As we work with a flood of businesses now considering their place in the environmental, social, and governance (ESG) space, the number one concern that we hear expressed is A Call for Comprehensive and Clearer ESG Disclosures. As I expressed in that blog post some weeks ago, today there is simply no regulatory guidance for public companies or other businesses in the United States.

In the U.S., where existing laws actually greatly limit the release of and reliance upon ESG information, the only official actions of the federal government have been pronouncements like, Labor Department Will Not Enforce Anti ESG Rule, while new ESG laws appear months if not more than a year away, leaving companies with no good guidance in anticipation of the upcoming annual report season.

However, there may be some good guidance available in a matter of days.

The International Organization of Securities Commissions (IOSCO) plans to publish guidance for raters of corporate ESG performance in July. IOSCO is the international body that brings together the world’s securities regulators and is recognized as the global standard setter for the securities sector. IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation.

This is literally a global issue. A significant move to address the lacking was made in June 2020, when the European Council and Parliament signed the EU Taxonomy Regulation, which replaced voluntary schemes with a single ESG classification system for the EU. Alongside enhanced definitions, the EU is in the process of adopting standardized processes through its Non-Financial Reporting Directive and Sustainable Finance Disclosure Regulation. These measures form part of a broader suite of ESG initiatives designed to channel funding to genuinely sustainable, rather than greenwashed investments.

Progress in standardizing ESG reporting has been made outside of the EU recently too, which, whilst voluntary by nature, has created an equally strong reaction. In January 2020, the International Business Council/World Economic Forum released a report on “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation”. Unfortunately, that strong reaction to this effort has not been positive.

In September 2020, four leading ESG standards organizations, GRI, the Sustainability Accounting Standards Board, CDP (formerly the Carbon Disclosure Project), the Climate Disclosure Standards Board, and the International Integrated Reporting Council declared their intent to collaborate on generating ESG standards. Also in September 2020, the International Financial Reporting Standards Foundation announced the development of its own set of ESG standards. With 120 countries using the IFRS standards as the foundation for company financial disclosure, it is quite possible that the IFRS’ methodology will be picked up and utilized on a large scale, but this still remains to be seen.

The problems that beset further progress in ESG disclosures include synthesizing these attempts at standardization, establishing important definitions (including significantly of materiality), facilitating seamless access to information and ensuring verification of reporting.

IOSCO is working with the IFRS Foundation on setting up a new body by November to write mandatory global standards for company disclosures on climate change.

Of note the instrumentalities of the U.S. government will continue working on its own disclosure rules, no doubt resulting in some differences across the globe creating challenges for multinational companies, but the IOSCO work may well establish common vocabulary and aims.

But this is not an easy undertaking for companies. As companies look to their supply chains for matters of human rights and slavery, one of the hottest matters we are asked about how to address is solar panels. China manufactures nearly 80% of global production of solar panels relying on a technology using silicon that is mined and processed in China’s Xinjiang region where the government’s repression of the Uyghur minority is such that it amounts to genocide according to the U.S. government.

We remain committed to working with our clients in the ESG space, including to aid in improving the quality and quantity of their ESG data while mitigating their risk.