The Future of ESG Is … Accounting?

Companies, investors and consumers alike are frustrated by a lake of standardized accounting for corporate ESG performance. This might be about to change thanks to a recent proposal from the IFRS Foundation, which is the body that oversees the work of the International Accounting Standards Board (IASB) in setting financial reporting requirements for most companies in the world. If the proposal is adopted, investors and other stakeholders will suddenly have a much clearer view of a company’s sustainability performance—just as they do its financial performance. While most companies today issue sustainability reports, these are divorced from their financial reports, making it difficult to see the relationship between financial performance and sustainability performance. The proposal from IASM will make it possible for the ideal of integrated reporting to be realized.

While sustainability has become a central concern of many managers, investors, and consumers, a major sticking point remains for the ESG movement: There are still no universally adopted standards for how companies can measure and report on their sustainability performance. Instead, we have a large number of NGOs working independently to develop standards for sustainability reporting, which is creating complexity and confusion for companies and investors. But this might be about to change, thanks to a quiet revolution in the accounting community.