ESG voices — cacophony or harmony?
On 21st March, the SEC announced a long-awaited proposal for future climate disclosures by US listed firms. If they escape the reductive force of the legal process, these proposals would emerge as a new set of rules requiring public companies to disclose information from December 2022 (in reality, therefore, as part of FY23 reporting). The proposals are heavily modelled on TCFD (Task Force on Climate-related Financial Disclosures) and the Greenhouse Gas Protocols and cover: governance construct for climate-related risks, climate-related risks and impacts, the use of an internal carbon price, risk management process and integration of climate-related risks, transition plans, GHG emissions metrics (Scope 1, 2 and, for those for whom it is material, Scope 3), 3rd party attestation of Scope 1 and 2 emissions, the basis for any climate-related targets and goals, information about the use of carbon offsets, climate-related financial metrics.
The adoption of this set of proposals would catch the US market up with UK and EU progress, respectively through their adoption of TCFD and CSRD (Corporate Sustainability Reporting Directive) requirements into law for large companies, and marks an important step towards the standardisation of reporting requirements globally that can only add to the efforts of SASB and CDSB.
In the UK, premium listed companies are already required to disclose under the TCFD framework (from April 2021); the adoption of the SEC proposals (on the timetable outlined) would place the US broadly alongside the EU, with both CSRD and SEC obligations being placed on firms for their reporting of 2023 results, in early 2024.
So how does the SEC’s proposal fit into the plethora of nascent reporting constructs? Does this proposal just add another ‘slightly different’ flavour to a market stall with too many brands of apple already? Such questions inspired us to review the growing number of increasingly loud voices in the ESG ‘influencer’ space and break down who does what. It is, frankly, a confusing marketplace at present ripe for much-needed consolidation and standardisation, as can be expected of a rapidly changing domain characterised by emerging thinking.
We have sought to break down those ‘ESG voices’ (which are currently dominated by those with the transition to net zero as their focal issue) into one of 7 principal categories: “Rule makers” — those that set legislation, “Advisors / influencers” — those with their finger on the scientific pulse that support the rule makers, “Framework providers” — those that contribute structures that help to bring consistency and meaning to a broad scope of ESG issues, “Alliances / coalition builders” — those that aim to collect membership to a common cause and set of outcomes, “Performance monitors” — those who track and rank company performance, “Methodology providers” — those that provide impetus or method to demonstrate quantified results, and “Reporting standards providers” — those helping to corral the market to providing standardised, comparable reporting.
What follows below would not win any prizes for being MECE (mutually exclusive, collectively exhaustive), and is open to categorisation challenges, no doubt. But it presents a way that you might find helpful to isolate some of the players and how they interact.