a
review of climate-related disclosures.24

The future of sustainability reporting standards | 9

Global variations in managing sustainability-related disclosures

Different legal approaches to mandatory

disclosures

Jurisdictions have varying legal constructs governing corporate disclosure, as

well as different legal liability profiles. For example, the United States has the
most litigation risk related to corporate disclosures.31 Both the legal framework
and the level of litigation risk in different markets have an influence on the
nature and acceptance of both voluntary and mandatory disclosures.

The US framework is built around the framework of investor protection, capital

formation, and fair and orderly markets. In contrast, the EU framework is
built around mandating multi-stakeholder disclosure. There is no concept of
mandatory multi-stakeholder disclosure in US securities law.

Another factor to consider is that the EU is more oriented towards an approach

of prescribing specific metrics that will be reported by all companies. In
contrast, the United States is more oriented to a concept where a company
decides what information is material to investors, unless the SEC prescribes
something specifically.

The future of sustainability reporting standards | 10

Global variations in managing sustainability-related disclosures

Mandatory ESG disclosures demands better disclosure on ESG reporting by listed

in select jurisdictions companies (requiring listed companies to disclose social
responsibility, including measures for environmental
In the United Kingdom, listed companies are mandated protection) and offer ESG-related training. Furthermore,
to provide a report disclosing annual greenhouse gas Shanghai’s IPO requirements state that companies must
emissions and diversity under the Companies Act provide an annual sustainability report.
2006.32 Companies with a “premium listing” of equity
shares are required to report on how they apply the main In Hong Kong, the ESG reporting obligation is mandatory
principles of the Corporate Governance Code 2012.33 as a listing rule, more aptly described as “comply or
The UK government has also confirmed that, by 2025, it explain.”37 That is, if the company does not report on
will make compliance with the TCFD mandatory. one or more of the required ESG provisions, it must
provide bona fide reasons for its failure to do so in its
In Canada, all publicly listed, federally incorporated ESG disclosure report.
companies — specifically those governed by the Business
Corporations Act34 — are required to provide, as part of
their annual shareholders meeting materials, disclosures
about the company’s diversity policies relating to its
board of directors and senior management team.
Moreover, at a minimum, companies are required to Understanding China’s ESG disclosure behavior
disclose information on the composition of the four
federally designated, underrepresented groups (women, The drivers behind mainland China’s surge   Second, as China reduces some legislative
indigenous, visible ethnic minorities and persons in ESG disclosures, as measured by an increase   constraints to foreign direct investment (e.g., the
with disabilities). There are currently no mandatory in the number of Chinese signatories to the 2020 Foreign Investment Law),40 increased ESG
environmental or social disclosure requirements. UN-supported Principles of Responsible disclosures broaden foreign access to its financial
However, Ontario’s Capital Markets Modernization Investment,38 can be understood in two ways. markets41 and better protect the rights and
Taskforce 2021 final report recommends mandating interests of foreign investors. As such, ESG
disclosure of material ESG information in regulatory First, it suggests that China’s (re-)centralized considerations will become more pronounced due
filings, especially pertaining to climate change-related structure under President Xi Jinping provides a to the entry, and increasing activities, of foreign
disclosure compliant with the TCFD recommendations.35 mechanism to rapidly incorporate ESG companies that seek investment options in
performance considerations across decision- Chinese markets.
In mainland China, the Securities Regulatory making in the public and private sectors. Due to
Commission (CSRC), in collaboration with the Ministry this governance structure,39 the expectation is
of Environmental Protection, will be introducing that China will quickly incorporate sustainability
requirements for all listed companies to disclose standards via top-down pressures.
ESG risks to enterprise value associated with their
operations.36 The Shanghai and Shenzhen stock
exchanges have already issued guidance that

The future of sustainability reporting standards | 11

Global variations in managing sustainability-related disclosures

Within the Asia-Pacific region, regulators and stock China and the United States now co-chair the G20
exchanges have adopted varying approaches to reporting Sustainable Finance Working Group.46 In theory, this
ESG information. ESG reporting is voluntary in markets has the potential to generate some convergence in
such as Australia and Japan (Japan has also published disclosure principles, especially in the environmental
recommendations for a potential ESG disclosure realm; however, there is an equally strong possibility this
framework), while in Singapore, the reporting obligation may not come to pass. China will simultaneously engage
is on a “comply or explain” basis.42 Across the region, major jurisdictions, such as the EU, through bilateral
there is a growing trend towards tightening reporting agreements to align selected, strategic taxonomies
obligations and a gradual acceptance of a mandatory (e.g., the EU-China green investment initiative).47
obligation towards ESG disclosures.

