A recent Harvard Corporate Governance blog discusses the proliferation of voluntary ESG disclosure standards and the interplay between these and mandatory disclosure schemes enacted into law. The blog says that the proliferation of these standards is being driven by increased investor demand for ESG data, but that the emergence of reporting standards like those developed through the ISSB/IFRS partnership will help move those standards toward consolidation, data comparability and, ultimately, standardization.
The blog also makes it clear that when it comes to ESG disclosure standards, it isn’t the US that’s driving the bus:
“The United States has been far slower than Europe in regulating ESG disclosures. Other than long-standing financial, risk, and litigation disclosure requirements appliable to public companies regarding environmental issues and, since 2020, material aspects of a company’s human capital management, there have been virtually no mandatory requirements and only limited regulatory guidance for disclosure on sustainability issues by public companies listed or based in the United States.”
While much attention in recent years has been focused on the SEC’s efforts to mandate climate disclosure by public companies, the fact is that international disclosure standards are proliferating quickly and US companies may find themselves dealing with significant demands imposed by other jurisdictions’ reporting frameworks, like the EU’s CSRD.
There has been a long-standing sentiment by some that reporting standards should consolidate so that there are less frameworks creating conflicting reporting burdens for companies. The blog indicates that more frameworks are attempting to work in concert in ways that supplement and reinforce one another rather than creating duplicative standards. With stronger and more widely spread standards, accountability increases and the risks of greenwashing are diminished.
