Leading sustainability and integrated reporting organisations plan to provide joint market guidance, in an effort to achieve comprehensive harmonisation.

By Paul A. Davies and Michael D. Green

A group of leading sustainability and integrated reporting organisations — including the Carbon Disclosure Project (CDP), the Climate Disclosure Standard Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Board (SASB) — have pledged to work together on the harmonisation of sustainability standards. In the document, which was published on 11 September 2020, the organisations commit to collaborating together by providing joint market guidance on sustainability standards while also building a shared vision of how such standards could complement generally accepted financial principles.


A number of initiatives have accelerated progress towards a comprehensive environmental, social, and governance (ESG) corporate reporting system in the past year. In particular, regulators and policymakers have demonstrated a growing appetite to address the connection between financial risks and ESG-related concerns. Recent examples of initiatives in this area include:

  • November 2019: The Financial Reporting Council published the UK Stewardship Code 2020, setting out standards for UK institutional investors to adopt when engaging with their investments.
  • January 2020: The European Commission announced its proposal to develop non-financial reporting standards that take into account internationally recognised standards.
  • July 2020: The EU’s Regulation on the Establishment of Framework to Facilitate Sustainable Investment (the Taxonomy Regulation) entered into force.
  • April 2020: In a report, the International Organisation of Securities Commissions (IOSCO) acknowledged that only by understanding financial and sustainability information together can investors and governments gain the necessary insight into company performance.

Investors have also complained that the proliferation of ESG standards and lack of standardised approach to reporting make drawing comparisons between companies difficult.

The need for change

As the document emphasises, the need to streamline sustainability standards has become a pressing issue for various reasons. Notably, there appears to be a correlation between certain types of sustainability performance and drivers of enterprise value creation. As a consequence, both companies and capital providers want to better understand sustainability-related risks, in an effort to gain a more accurate overview of the stability and efficiency of financial markets.

Currently, companies use two materiality concepts for sustainability disclosure:

  • Sustainability reporting refers to the topics that are material for disclosure based on the organisation’s significant impacts in this area.
  • The company delineates the sub-set of sustainability topics that are material for enterprise value creation.

In this context, companies would benefit from information that is ‘consistent across time periods, comparable across companies and geographies, and reliable (i.e., it is prepared subject to strong systems of internal control, board governance and oversight, and is assurable)’. The document advocates achieving such a comprehensive reference system.

A comprehensive corporate reporting system

The organisations’ stated aim is to develop standard setting to the same level of maturity as the financial reporting ecosystem. In this respect, the document identifies collective participation and transparent due processes as crucial in establishing the standards. Once set, ongoing maintenance and evolution is also necessary to ensure that all stakeholders continue to agree with the substance of the standards. Such standard setting can, according to the document, be achieved through two distinctive processes, both viewed as equally appropriate:

  • Using multi-stakeholder consultations to establish a globally agreed set of sustainability topics and related disclosure requirements.
  • Acknowledging that a specific user’s primary objective is economic decision-making by filtering, from the agreed set of sustainability topics, those which are reasonably likely to affect a company’s financial condition or risk profile.

The document also emphasises that sustainability disclosure standards must encompass standards that meet the needs of a variety of users, as organisations are accountable to a wide range of stakeholders. Equally important, the sustainability information should be structured around agreed taxonomies and should be available digitally.

The document reiterates the organisations’ commitment to engage with various stakeholders across the ecosystem, including companies, investors, governments, and civil society. Whether such ambitions will be brought to fruition remains to be seen.

Latham & Watkins will continue to monitor developments in this area.

This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.