Bloomberg Tax
Aug. 5, 2022, 4:18 PM

Global ESG Reporting Standards Too Narrow, Unclear, Critics Say

Michael Kapoor
Michael Kapoor
Freelance Correspondent

Draft sustainability reporting standards issued by an international board have been slammed by stakeholders as being too vague, taking too narrow an approach and giving firms too much freedom over reporting.

The International Sustainability Standards Board was set up last year to write the first mandatory, global reporting standards. It published its first two draft sustainability reporting standards covering climate and general sustainability disclosures in March. Over 630 climate-related letters have been submitted and nearly 700 general sustainability-related letters have been shared. The comments ahead of last week’s deadline on a public consultation came from companies, investors, regulators, and academics.

Overall, stakeholders agreed global reporting standards are needed to end the muddle of conflicting voluntary standards being used to report on environmental, social and governance risks. Many supported the board’s decision to base its standards around existing voluntary rules, such as the Task Force on Climate-Related Financial Disclosures. There was some pushback on a decision to aim reporting narrowly at investors, rather than taking the broader approach favored by the European Union, and a call for better definition of key terms.

The United Nations Department of Economic and Social Affairs, for example, wrote that companies should report on a single, core set of sustainability issues instead of the industry-specific rules suggested by the board. The failure to set core disclosures “could lead to selective disclosure,” it said.

Double Materiality

Some criticized the board’s decision to base its rules on those of the Sustainability Accounting Standards Board, a voluntary standard setter taken over by the ISSB whose rules are aimed narrowly at financial investors. Instead, they suggested the international standards should follow the broader “dual materiality” approach used by the EU. The EU requires companies to show the damage they cause to the world as well as the impact of climate change and other threats.

“Any international standard should require companies to disclose not only issues that influence enterprise value, but also information on the company’s broader environmental and social impact (‘double materiality’),” the European Central Bank said.

Investors who are the core audience for the reporting standards echoed the bank. The pensions arm of HSBC Holdings Plc, International Capital Market Association, and Asia Securities Industry & Financial Markets Association all wanted to see the board take the EU’s double materiality approach.

Durham University accounting professor Carol Adams said that Global Reporting Initiative, whose widely-used voluntary rules underpin the EU’s broader approach to ESG reporting, “is best placed to develop Standards.” She called the board’s rules “muddled and flawed.” A survey of big global companies released by the International Federation of Accountants on Monday found that 72% used Global Reporting Initiative standards, compared to 38% using the Sustainability Accounting Standards Board.

Specific Targeting

One issue that irked some stakeholders was the proposal wouldn’t compel companies to set specific sustainability targets, such as reducing pollution, and make them report ESG issues they could face over set, longer-term, periods. The European Central Bank sought a “direct reference to the Paris Agreement goals,” referring to a 2015 global agreement to limit climate change which isn’t mentioned by the board. The UN, among others, echoed the call.

There was broad support for making companies report on the sustainability problems they could face in future but some stakeholders said that could open the door to lawsuits from investors if things didn’t turn out as expected. US investment managers BlackRock, Inc. wanted regulators to give “meaningful protection from legal liability.” Along with companies such as BP Plc, it called for firms to be given enough time to implement ambitious new reporting requirements.

Definition Demanded

The most persistent criticisms were over the ISSB’s failure to define some of the basic terms used in the standards, reflected in the UN’s comments that companies were being given too much leeway over what to report.

The Big Four accounting firms—Deloitte, Ernst and Young, KPMG and PwC, also known as PricewaterhouseCoopers—called for a more concrete definition of terms used by companies to decide what to report. The board had simply copied the International Accounting Standard Board’s definition of materiality as well as introducing a general requirement for companies to report on significant sustainability topics.

“We believe there is a need for additional clarity and consistency with regard to key terms contained in the ED,” said EY, referring to the board’s exposure drafts. “For example, terms such as ‘significant’, ‘material’, ‘relevant’, ‘vulnerable’, are open to wide interpretation,” EY added.

Compatible Standards

Some comment letters urged the board to work jointly with its sister organization, the International Accounting Standards Board, so that financial and ESG reporting rules were compatible.

Sheffield University accounting professor Richard Murphy went further, saying the whole approach was wrong, and companies wouldn’t become greener unless they took a financial hit from sustainability.

Murphy dismissed the need for separate ESG reporting rules.

“What is required is a single new accounting standard that places sustainability on the balance sheet as a cost to be recognised,” he said.

To contact the reporters on this story: Michael Kapoor in London at

To contact the editors responsible for this story: Jeff Harrington at; Yuri Nagano at