Emerging markets: determined to

improve ESG reporting standards
Emerging markets are determined to improve ESG
reporting standards for several reasons. Foremost,
emerging markets are the main manufacturing location
for the top global 500 companies,43 which makes
sustainability performance critical. Retaining current
and future foreign investors that have an increasing
ESG focus will require improvements in disclosure,
transparency and risk management. That is, the desire
to maintain and attract foreign investment — particularly
accessing a larger proportion of the more than
USD30 trillion of funds available worldwide for
sustainable investing44 — will mean a greater focus on
ESG issues.
The most prominent emerging market player will
be China, which leads the international growth in
disclosures in the early 2020s for institutional and
economic reasons (see above). However, mainland
China’s current Bloomberg ESG disclosure score45 is
21.6 (with Hong Kong at 29.9). This is less than half that
of France, which holds the top rank score of 46.9, and
behind its regional rival, Japan, at 24.1, which suggests
that there is still work to be done in China.

The future of sustainability reporting standards | 12

Global standards outlook: through a macro lens

Global standards outlook:

through a macro lens
The IFRS Foundation spearheads harmonization efforts.

The potential for adopting a global sustainability-related ESG disclosures as a mandatory requirement and
financial reporting standard, with the IFRS Foundation’s are subjected to external assurance to avoid market
ISSB at the helm, is strong. The IFRS Foundation is well fragmentation. Therefore, understanding the broader
positioned to lead this effort given its track record in political context in which the ISSB will launch is crucial.
setting global standards.
The ISSB’s reporting standard will be enhanced, and
gain greater global legitimacy, if jurisdictions adopt

Why is standard setting so important?

One of the most effective mechanisms to achieve comparable, consistent and reliable information is
with standards. However, the concept of standards is based on the notion of a target user (e.g., capital
markets or society). In developing a standard for disclosure rules, there has to be a clear idea of target
users and what their use case for information entails. Moreover, a standard setter must have some
mechanism for decision-making, whereby the mechanism involves a clear understanding of the users
and their use case. Good standards allow space for meaningful future innovation.

One of the attendant challenges with sustainability-related disclosures is that there has not historically
been a clear articulation of user and use case that is consistent to all jurisdictions. This is complicated
further by different jurisdictions having different public policy objectives and legal jurisprudence, as
discussed in this report.

The future of sustainability reporting standards | 13

Global standards outlook: through a macro lens

Figure 3: What to watch

Second half  The SEC expected to propose new rules on Mid-2022  IFRS to publish its first batch of
corporate climate risk disclosures climate-related disclosure standards

July  FSB to present to the G20 a coordinated, forward- 31 October  EC to adopt the first set of
looking road map to address climate-related financial risk corporate sustainability reporting standards

29 July  IFRS consultation on the proposed amendments January 2023  Obligations under the October  EC to adopt the second set of
to its constitution needed to establish the ISSB closes EU CSRD to come into force corporate sustainability reporting standards

2021 2022 2023 2024

June
15 June  EFRAG to provide draft corporate sustainability reporting standards

1 January  EU Taxonomy Climate Delegated Act set to apply

1–12 November  UN Climate Change Conference (COP26)

4th quarter  IFRS to formally announce formation

of SSB (expected before COP26)

30–31 October  G20 Rome Summit

End September  IFRS Trustees to produce a definitive

proposal (including a road map with timeline)
Source: Oxford Analytica research

Engineering baseline support these jurisdictions will endorse and require companies to reinforced by major actors such as the UN, G20 Finance
use the new ESG standards as a baseline. While it took Ministers, the WEF and IOSCO, which have agreed that
Foremost, the ISSB will undertake a “building blocks”
almost a decade and a half to develop a comprehensive there should be a globally consistent and comparable
approach, whereby it will aim to provide a global
set of IFRS accounting standards,49 and another decade set of high-quality standards for sustainability-related
sustainability reporting baseline that would allow for
for major jurisdictions and organizations to fully reporting. This is aided by the fact the ISSB approach
greater comparability and consistency of application across
implement the standards, the pace for many jurisdictions will build upon existing frameworks and standards by
standards, while also providing flexibility for coordination
adopting the ISSB standards is likely to be much quicker major standard setters such as Sustainability Accounting
on additional jurisdictional reporting requirements. This
given the building blocks approach. Standards Board (SASB) and Global Reporting Initiative
approach is attractive for engineering baseline support.
(GRI).
Already, major regulators have supported the
As of 2018, there were 144 jurisdictions48 using the
development of a global ESG reporting framework and the
IFRS accounting standards, making it likely that many of
creation of the ISSB. The IFRS Foundation’s efforts are

