When it comes to delivering consistent, comparable, and high-quality sustainability information that is crucial for both investors and leaders, ESG (Environmental, Social, and Governance) reporting has undoubtedly made significant progress in recent years. However, despite this progress, persistent challenges hinder a seamless understanding of a company’s ESG performance.
Currently, investors face a daunting task in navigating a company’s ESG landscape, primarily due to the absence of standardized ESG information. The issue is made more difficult by the wide range of ESG standards spanning across various sectors. Given the broad scope of ESG, encompassing a diverse array of topics, defining a universal understanding of what ESG entails becomes challenging. This subjectivity, coupled with the multitude of standards employing different methodologies, metrics, and weightings, further complicates the landscape. Consequently, investors have to deal with this complexity, making it increasingly challenging to make better-informed decision-making. 
Why ESG Standardization is Important
Despite a growing recognition of the potential benefits of ESG investing, a significant obstacle persists—the lack of standardization among both ESG standards and ESG datasets. Even well-established investment institutions that are incorporating ESG screening into their processes often lack a systematic, consistent, and tested methodology. This shortcoming hinders the effective evaluation and comparison of companies’ ESG practices and risks. More recently, this was picked up by the OECD in a study they conducted which concluded the disaggregation among ESG ratings due to the variations in the scoring methodologies by different providers like Bloomberg, MSCI, and Refinitiv. 
To add to this, a standardized system is seen as a priority for the ESG standards space. The lack of a recognized measurement system that dominates the landscape among popular frameworks such as the Global Reporting Initiative (GRI) and the Sustainable Accounting Standards Board (SASB) coupled with the lack of a consistent approach makes it challenging for stakeholders to compare for example climate-related opportunities and risks fairly and effectively.
The problem with having so many standards is ultimately the lack of consistency in definitions and data to address the increasing inflows into the ESG sector and combat accusations of inconsistency in sustainable impactful investments. This also ties with the setting of clear expectations for companies. In a complex landscape of sustainability standards, frameworks, and initiatives, companies often face challenges in determining what to report and how to communicate it to stakeholders. Standardizing the reporting process will help provide companies with clarity on expectations, simplifying the reporting landscape and enabling transparent communication of their sustainability journey. 
Despite positive impacts on valuation associated with effective controls, the need for a global regulatory framework for ESG investing which brings together all standards is necessary. A global regulatory framework is seen by investors and companies to provide greater protections for investors who are seeking profits with purpose and to reduce instances of ‘greenwashing,’ where investments or companies provide inaccurate impressions of their environmental, social, or corporate credentials.
On the company side, the hope is standardization will provide more clarity with their ESG disclosures and will help the company take more control over its sustainability journey. Additionally, a standardized framework will set the groundwork for a more effective and reliable reporting system in the future. 
Standardization of ESG disclosures yield advantages for both corporates and investors alike, enhancing the quality of information channeled into ESG analysis. However, it is also crucial to recognize that adherence to disclosure standards does not seamlessly equate to comparability of performance.
Using MSCI’s ESG Ratings methodology, self-reported ESG information constitutes only about 50% of the comprehensive data required for evaluating ESG performance in an average company. Therefore, investors should seek independent sources of information beyond corporate disclosures to construct a more precise and comprehensive understanding of ESG risk and performance. 
Collaboration Between GRI and IFRS
Nonetheless, in light of this need for standardization among ESG standards, GRI has announced the launch of an upcoming Sustainability Innovation Lab. The project has been setup in collaboration with the IFRS Sustainability Alliance, the team behind the recent June launch of the IFRS S1 and S2 standards which also have a common goal of aligning standards.
The purpose of the project is to help companies refine their capabilities in meeting sustainability disclosure requirements, provide professional development, training, and support to advance reporting capacity using GRIs standards and IFRS’s S1 and S2.
According to GRI, over 81% of companies in APAC report with GRI, and have a fond interest in also adopting ISSBs IFRS S1 and S2. This interest ultimately comes down to the broad offerings. Aiming to promote transparency and accountability GRI is an optimal standard for businesses and organizations to publicly report on their impacts on economic, environmental, social, and human rights issues. 
Enhancing the harmonization of ESG disclosure standards, the collaboration between the Global Reporting Initiative (GRI) and the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2, with the launch of the Sustainability Innovation Lab, is also designed with the collective goal in mind of improving corporate sustainability reporting processes to thus reduce reporting burdens on reporters. 
Beyond offering support for topic-specific, universal, and sector-specific standards, GRI’s commitment extends to instilling credibility and transparency, thereby empowering stakeholders to make better-informed decision-making regarding ESG risk mitigation. Furthermore, GRI’s standards contribute to increased access to capital markets, to help improve sustainability impacts assessments. 
Simultaneously, the Innovation Lab places a strategic emphasis on the standardization of global corporate sustainability reporting, strategically aligning ISSBs IFRS S1 and S2 with GRI’s standards. This strategic alignment not only enhances interoperability but also seeks to alleviate and streamline the ESG disclosure reporting process further.
By encouraging cooperation and synergy, the Innovation Lab aims to move forward the evolution of sustainability reporting into a more efficient, comprehensive, and globally harmonized practice. It also aims to continue its close cooperation between GRI and IFRS in supporting innovation and knowledge building in the disclosure landscape.
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