The technical work conducted in this first year of the Project has demonstrated the many benefits of the Participants’ frameworks and standards, as summarised above and in greater detail throughout this report and accompanying annexes. The actual levels of technical alignment between the frameworks and standards is higher than they are perceived by the market and other stakeholders, attesting to the importance of better and allied communications to facilitate more effective use of the Participants’ frameworks and standards by report preparers. Significantly, the Project has further strengthened the mutual understanding and cooperation between the Participants’ technical and communications teams, the effects of which will be long-lasting.
The Participants have carefully considered the results of the technical work and stakeholder feedback, including a number of investor organisations and report preparers looking for higher ambitions for alignment, in deciding the most effective options for future collaboration to achieve greater alignment. Below explains the Participants initially considered areas for future work that need further discussion and agreement, as well as detailing other options considered.
5.2.1 Three areas for future work
Developing a taxonomy
Emerging from the technical work and stakeholder engagement, there is a great need for a better explanation and enhanced understanding of the common elements and approaches of the Participants’ frameworks and standards. The mapping shows that the essence of the content of the different frameworks and standards is well-aligned, but differences exist in both terminology and determination methodologies. This can result in confusion and misunderstanding amongst report preparers, report users and other stakeholders.
For this reason, the Participants consider it is a high priority to build a taxonomy that can guide report preparers, report users and other stakeholders on the meanings of different terminologies and determination methodologies, articulating the commonalities and interrelations. Such a taxonomy listens to the needs of stakeholders by offering a responsive means of making it clearer how the frameworks and standards align and can be used together to report efficiently and effectively.
The Participants therefore believe that building a taxonomy should be considered the highest priority for future work of the Project. It would require clear scoping, dedicated resources, a clearly defined deliverable and a detailed project plan to realise this ambition, which the Participants are determined to further explore.
Building an online, interactive tool
The formats and level of detail in the Participants’ frameworks and standards can result in difficulties comparing them and, therefore, in employing them effectively together. The Participants believe an online, interactive tool that brings the frameworks and standards together in a manner that allows preparers to understand how they may be used together for different reporting purposes would be of great benefit to the market. It is envisioned that such a tool would significantly improve the efficiency of reporting by reducing confusion and misunderstanding. The taxonomy described above will provide an essential underpinning to such an online, interactive tool. Therefore, the Participants see these two areas of work as acting together to create greater accessibility and understanding of the alignment and complementarity that exists between and across the Participants’ frameworks and standards.
The Participants therefore believe that building an interactive tool, based on the taxonomy considered above, which assists users of their frameworks and standards to navigate their content and common approaches, should be considered the second priority of future work. Like the taxonomy, it would require clear scoping, dedicated resources, a clearly defined deliverable and a detailed project plan to realise this ambition.
Forum for technical development
Building on the forum of the CRD, the Project has further established and reinforced connections between the technical and communication teams of the five Participants. While there have been many such connections between the technical and communication teams on a bilateral level, the Project has brought them all to the table and allowed for a greater exchange of developments, ideas and plans. Going forward, the Participants see value in continuing this collective exchange to promote alignment and achieve greater comparability, consistency and comprehensiveness in their frameworks and standards.
The Participants therefore see value in further structuring their exchanges of knowledge, challenges and ambitions between their technical teams and will initiate the formalisation in the near future.
5.2.2 Other considerations
The Participants considered other potential options for future work that did not result in proposed next steps. The potential options and reasons why they are not proposed next steps are explained below.
One global solution
A number of stakeholders expressed their support for a single, global reporting framework or standard for ESG information to resolve issues of misalignment and confusion. The Participants’ discussions around this idea included consideration of how more formal alliances could benefit report preparers and users, but it was concluded that such a trajectory could not be completed within the CRD given its composition and remit. Indeed, the complexity and cross-jurisdictional nature of the idea should not be underappreciated. Besides, the Participants believe in the complementarity of their frameworks and standards and see highest value in better explaining how they work together.
A key component of the first year of the Project has been to map the Participants’ reporting principles in order to identify any areas of fundamental difference and therefore conflict between the frameworks and standards. The mapping work has shown there to be no such conflicts – the frameworks and standards are unified on the TCFD’s seven disclosure principles for effective disclosure.
In reflecting on the most effective next steps for the Project, the Participants considered aligning their reporting principles around those of the TCFD. However, it was concluded that this would not be the most impactful course of action. Instead of working through the rigorous and lengthy governance processes of each Participant to make such changes, it was felt that strategic communication of the Participants’ essential alignment on reporting principles was a more effective option for the short term.
Aligning beyond the TCFD
The first year of the Project deliberately focused on climate change, with the TCFD recommendations providing a frame of reference and concrete lens for analysis. This allowed the Participants to learn and develop an effective approach to mapping and alignment. In discussions on the next steps for the Project, widening the scope of the mapping to other ESG disclosures was considered in depth by the Participants.
It was concluded by the Participants not to broaden the scope of the mapping for two key reasons. First, feedback from stakeholders and observations of societal and regulatory developments show climate change remains at the top of the agenda for investors and companies. Secondly, the Participants have learnt from listening to stakeholders and completing the technical work that greater effort is needed to communicate and explain the pronounced alignment and collaboration that already exists, especially considering the longer timescales of instigating and achieving further alignment due to important governance and due diligence processes.
Joint, structural approach to updating frameworks and standards
As has been mentioned throughout this report, the Participants each have their own purpose, audience and governance structures. It has been suggested that there could be better alignment in how the Participants work together, which in itself could result in greater harmonisation of the content of their frameworks and standards. For instance, an agreed timeline on updating different content elements between the Participants could ensure aligned conclusions. The Participants have discussed and considered these opportunities at considerable length.
In these discussions, it was clear that different audiences and ambitions of the Participants result in differing stakeholder expectations on the response and urgency in amending and updating the frameworks and standards for individual topics. For instance, stakeholders of a certain participant may demand slow, deliberative process with regard to a certain ESG issue, while the stakeholders of another participant may demand a speedy response for the same issue. The governance processes of each participant are designed to meet their unique ambitions and stakeholder demands, meaning that they would not allow the Participants to commit to any alignment independently from these deliberative processes.