The future of sustainability reporting standards | 14

Global standards outlook: through a macro lens

Further support is provided by some major business Another EU initiative, the Carbon Border Adjustment
associations such as the European Banking Federation Mechanism (CBAM), is likely to impact ESG reporting.
and some global investment firms (e.g., BlackRock CEO The aim of the mechanism is to protect industry and
Larry Fink’s letter)50 that see a single global standard businesses within the EU from foreign competition that
as a mechanism for investors to make more informed is subject to less stringent greenhouse gas emissions
decisions about how to achieve durable long-term regulations and targets. Although how a CBAM would
returns. Other recent private sector-led initiatives such work has yet to be decided, it will encompass extra-
as the Embankment Project for Inclusive Capitalism51 territorial elements insofar as it introduces the possibility
have been intended to identify metrics to measure of imposing a carbon penalty on imports. To avoid this
and demonstrate long-term value to financial markets. penalty, companies that seek access to EU markets will
Further, the WEF IBC, together with the accounting have to adopt ESG reporting in line with EU standards.
community, has developed a common set of core ESG
Depending on how CBAM is designed, this could either
metrics and recommended disclosures,52 which provide a
create pressure for convergence between international
concrete stepping stone towards a formal global solution
and EU standards or accentuate the differences between
while also having a direct impact in terms of shaping the
the two. Divergence is most likely, given the wider set of
reporting behavior of companies. The IBC’s underlying
interests that a global standard will have to satisfy the
ethos is that “society is best served by corporations
ambitious climate targets adopted by the EU.
that have aligned their goals to the long-term goals of
society,” with the UN Sustainable Development Goals
(SDGs) serving as the road map for that alignment.53

The European Union on a different path

The European Commission is on course to issue its
own standard setting mandate for the European
Financial Reporting Advisory Group (EFRAG) in the
area of nonfinancial reporting, with the first set of
draft standards expected by 15 June 2022. EFRAG has
proposed that the EU participate in global convergence
efforts such as the ISSB on a “co-construction” basis,
with the attendant goal to foster coherence and
consistency between the EU and IFRS Foundation’s
standards.54 This suggests that the EU may use ISSB
reporting as a supplementary tool but will “top up”
where this is in the European public interest.

The future of sustainability reporting standards | 15

Global standards outlook: through a macro lens

The IFRS Foundation’s climate-first Figure 4. TCFD disclosure by region (number of companies reporting in 2019)
approach
There is broad agreement that the Financial Stability
779 441 346
Board’s (FSB) TCFD will serve as a reference point for North America Europe Asia-Pacific
the IFRS’s “climate-first approach.” Created by the FSB
in 2015 to improve and increase reporting of climate-
related financial information, the TCFD has become a
de facto standard for climate risk disclosure. Its
guidelines are used by over 1,700 companies and
supported by nearly 60 of the world’s 100 largest public
companies. Some nations, such as the UK, have also
begun mandating TCFD disclosures.
Nevertheless, the extent of TCFD-aligned disclosure
varies across regions, both in terms of the number of
companies reporting and how they apply TCFD’s four
pillars of climate risk and opportunity (Governance, 83 Middle East and Africa 52 Latin America
Strategy, Risk Management, and Metrics and Targets).55
For example, in 2019, 60% of European companies
undertaking TCFD-aligned disclosure reported the impact Source: Task Force on Climate-related Financial Disclosures: 2020 Status Report, October, 2020.
Available at: https://www.fsb.org/wp-content/uploads/P291020-1.pdf
of climate-related issues on the company strategy. That
figure was only 13% for companies in Latin America.

