ARTICLE

The Convergence of Sustainability Disclosures and Reporting

From early efforts by the International Organization for Standardization (ISO) in the 90’s to recent consolidation under the International Sustainability Standards Board (ISSB), the landscape of sustainability disclosures and reporting has been marked by both incredible progress and considerable complexity. 

Multiple frameworks, each with its unique guidelines, metrics, and terminology, have created a maze of confusion. In a welcome shift, we are now on a path toward a more unified approach that captures not just the intricacies of environmental risks but also the opportunities and dependencies that come with them. Beyond mere consistency, these evolving frameworks are setting the stage for a future grounded in holistic, systems-based analyses. 

In this article, we outline how these standards and frameworks are converging to provide companies, investors, governments, and policymakers with more reliable and comprehensive sustainability data. 

Early Evolutions in Sustainability Reporting Standards

In the late 1990’s organizations such as the International Organization for Standardization (ISO) and the Global Reporting Initiative (GRI) recognized the need to create standards around institutional environmental reporting. Over time, the reporting and disclosure space grew, and more standards organizations were formed. In 2000, the Carbon Disclosure Project (CDP) was launched, followed by the Climate Standards Disclosure Board (CSDB) in 2007. Within a few years (2010), the International Integrated Reporting Council (IIRC) was formed, along with the Sustainability Accounting Standards Board (SASB) (2011). The focus of these organizations was primarily on creating frameworks for standardized environmental/ sustainability reporting that limited the potential for greenwashing and exaggerated or erroneous sustainability claims. 

In 2015, the Taskforce for Climate-related Financial Disclosures (TCFD) was created by the G20 Finance Ministers and Central Bank Governors within the Financial Stability Board (FSB). The TCFD expanded organizational reporting requirements beyond just sustainability measures and into financial risk disclosures. Climate risk financial disclosure standards were released by TCFD in 2017. This was followed by the more nature-based Taskforce for Nature-related Financial Disclosures (TNFD) in 2021. Final TNFD guidance for nature-based risk disclosures were released in 2023. 

A Tipping Point Spurs Consolidation and Collaboration

By early 2020, it was clear that the proliferation of sustainability standards and certifications had hit a point where considerable confusion was developing within the industry in regard to requirements and expectations. This led to consolidation efforts between the various organizations. The consolidation started in the climate space with the CDP moving in 2018 to reconcile their reporting requirements with the TCFD climate disclosure requirements. As a result, CDP now advertises that compliance with CDP standards provides compliance with TCFD disclosure requirements. 

Consolidation of the broader “nature-based” sustainability standards followed soon after in 2020 when five standards organizations announced a “shared vision” for financial accounting and sustainability disclosures. 

“In September 2020, Carbon Disclosure Project (CDP), Carbon Disclosure Standards Board (CDSB), Global Reporting Initiative (GRI), IIRC and Sustainable Accounting Standards Board (SASB) announced a shared vision for a comprehensive corporate reporting system that includes both financial accounting and sustainability disclosure, connected via integrated reporting. The joint statement outlined how existing sustainability standards and frameworks can complement generally accepted financial accounting principles (Financial GAAP).” https://sasb.org/about/sasb-and-other-esg-frameworks/  

This consolidation was focused on highlighting the compatibility of the various frameworks to provide building blocks to capture the nuances of materiality and scope that different sectors and organizations faced. 

However, by the end of the year, further consolidation occurred between SASB and IIRC resulting in a combined standard – the Value Reporting Foundation (VRF). This combined standard was finalized in June 2021. Within five months, the consolidation trend took a big step forward when the International Finance Reporting Standards (IFRS) announced the formation of the International Sustainability Standards Board (ISSB). While the creation of the ISSB may have appeared to just be another standards organization adding to the complexity, within just a few months, the Climate Standards Disclosure Board and the VRF had consolidated into the ISSB. 

The consolidation continued in 2022 with GRI and IFRS/ISSB entering into an agreement through a Memorandum of Understanding. The MOU has provisions for coordinated joint standards setting and joining each other’s consultative bodies to ensure alignment of standards evolution. As GRI has noted, their aspiration for this collaboration is to achieve greater alignment of the reporting landscape: 

“We firmly believe that, for reporting on sustainability issues to be effective, it has to be built on a two-pillar corporate reporting structure, with financial and sustainability disclosures on an equal footing. We are working with a variety of international and intergovernmental organizations to achieve this, including the IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG). The aim of our collaboration is to achieve greater alignment and harmonization of the sustainability reporting landscape for the benefit of companies, investors, and society at large.” https://www.globalreporting.org/public-policy-partnerships/the-reporting-landscape/

The result of all these consolidations, mergers, and reconciliations is that sustainability disclosures and reporting requirements are moving towards ever-increasing alignment: 

Looking Forward Toward a More Holistic and Systems-Based Approach 

If the various standards organizations are moving towards alignment – it raises the question of where the aligned standards are ultimately going to land. The evolution of environmental disclosure and reporting requirements over the past 25 years illustrates a clear trend line suggesting a likely course for both sustainability and sustainability reporting and disclosures. The common theme within that trend line is movement towards comprehensive assessment of nature-related risks, dependencies, and opportunities. 

