Two of the industry’s top ESG frameworks merged last week to form the Value Reporting Foundation to help address a common complaint among private markets participants that overlapping guidelines are creating inefficiencies.
The International Integrated Reporting Council and the Sustainability Accounting Standards Board announced the partnership as part of an effort to “make it easier” for companies and investors to review ESG performance and plan long-term strategies, according to a statement the organisations released.
Combining both frameworks under the Value Reporting Foundation will deliver a “more coherent” standard for market participants to use, the statement said.
As ESG business practices have gained prominence and risen among investor’s priorities, numerous ways to measure sustainability and performance have been created across sectors and geographies. The growing number of reporting frameworks has left some LPs unsure which ones are the most comprehensive, while GPs have said they face an ever-growing list of questionnaires to submit.
“Businesses and investors have long asked for more clarity and simplicity in the corporate reporting landscape. Our merger is a direct response to this call,” Amanda Medress, a spokesperson for the Value Reporting Foundation, told New Private Markets in an email.
Both frameworks in the merger differed slightly in what they provided market participants.
The IIRC has been more widely adopted across global markets and provides principles and guidance about how companies and investors can build out ESG reporting structures. SASB, which is more popular in the US than elsewhere, provides standards that have industry-specific disclosure topics and metrics to help identify risks and opportunities.
“When used together, integrated reporting creates the connectivity needed to understand the relationship between sustainability and financial performance,” Medress said.
John Hodges, a vice-president at the ESG consulting firm Business for Social Responsibility, told New Private Markets that even more framework consolidation would likely help companies and investors sort through inefficiencies and inconsistencies.
“Fragmentation is still a huge problem. The proliferation of disclosure standards is a big challenge,” Hodges explained. “When you start getting to three, four, five standards, reporting becomes unmanageable.”
In an analysis last month, New Private Markets found that many GPs across continents were considering, or had already developed, internal reporting guidelines to help eliminate a patchwork system of standards required by many LPs.
“Integrated reporting,” Hodges added, would help “raise the bar on the quality of information and the accountability to that information”.