The future of sustainability reporting standards | 16

Global standards outlook: through a macro lens

Significant variations in E, S and G Social factors

objectives Commitments to social factors differ markedly at
present across jurisdictions. For example, engaging and
The proposed IFRS sustainability reporting standard measuring human rights standards can be controversial,
will be more readily equipped to meet environmental value laden and easily politicized. There are presently
concerns, which by their nature are transnational variations between jurisdictions on the ordering of
challenges that do not discriminate across jurisdictions. priorities for political and civil rights versus social,
Environmental factors economic and cultural rights. While the UN Guiding
As of March 2021, 191 jurisdictions have committed to Principles on Business and Human Rights (UNGPs) and
the 2016 Paris Agreement56 and have imposed (or are the PRI have been fundamental in advancing human
working towards) stricter regulations to curb greenhouse rights considerations in ESG investing, more clarity is
gas emissions and pollution. This is coupled with actively needed for a global sustainability standard to be effective.
promoting renewable energy and electric vehicles Corporate governance factors
through state subsidies. Yet, environmental performance When it comes to corporate governance factors, many
information remains insufficient and will require greater listed companies in emerging markets have an opaque
environmental risk information statistics and data and often confusing ownership structure where investor
disclosures to meet the growing demands of investors voting rights have little to no weight. In China, for
and civil society actors. The proposed IFRS sustainability- example, there is a concentrated ownership structure, and
related reporting standards will directly address these potential conflicts of interest between majority/minority
concerns, and it is strategically wise that the IFRS shareholders remain a core corporate governance issue.
Foundation’s ISSB will focus on climate-related issues in Transparency is another issue.57 ESG ratings agencies
the first instance — given the global momentum in this area. are regularly forced to operate with outdated information
on companies. A fully functional global standard will
have to embrace various public-private institutional
configurations, structures and relationships.

The future of sustainability reporting standards | 17

Recommendations for companies
This report has signaled the significant changes
underway in sustainability standard setting and
reporting. Within the next 12 to 18 months, it
is expected that a newly created ISSB will begin
to introduce a minimum global framework
for sustainability-related financial reporting
standards. In addition, the nearly 50,000
companies within the scope of the European
Commission’s CSRD will need to comply with
the directive from January 2023.

Overall, sustainability reporting is not just

about transparency. It is about transformation.
The following recommendations suggest how
companies can navigate and prepare for these
emerging requirements.
Recommendations for companies

Don’t wait for sustainability Put ESG and sustainability reporting Seek assurance to build trust
reporting to be mandated on the board’s agenda in sustainability reporting
The timing with which sustainability reporting is evolving It is essential for boards to understand how evolving ESG As organizations report and disclose more ESG
has left companies asking, “Which standards and metrics investing and stewardship trends are impacting access to information, they should expect to face more questions
should we prepare for?” and “Which should we wait for?” capital and relationships with investors.58 They should be around the depth and reliability of their disclosures, risk
sufficiently informed to confirm whether the company is exposure and resilience, as well as concerns over so-
Some companies have chosen to wait on the sidelines effectively capitalizing on these trends to attract long- called “greenwashing.” To build trust, companies should
until sustainability reporting is mandated in their term investors and secure shareholder support. ensure that their sustainability reporting has robust
jurisdiction. This is the wrong approach. As regulators processes and controls with a supporting audit trail,
make progress on sustainability reporting standards, Boards need to understand private market and
similar to what exists for financial reporting.
companies have a great opportunity to prepare for regulatory initiatives, monitor developments from
future disclosures and commit to transparency and the major jurisdictions as well as within the IFRS Companies should begin focusing on audit preparedness
accountability today. While the IFRS and other Foundation, and know how their company is viewed by as a means of building stakeholder confidence and
regulatory efforts are expected to take a climate-first ESG data providers. In addition, boards should oversee complying with expected regulatory obligations.
approach, it will be important for companies to consider a materiality assessment and support the integration The European Commission’s proposed CSRD will, for
reporting across a range of environmental, social and of ESG within broader strategy and enterprise risk example, require large companies to seek limited
governance topics. management (ERM).59 assurance around their reported sustainability
information from either their statutory auditor or an
If companies seize this opportunity, they will be independent assurance services provider.
heading in the right direction when new standards are
implemented. What’s more, they will be able to use
the information they gather to inform their strategies,
manage their risks and achieve a stronger, more
sustainable performance over the long term.
To begin, companies should identify the metrics most
relevant to their sector, strategy and stakeholders and
develop the capacity to report on those metrics. The
Stakeholder Capitalism Metrics, developed by the WEF
IBC, are a good starting point for industry- and region-
agnostic metrics. They are also signposted from existing
standards and metrics and include full implementation of
the recommendations of the TCFD.

