Calls for alignment on ESG disclosures can sometimes be an excuse for inaction as discrepancies in financial disclosures are fully accepted, according to Mandi McReynolds, global head of ESG at Workiva.
"We are almost holding ESG up asking for greater alignment and bemoaning the so-called 'alphabet soup'," she said. "But look at something like tax, although there is somewhat of an alignment on global standards, it's still very different country by country."
"That's when innovation can be really a wonderful solution," she added.
A big piece of the narrative on alignment relates to the standards being developed at European level by EFRAG and at the international level by the ISSB. With both standard setters having concluded their consultation on their respective first set of exposure drafts, the only consensus amongst stakeholders across the board is a call for greater cooperation between the two bodies to minimise discrepancies between their standards.
One of the criticisms levelled at EFRAG and the European Union is to have failed to openly embraced (unlike the ISSB) the TCFD's four pillars of reporting: governance, strategy, risk management, targets and metrics.
Yet Patrick de Cambourg, president of the ANC and chair of the EFRAG Project Task Force on European Sustainability Reporting Standards, told Corporate Disclosures that the ESRS covered those four pillars, and EFRAG's proposed disclosures could be reconciled in a TCFD format.
"In addition, from a digital standpoint we could dream about a concept I call multi-tagging," he said. "If you take a data point that is deemed equivalent under an ESRS reading, TCFD reading, ISSB reading, SASB reading – that same data point can be used four times, and the reader can just choose the reading she or he wants.
In a world of new technologies, would it really be difficult to do?"
That technology already exists, McReynolds says. "But most companies globally started their sustainability reporting journey in the last three years, and most are just starting to go through implementing technology."
Even if the technology exists, some may remain sceptical of its ability to reconcile the two standards due to the different philosophies behind them - At the heart of this difference is double versus single materiality.
"The users of sustainability disclosures under ESRS or IFRS sustainability standards [shouldn't] take the standards at face value," Finance Watch chief economist Thierry Philipponnat explained. "On the face of it, ISSB and EFRAG are saying the same thing: 'consider scope 3 emissions if they are material'. Seems like good logic with which everyone agrees. Yes, but no! No, because material doesn't mean the same thing for ISSB and EFRAG, in one case it will be financial materiality and on the other hand it will be double materiality."
McReynolds admitted this is work in progress, and "this is really where technology will evolve in the next years to get to a point where it can target for different levels of disclosures".
Where technology can help
A chief sustainability officer who is working through the implementation of the European Corporate Sustainability Reporting Directive (CSRD) told Corporate Disclosures that prepares would need the help of Artificial Intelligence (AI) to comply with the reporting requirements.
"The sheer volume of documents and narrative that needs to be 'consumed' in order to comply calls for the help of AI to help us go through it," the CSO said.
However, McReynolds believes AI may not hold all the answers as nearly three quarters (72%) of respondents to a recent Workiva survey said they did not feel confident in the data reported to stakeholders.
"Investors really feel that the disclosures are boilerplate, and they're also concerned that there's not enough of the data to actually be accurate," she said. "So, if we went the route of AI and searching for the data, we actually won't solve the real problem."
However, technology does already exist to help companies, McReynolds continued. "A company could have up to 700 or more environment, social and governance disclosures and that comes from all different levels of data and source systems - technology exists today to help bring that data all together in one platform."
"What we're seeing around the world is those companies that are more mature and using technology are now moving to unlocking more business value for their company," she said. "Linking that to their other reporting: financial or stakeholder. And beginning to do more forward-looking projections and KPIs to drive greater business for both society and in their companies."
But technology is not only an enabler for regulatory matter, McReynolds highlighted, it can also help produce the right disclosures to different set of investors and customers who may have different interests.
