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Convergence of global sustainability reporting standards

Corporate reporting is the sometimes-arcane cousin of other high-profile governance issues that concern investors, such as company leadership and strategy, board independence and effectiveness, executive remuneration and, increasingly, the governance of sustainability matters.

But it is precisely the growing focus on sustainability that has thrust sustainability reporting into the spotlight, with several game-changing developments in 2021 – which carry on into 2022.

At the International Corporate Governance Network’s March 2022 webinar on Global Sustainability Standards, Convergence and the Future, it was observed on several occasions that we are witnessing a once-in-a-generation – if not a once-in-a-lifetime – opportunity to achieve a consolidation of sustainability reporting standards, with the goal of placing sustainability reporting on a par with financial reporting in terms of quality, consistency, comparability and decision-usefulness for both companies and investors. Perhaps the key development in 2021 was the formation of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards (IFRS) Foundation, to stand alongside the International Accounting Standards Board (IASB). At the same time, we saw the merger of key standard setters such as the Sustainable Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) into the new Value Reporting Foundation (VRF). And both the VRF and the Carbon Disclosure Standards Board (CDSB) have also been consolidated into the new ISSB.

Apart from this welcome reduction of acronyms, these 2021 developments also suggest a positive step forward in terms of consolidating global sustainability standards, something that increasingly has become a priority for institutional investors who integrate sustainability and environmental, social and governance (ESG) data and reporting into their investment strategies and decision-making. While progress is clear, and is promising, there was also a clear sentiment expressed at the ICGN webinar that we are not yet where we want to be and that obstacles/challenges remain.

Standard setter convergence, but regulatory fragmentation?

While the tectonic plates of some of the leading reporting frameworks and standards are melding together through the ISSB and VRF, it remains unclear if, at another level, the tectonic plates of different regulatory jurisdictions have the risk of shifting further apart and settling into different ‘camps’, possibly reflecting differing world views of the role of the company vis-à-vis shareholders and stakeholders. Most eyes are on the European Union (EU) in this context and the extent to which its sustainability regulation will – or will not – harmonise with the development of the ISSB (and vice versa). In terms of sustainability standards themselves, the question is how potential conflicts between the two globally dominant standards – the SASB standards within ISSB and European-based Global Reporting Initiative (GRI) – may be resolved.

To its credit, the EU has a good head start and has been an active protagonist, setting the pace with a string of recent regulatory initiatives relating to sustainable finance, including the Corporate Sustainability Reporting Directive, the Sustainable Finance Disclosure Regulation, the EU Sustainability Taxonomy and a proposed Directive on Corporate Sustainability Due Diligence. The EU and its private advisory body, the European Financial Reporting Advisory Group (EFRAG) share the ISSB’s vision of an agreed global baseline for sustainability reporting and they are engaging closely with one another. But it is not clear if there is agreement on exactly what that baseline might be.

Potential obstacles or complications include:

Architecture: should sustainability reporting be focussed on industrial sector (ISSB/SASB approach) or standardised across sectors (GRI approach)?

Materiality: The EU’s focus on double materiality differs from the ISSB’s initial focus on single materiality (as discussed below).

Timing: The EU’s agenda already has momentum, and it is progressing at a faster rate than the ISSB. The development of a new conceptual framework in the financial accounting world can take years, and the ISSB may be under pressure to come together more quickly to keep up, particularly if the EU is to present a possibly conflicting agenda.

As it now stands, the ISSB standards and the GRI standards are emerging as ‘twin pillars’ – and as also potential rivals if this is pitted as one philosophy versus another. However, it is encouraging that the ISSB is engaging with the EU and EFRAG in the spirit of establishing a coherent global baseline for sustainability reporting that is compatible with these protagonists’ own agendas.

But concerns not only relate to potential rivalry between the ISSB/VRF and EFRAG/GRI, but also to the possibility of a new entrant into this debate: the United States. The Biden administration is bringing renewed focus in the US on sustainability reporting, and the US Securities and Exchange Commission (SEC) is now consulting on climate reporting standards for US-listed companies – the world’s largest stock market.“


While it is positive to see the US more engaged in the sustainability reporting debate, it is currently unclear how the SEC’s initiative will progress: will it go its own way? At present, there are some concerns that this could, at worst, evolve into three incompatible ‘systems’: the ISSB, EU and the US. Such a scenario would be a setback for investors and sustainability reporting generally. Investors are, therefore, understandably keen to avoid a regional fragmentation or balkanisation of sustainability standards that would make elusive the aspiration of achieving global standards.

Materiality: single, double, dynamic – is the definition of materiality an obstacle to convergence?

For some observers, the question of single versus double materiality has evolved into a philosophical line in the sand – in particular, the question of materiality to whom? Single materiality reflects how potential ESG factors might impact the company itself (and its shareholders) financially, whereas double materiality focusses on how the company impacts its stakeholders and society more broadly. The SASB standards, now embedded in the ISSB, were originally focussed on the US market and take the approach of single materiality. While the ISSB may address double materiality at some point, that is not where it will start. This contrasts with the EU’s focus on double materiality and impact on stakeholders generally. In turn, the GRI, which predates the SASB standards, is focussed on all stakeholders, not just shareholders.

Are we going to be condemned to having to choose between two or, possibly, three world views in sustainability reporting? Hopefully not. The thesis of single materiality and the possible antithesis of double materiality can, arguably, be resolved dialectically by creating a synthesis in the form of ‘dynamic materiality’.  Dynamic materiality suggests that a non-financially material sustainability issue in 2022 can, over time, morph into a clearly financial issue – whether that is in 2022, 2023, 2030 or beyond. While just a concept, dynamic materiality is an important one and, in many ways, it can be used to bridge potential disconnects between the single reporting camp and double reporting camp.

Many investors, including ICGN, appreciate the practical challenges that the ISSB will face as it begins to take shape. It will want to walk before it runs, and it will be important for the ISSB to have a victory in achieving single materiality consolidation before it moves on to the more open-ended, and possibly less well-defined perspective brought by double materiality. Having said this, many investors want companies and their boards to better understand the social and environmental impacts of the company in a double/dynamic materiality framework, even though this may be more technically challenging and possibly less assurable.

So, progress has been made and the journey to consolidation continues. But we are not yet where we want to be. While there will inevitably be obstacles and philosophical differences along the way, it will be critical that the key regulatory and standard setting bodies maintain the vision of a shared global sustainability reporting baseline and a coherence between the standards of the EU, the ISSB – and, possibly, the US. That is certainly what investors are looking for, and most likely companies as well.


Ethical Boardroom is a premier website dedicated to providing the latest news, insights, and analyses on corporate governance, sustainability, and boardroom practices.

Ethical Boardroom is a premier website dedicated to providing the latest news, insights, and analyses on corporate governance, sustainability, and boardroom practices.


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