The future of sustainability reporting standards | 19

Recommendations for companies

Integrate the finance function Contribute to the standard

A company can only deliver value to all its stakeholders setting process
when it draws on the skills and input of the entire Many of the world’s leading companies have
organization, under the shared vision of leadership. acknowledged that ESG issues are critical to sustainable
Finance can play a key role in this collective effort development and have embedded those issues into
by engaging with, understanding and connecting the their strategy for long-term value creation. These
requirements of stakeholders — particularly investors companies see an opportunity to be part of the process,
— and translating those into relevant and material learn from experience and not wait for regulators to
metrics and disclosures. mandate disclosures.
Reporting must be trusted, credible and relevant to Through disclosing, companies can increase their
stakeholders and make a clear link between financial credibility in the standard setting discussions. This
and nonfinancial information.60 CFOs and financial is seen through the collective action of almost 80
controllers can instill discipline into nonfinancial companies committing to report on the WEF IBC
reporting processes and controls, based on their metrics61 — reducing fragmentation in reporting their
experience and knowledge of leading practices to contributions to long-term value and the UN SDGs. They
support sustainability and ESG reporting. The finance are sending a powerful message that the private sector
function can help to establish effective governance is ready to engage on these issues at the highest levels.
and obtain independent assurance over nonfinancial
processes, controls and data outputs — vital to building
trust and transparency with stakeholders.

The future of sustainability reporting standards | 20

Abbreviations
CBAM: Carbon Border Adjustment Mechanism NFRD: EU’s Non-Financial Reporting Directive

CDSB: Climate Disclosure Standards Board PRI: Principles for Responsible Investment

COP26: 2021 United Nations Climate Change Conference SASB: Sustainability Accounting Standards Board

CSRC: China Securities Regulatory Commission ISSB: International Sustainability Standards Board

CSRD: Corporate Sustainability Reporting Directive SEC: US Securities and Exchange Commission

EFRAG: European Financial Reporting Advisory Group TCFD: Task Force on Climate-related Financial Disclosures

ESG: Environmental, social and corporate governance UNGPs: UN Guiding Principles on Business and Human Rights

FSB: Financial Stability Board WBCSD: World Business Council for Sustainable Development

GRI: Global Reporting Initiative WEF IBC: World Economic Forum International Business Council

IOSCO: International Organization of Securities Commissions

The future of sustainability reporting standards | 21

Lead authors
Stina Warnstam Drolet
Head of Sustainability, Oxford Analytica

Mark Elsner
Director of Advisory, Oxford Analytica

Dr. Isabella D. Bunn

Oxford Analytica International Advisory Council

Reza Hasmath
Oxford Analytica Contributor,
Professor in Political Science at University of Alberta

The future of sustainability reporting standards | 22

Contributors
Barend van Bergen Eric Duvaud Kyle P. Lawless
Partner, Ernst & Young LLP (UK), Partner, Ernst & Young et Associés (France), and EY France Associate Director, Ernst & Young LLP (US),
and EY Global Long-Term Value Methodology Leader Climate Change and Sustainability Services Leader and EY Global Public Policy

Ruchi Bhowmik Janice Freeman Steven Lewis

Principal, Ernst & Young LLP, Research Intern, Global Public Policy Director, EY Global Services,
and EY Global Vice Chair, Public Policy and EY Research Institute Leader

Jan-Menko Grummer
Neri Bukspan Partner, Ernst & Young GmbH Rachel Lloyd
Partner, Ernst & Young LLP (US), and EY Americas Wirtschaftsprüfungsgesellschaft (Germany), Associate Director,
Accounting, Reporting and Governance Leader and EY GSA Long-Term Value Lead Global Media Relations and Social Media

Mary K. Cline Matt Hanify Erika McClimans

Director, Ernst & Young LLP (US), and Administrative Lead, Creative Services Group, Senior Associate, Creative Services Group,
EY Senior Policy Advisor, Office of the Global Chairman Ernst & Young LLP (US) Ernst & Young LLP (US)

Charles Council Andrew Hobbs Ehren Meditz

Senior Associate, Creative Services Group, Partner, Ernst & Young LLP (UK), Supervising Associate, Creative Services Group,
Ernst & Young LLP (US) and EY EMEIA Public Policy Leader Ernst & Young LLP (US)