While all of the standards recognize the need for a comprehensive assessment of nature, they are less clear about whether being comprehensive requires being holistic and systems based. The approach used by GRI is representative of how this issue is currently addressed among the standards organizations. The GRI standards require the user to identify impacts to the economy, the environment, and people. These impacts are assessed to determine whether they are material, and for those that are material, they are grouped into “topics” for reporting purposes. GRI provides the following explanation of this approach: 

“Grouping impacts into topics, like ‘water and effluents’, helps the organization report in a cohesive way about multiple impacts related to the same topic. The organization can group impacts into topics according to general categories that relate to a business activity, stakeholder category, type of business relationship, or an economic or environmental resource. For example, an organization’s activities result in water pollution, which causes negative impacts on both ecosystems and local communities’ access to safe drinking water. The organization can group these impacts into the topic of ‘water and effluents’ as both impacts relate to its use of water.” GRI Standards, GRI 3: Material Topics 2021, page 14 (Effective date: 1 January 2023) 

The standard recognizes that negative impacts on water quality could have negative consequences within the broader ecosystem but does not explicitly require exploration of the causal chain of potential impacts within the system. Such an exploration is implied by the requirement that all material impacts be disclosed, but fails to explicitly require holistic, systems-based analysis. This is not surprising since there are very few tools or metrics that currently enable such an analysis approach. 

However, there are clear indications that holistic, systems-based analysis will eventually become an explicit requirement within sustainability standards language. The following language from TNFD’s most recent guidance document certainly hints at this direction: 

“Nature-related disclosures should be integrated with other business and sustainability related disclosures whenever possible to provide report users with an integrated and holistic picture of an organisation’s financial and non-financial circumstances. Importantly, this includes integration of climate and nature disclosures. An organisation should ensure that any alignment, contributions and possible trade-offs between actions and targets for climate and nature are clearly identified.” https://framework.tnfd.global/wp-content/uploads/2023/04/TNFD_v0.4_Annex_4.4_v4.pdf 

The same document hints at both the reluctance to currently mandate systems-based analysis, and the potential movement towards full holistic, systems-based analysis when it states: 

“It is recognised that nature-related metrics disclosure will continue to evolve and deepen as data and methodologies improve.” Id. 

However, the most blatant recognition of the need and eventual movement towards systems-based analysis is provided by the transformation of the Carbon Disclosure Project over the past decade. In 2000, when the Carbon Disclosure Project was formed, climate change, and in particular carbon was seen by many as the primary environmental concern. However, the “Carbon Disclosure Project” recognized the need to for more holistic thinking both around preserving the environment, but also around climate change. Accordingly, the CDP eventually moved beyond just carbon – as they state on their website: 

“By shortening our name to ‘CDP’ (in 2013) we have been able to both preserve the global brand we were known for and address the necessity of understanding wider environmental impact. In 2021 we launched a new strategy that expanded our horizons further still to cover all planetary boundaries. Our ambition continues to grow, expanding to new areas such as biodiversity, plastics and oceans, and recognising the interconnectedness of nature and earth’s systems.” https://www.cdp.net/en/info/about-us (emphasis added) 

Conclusions

The field of sustainability disclosures has come a long way from its fragmented beginnings. The respective standards for nature-based financial risk disclosure requirements and general sustainability reporting requirements are actively moving into alignment and gaining consistency with regard to what to measure and how to think about potential impacts, opportunities, and dependencies. Additionally, the trend of the standards industry is to recognize the need for comprehensive assessment of potential material impacts, opportunities, and dependencies. 

Capturing the complex relationships in nature, while making reporting and disclosure as easy as possible for users, will be the next grand challenge for the industry (particularly considering the mixed results associated with the simplistic approach taken by some to carbon reporting). 

However, the improvement of tools to support nature-based financial risk disclosures and sustainability reporting will help tip the balance towards easier compliance with emerging standards. Early indications suggest that there is a desire and recognition of the need to move towards holistic, systems-based analysis – a trend that will likely accelerate as adequate tools and resources become available. 

EMX's newly released Ecosystem Intelligence (EI) platform is a notable advancement in this space. Focused on holistic, systems-based analysis, EI makes it easier for organizations to conduct thorough assessments of their environmental impacts, opportunities, and dependencies – no matter the disclosure or reporting framework at hand. 

Kevin Halsey 

EcoMetrix Solutions Group, Sr. Analyst 

Ecosystem Intelligence, Founding Partner 

kevin@ecometrixsolutions.com