11.1 Global sustainability reporting regulations and policies

Global sustainability reporting regulations are shaping corporate practices worldwide. From comprehensive frameworks like GRI to industry-specific standards like SASB, these guidelines aim to increase transparency and accountability in business operations.

The impact on corporate reporting is significant. Companies are integrating sustainability into their strategies, improving transparency, and enhancing stakeholder engagement. However, challenges remain in consistency, comparability, and driving actual sustainability performance improvements.

Global Sustainability Reporting Regulations

Comprehensive Sustainability Reporting Frameworks

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• The Global Reporting Initiative (GRI) provides a comprehensive sustainability reporting framework widely used by organizations worldwide to disclose their economic, environmental, and social impacts
• The International Integrated Reporting Council (IIRC) offers a framework for integrated reporting, which combines financial and non-financial information to provide a holistic view of an organization's value creation process (annual reports, sustainability reports)

Industry-Specific and Issue-Focused Standards

• The Sustainability Accounting Standards Board (SASB) develops industry-specific sustainability accounting standards to guide the disclosure of financially material sustainability information by companies to their investors (technology, healthcare, financials)
• The Task Force on Climate-related Financial Disclosures (TCFD) provides recommendations for voluntary, consistent climate-related financial risk disclosures to be included in mainstream filings (annual reports, sustainability reports)
• The Carbon Disclosure Project (CDP) runs a global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts, focusing on climate change, water security, and deforestation (greenhouse gas emissions, water usage, deforestation risks)

Voluntary Initiatives and Principles

• The United Nations Global Compact (UNGC) encourages businesses to adopt sustainable and socially responsible policies and to report on their implementation through the Communication on Progress (COP) report (human rights, labor, environment, anti-corruption)
• The Principles for Responsible Investment (PRI) is an international network of investors working to incorporate environmental, social, and governance (ESG) factors into investment decisions and ownership practices, promoting sustainability reporting among investee companies

Impact on Corporate Reporting Practices

Increased Transparency and Accountability

• The adoption of sustainability reporting frameworks has led to increased transparency and accountability in corporate reporting practices, as companies are required to disclose their environmental, social, and governance (ESG) performance (carbon footprint, diversity and inclusion, board composition)
• Mandatory sustainability reporting requirements in certain jurisdictions, such as the European Union's Non-Financial Reporting Directive (NFRD), have accelerated the adoption of sustainability reporting practices by companies (large public-interest entities)

Integration of Sustainability into Business Strategy

• Sustainability reporting regulations have encouraged companies to integrate sustainability considerations into their strategic decision-making processes and risk management practices (materiality assessment, stakeholder engagement)
• The integration of sustainability reporting with financial reporting, as promoted by the IIRC's integrated reporting framework, has led to a more holistic approach to corporate reporting and value creation (value creation model, capitals)

Enhanced Comparability and Stakeholder Engagement

• The standardization of sustainability reporting through frameworks like GRI and SASB has improved the comparability and reliability of sustainability information across companies and industries (key performance indicators, industry benchmarks)
• The increasing demand for sustainability information from investors, consumers, and other stakeholders has driven companies to enhance their sustainability reporting practices and engage in more comprehensive disclosures (investor relations, customer communication)

Effectiveness of Regulatory Frameworks

Challenges in Consistency and Comparability

• While sustainability reporting frameworks have contributed to increased transparency and comparability, the voluntary nature of many frameworks has led to inconsistencies in reporting practices across companies and industries (scope of disclosures, reporting boundaries)
• The absence of a globally harmonized sustainability reporting standard has created challenges in comparing and benchmarking sustainability performance across different countries and regions (different frameworks, local regulations)

Limitations in Driving Sustainability Performance

• The effectiveness of sustainability reporting in driving actual sustainability performance improvements has been questioned, as some companies may engage in "greenwashing" or selective disclosure of positive information (cherry-picking, lack of context)
• The current regulatory frameworks have been more effective in promoting disclosure of sustainability information rather than ensuring the quality, accuracy, and completeness of the reported data (data quality, assurance)

Need for Mandatory Requirements and Assurance

• The lack of mandatory sustainability reporting requirements in many jurisdictions has limited the widespread adoption of comprehensive sustainability reporting practices (voluntary reporting, non-standardized disclosures)
• The assurance and verification of sustainability reports by third-party auditors are not consistently required or regulated, which may affect the credibility and reliability of reported information (limited assurance, variability in assurance standards)

Sustainability Reporting Requirements: Country vs Region

European Union

• The European Union's Non-Financial Reporting Directive (NFRD) requires large public-interest entities to disclose information on their environmental, social, and employee-related matters, human rights, anti-corruption, and bribery issues (mandatory reporting, broad ESG coverage)
• The EU Taxonomy Regulation establishes a classification system for environmentally sustainable economic activities, aiming to provide clarity and consistency in sustainability reporting (green taxonomy, sustainable finance)

United States

• The United States has no mandatory sustainability reporting requirements at the federal level, relying primarily on voluntary disclosure frameworks and market-driven initiatives (GRI, SASB)
• The Securities and Exchange Commission (SEC) has issued guidance on climate-related disclosures, encouraging companies to consider the potential material impacts of climate change on their business (risk factors, management discussion and analysis)

Asia-Pacific Region

• China's Environmental, Social, and Governance (ESG) Reporting Guidelines, issued by the China Securities Regulatory Commission (CSRC), provide a framework for voluntary ESG reporting by listed companies (key performance indicators, industry-specific guidelines)
• In Japan, the Ministry of the Environment has published Environmental Reporting Guidelines to encourage companies to disclose environmental information (environmental management, eco-efficiency)
• India's Securities and Exchange Board of India (SEBI) mandates the top 1,000 listed entities by market capitalization to file Business Responsibility Reports (BRR) describing their ESG initiatives (National Voluntary Guidelines, stakeholder engagement)

Other Regions

• In South Africa, the King Code of Corporate Governance (King IV) recommends that companies prepare an integrated report that includes both financial and sustainability information (integrated thinking, value creation)
• Brazil's Brazilian Securities and Exchange Commission (CVM) requires listed companies to disclose environmental and social information in their annual reports (socio-environmental responsibility, stakeholder engagement)
• Australia's Australian Securities Exchange (ASX) Corporate Governance Council recommends that listed companies disclose material exposure to environmental and social sustainability risks (risk management, corporate governance)