Andrew Cowell Stephen W. Klemash Bridget M. Neill

Partner, EY Japan Co., Ltd, and EY Japan Partner, Ernst & Young LLP (US), Principal, Ernst & Young LLP (US),
Mining & Metals Sector Leader and EY Americas Center for Board Matters Leader and EY Americas Vice Chair, Public Policy

Jessica Cunningham Nobuko Kobayashi Mathew Nelson

Assistant Director, Ernst & Young LLP (US), Partner, Ernst & Young Strategy and Consulting Co., Ltd. Partner, Ernst & Young (Australia), and EY Global
and EY Global Public Policy (Japan), and EY Asia-Pacific Strategy Execution Leader Climate Change and Sustainability Services Leader

Rani Doyle Katie Kummer Carol Phethean

Managing Director, Ernst & Young LLP (US), Partner, Ernst & Young LLP (US), Director, Ernst & Young LLP (US),
and EY Americas Center for Board Matters and EY Global Deputy Vice Chair, Public Policy and EY Global Public Policy

The future of sustainability reporting standards | 23

Contributors (cont.)
Ben Renier
Associate Director, Ernst & Young Core Business Services
BV (Belgium), and EY EMEIA Public Policy Insights Leader

Thomas L. Riesenberg
EY Global Public Policy, Senior Advisor, ESG

Marc Siegel
Partner, Financial Accounting Advisory Services,
Ernst & Young LLP (US)

Shauna Steele
Director, Office of Public Policy, Ernst & Young LLP (US)

Leo van der Tas

Partner, Ernst & Young Accountants LLP (Netherlands),
and EY Global Leader IFRS Services

Julia Tay
Partner, Ernst & Young LLP (Singapore),
and EY Asia-Pacific Public Policy Leader

Tim Volkmann
Partner, Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft (Germany),
and EY EMEIA Deputy Public Policy Leader

The future of sustainability reporting standards | 24

Contacts
Global Americas

Ruchi Bhowmik Bridget M Neill

Principal, Ernst & Young LLP, Principal, Ernst & Young LLP (US),
and EY Global Vice Chair, Public Policy and EY Americas Vice Chair, Public Policy
ruchi.bhowmik@eyg.ey.com bridget.neill@ey.com

Katie Kummer Asia-Pacific

Partner, Ernst & Young LLP (US),
and EY Global Deputy Vice Chair, Public Policy
catherine.kummer@ey.com
Julia Tay
Partner, Ernst & Young LLP (Singapore),
and EY Asia-Pacific Public Policy Leader
Carol Phethean julia.tay@sg.ey.com
Director, Ernst & Young LLP (US),
and EY Global Public Policy
carol.phethean@ey.com EMEIA

Andrew Hobbs
Kyle P. Lawless
Partner, Ernst & Young LLP (UK),
Associate Director, Ernst & Young LLP (US),
and EY EMEIA Public Policy Leader
and EY Global Public Policy
ahobbs@uk.ey.com
kyle.lawless@ey.com

Jessica Cunningham
Assistant Director, Ernst & Young LLP (US),
and EY Global Public Policy
jessica.cunningham@ey.com

The future of sustainability reporting standards | 25

About this report
Oxford Analytica worked in close collaboration with EY teams to produce a report on
the future of sustainability reporting standards and how companies can prepare for
emerging sustainability reporting requirements. Oxford Analytica’s in-house team drew
on insights from its worldwide network of experts; interviews with thought leaders
across the policymaking, business and civil society sectors; and workshops with EY
leaders and subject-matter professionals.

Oxford Analytica, part of FiscalNote, is a geopolitical analysis and advisory firm that
draws on a worldwide network of experts to advise its clients on their strategies,
operations, policies and investments. Oxford Analytica’s trusted insights and seasoned
judgements on global issues enable its clients to navigate complex markets where the
nexus of politics and economics, business and society is critical to success. Founded in
1975, Oxford Analytica is the pioneer of geopolitical risk analysis, and today works with
the world’s most influential businesses, governments and international organizations.

The future of sustainability reporting standards | 26

Endnotes
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The future of sustainability reporting standards | 27

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The future of sustainability reporting standards | 28

Endnotes (cont.)
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The future of sustainability reporting standards | 29

Endnotes (cont.)
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The future of sustainability reporting standards | 30

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