Impending global ESG reporting standards to lift the veil on climate change disclosures and critical social issues
CRISIL GR&RS identifies 45 key performance indicators likely to appear in a IFRS-led, global baseline ESG reporting standard
ESG and sustainability remain hot topics in the world of investing, and activists are taking up positions in behemoths like Exxon Mobil. Engine No. 1, a sustainability-focused fund, ran a successful proxy campaign against the oil giant and won three board seats. At MarketWatch's Best New Ideas Money Festival last week, Jennifer Grancio of Engine Read More
The Benefits Of Global ESG Reporting Standards
June 17, 2021 | Stamford, CT — Critical sustainability metrics such as direct and indirect emissions, energy performance, climate-related strategies & targets, and social key performance indicators (KPIs) that include pay inequality, employee safety and supply chain practices will experience a meteoric rise in disclosure from companies under a potential new set of global ESG reporting standards.
A new report, Convergence Cometh, Know Thy Blind Spots from CRISIL GR&RS, identifies 45 KPIs likely to be included in the potential global framework of ESG reporting standards. International Financial Reporting Standards (IFRS) will likely roll out such standards in collaboration with standard-setting bodies and regional regulators.
“The inclusion of these KPIs in a set of global disclosure rules will create a new and heightened level of transparency on corporate practices around many important environmental and social issues,” says Abhik Pal, Global Head of Research at CRISIL GR&RS. “However, it’s important to note that even an eventual global standard may not fully integrate financial performance, ESG financial materiality, sector-specific factors and social impact materiality.”
The lack of consistent and globally accepted ESG reporting standards and independent frameworks built from different methodologies has influenced the ESG integration across sustainable investment and lending practices. In such a scenario, the impending guidelines from the IFRS Foundation will serve as a global baseline for ESG reporting and lead to better ESG data and broader coverage among corporates across the world.
In addition, the EU’s influential Corporate Sustainability Reporting Directive (CSRD) will be a good reference in both the EU and beyond due to its breadth, granularity and alignment with the evolving sustainability regulations in Europe.
To help investors and lenders prepare for the implementation of an eventual global standard, CRISIL GR&RS analyzed 120 KPIs recommended by select exchanges and standard-setting bodies and identified 45 KPIs across the E,S, and G pillar. CRISIL GR&RS also identified an additional 15 KPIs that could attract mandatory reporting across EU corporates and drive reporting requirements aligned to Sustainable Finance Disclosure Regulation (SFDR) and EU taxonomy guidelines.
While exchanges and regulators might gradually provide guidance on sector-specific metrics for corporates to report on, a full-fledged integration of sector KPIs into mandatory international standards is still a long way off. That said, the potential architecture of a globally converged ESG reporting standard will bring both benefits and challenges for financial market participants.
“Impending convergence will significantly influence integration and product innovation and financial Institutions will be able to plug missing data and add depth to sustainability assessments,” says Rahul Agarwal, Global Head of ESG at CRISIL GR&RS. “However, the lack of consistent sector-specific metrics and granular green data at a global level may create blind spots, driving demand for proxies and specialized data sets.”
Convergence Cometh, Know Thy Blind Spots reviews the impact of a global ESG reporting standard and the benefits and challenges to asset managers and banks. Asset managers can leverage the impending convergence in ESG reporting standards to bolster their in-house research, enhance product-labeling standards and build more credibility with asset owners. For sustainable lending teams, the impending convergence will drive granularity across term sheets, climate-risk stress testing and innovative social products.
About CRISIL Global Research & Risk Solutions
CRISIL Global Research & Risk Solutions (GR&RS) is the world’s largest and top-ranked provider of high-end research, risk and analytics services. We are the world’s largest provider of equity and fixed-income research support to banks and buy-side firms. We are also the foremost provider of end-to-end risk and analytics services that include quantitative support, front and middle office support, and regulatory and business process change management support to trading, risk management, regulatory and CFO functions at world’s leading financial institutions. We also provide extensive support to banks in financial crime and compliance analytics. We are leaders in research support, and risk and analytics support, providing it to more than 75 global banks, 50 buy-side firms covering hedge funds, private equity, and asset management firms. Our research support enables coverage of over 3,300 stocks and 3,400 corporates and financial institutions globally. We support more than 15 bank holding companies in their regulatory requirements and submissions. We operate from 7 research centers in Argentina, China, India, and Poland, and across several time zones and languages.
CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better. It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint. It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the U.S., the UK, Argentina, Poland, China, Hong Kong and Singapore. It is majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide. For more information, visit www.crisil.com