Aspire to attaining sustainability? Let’s understand contemporary sustainability or ESG frameworks’

Non-financial voluntary reporting frameworks or sustainability reporting frameworks are into existence for last 22 years, starting with GRI as one of the pioneers followed by CDP, IIRC, SASB, and CDSB. We can broadly categorise GRI, IR, SASB, CDP and CDSB standards and frameworks into two groups: a) multi-stakeholder focus as on the case of GRI; b) investor and capital provider focus as in the case of IR, SASB, CDP and CDSB. Furthermore, distinctions can also be drawn based on the materiality perspective. In the cases of IR, SASB, CDP, and CDSB, the materiality approach of a sustainability topic is considered through the prism of financially material information. Conversely, in the case of GRI’s the materiality approach of a sustainability topic is not limited to financially material information rather, it advocates that material sustainability information should not be deprioritised based on not being recognised as financially material by the organisation. The trend of considering sustainability through the prism of financially material information has some further positive direct consequences. Firstly, it will make non-financial sustainability data quantifiable and will improve its usefulness as investment grade information. Secondly, it will facilitate the flow of capital towards the green economy and will advance the emerging sustainable finance domain. However, focusing on the financial materiality of sustainability information alone may lead to a sub-optimal outcome in the long term and may defeat the merits of early normative arguments for sustainability accounting and reporting over traditional financial accounting. Hence, the literature argues that the inherent non-financial nature of ESG date should be embraced by the financial market. The pressure to incorporate calculability into ESG data may make many ESG issues invisible. Because of the growing divergence within various sustainability frameworks and standards, there is a global trend towards convergence of sustainability or ESG reporting frameworks and standards. We have seen the formation of the Value Reporting Foundation after the merger of the International Integrated Reporting Committee (IIRC) and Sustainability Accounting Standard Board (SASB).Having said that, the fundamental conceptual models of IIRC and SASB did not cease to exist. In addition, there is an international collaboration underway to consolidate sustainability or the ESG landscape under one comprehensive international sustainability standards. Hence, in 2021 the International Financial Reporting Standards (IFRS) Foundation have established the International Sustainability Standards Board (ISSB). The project is backed by the Financial Stability Board, the International Organisation of Securities Commissions, regulators, corporations, institutional investors, and other stakeholders. Currently, the Technical Readiness Working Group (TRWG) has been set up to enable the ISSB to draft a new international sustainability standard based on existing standards and frameworks, including the Climate Disclosure Standards Board, the Task Force for Climate-related Financial Disclosures (TCFD),the Value Reporting Foun dation’s Integrated Reporting Framework and SASB Standards, and the World Economic Forum’s Stakeholder Capitalism Metrics. The ISSB proposed to provide material, thematic and industry focused sustainability information relevant to investors’ decision-making. The materiality approach of ISSB’s proposed standards will focus on identifying“…sustainability matters that are reasonably possible to affect enterprises’ value creation, preservation, or erosion over the short, medium, and long term which therefore would impact investors’ investment decisions…”. Finally, the global trend in sustainability or ESG disclosures suggests that there has been considerable uptake of sustainability practices among companies worldwide from around paltry 12% in the early 90s to 80 % in 2020. The percentage is even higher, upto 90 percent, among the world’s largest companies. GRI has remained the dominant ESG reporting standard globally, over peers such as IR and SASB. The reason may be that GRI is the pioneer in this landscape, and hence possibly garners much more universal acceptance and legitimacy because of its stakeholder focus, rather than investor only focus. However, there has been a growth in adoption of IR in France, Japan, India, and Malaysia over recent years. One additional significant trend is the growth in providing third-party assurance of sustainability information by reporting entities. Even though ‘reporting on risk from biodiversity losses remained low, climate change risk caught the imagination of the corporate world. In regard to SDGs, the trend suggests that reporting on SDGs by corporates is often unbalanced and disconnected from business goals. However, the silver lining is that most companies are connecting their activities with the seventeen global Sustainable Development Goals set by theUnited Nations.