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The measuring sticks:
The new standards

ESG has suffered somewhat from a lack of standardised reporting. Terms have been interpreted differently, giving room and opportunity for over-hyped claims, or confusion, aka Captain Greenwash. Various initiatives have come along to try and fix that – as ultimately if it’s not measured, it’s not managed. Here are some of the most important.

THE MEASURING STICKS

It’s designed to get rid of the fluff – to remove the ESG ‘puffery’ as Bloomberg puts it.

– SFDR

THE MEASURING STICKS

It’s largely voluntary, but that is changing; New Zealand, the UK, Switzerland and others have announced they’ll start cracking the whip on companies using it.

– TCFD

THE MEASURING STICKS

A whopping great 550 page document (and they’re not finished adding stuff yet), it’s a classification system that offers a clear definition and common language to describe what counts as ‘sustainable’

– EU taxonomy

TCFD

What it is?

The Task Force on Climate-related Financial Disclosures was created by the FSB (Financial Stability Board) (for both see acronym section) to standardise organisations' climate reporting. It’s a framework that looks at risk in three areas: physical, liability and transition. The idea is that it helps companies understand their long-term climate risk – that then helps investors, other companies and the public make more informed choices. It’s increasingly becoming the standard.

Currently it’s largely voluntary, but that is changing; New Zealand, the UK, Switzerland and others have announced they’ll start cracking the whip on companies using it. (It will be mandatory in the UK from 2025.)

Why it matters?

The idea is that companies will better understand how climate risk can impact their business - that can only help them make better decisions, make more informed plans and improve risk management.

B corp

What it is?

The best know stamp for marking out private companies that balance purpose and profit. The B Corp certification is issued by the B Lab – an independent non-profit – and firms go through quite a rigorous process to get it. Firms that receive it (about 4,000 now, across 77 countries) have a legal requirement to review the impact of the decisions they take on a range of stakeholders, as well as the environment.

Why it matters?

B Corp status carries weight with businesses, consumers and employees alike. In a world where true green credentials can be difficult to determine, it helps raise standards and build trust.

EU taxonomy

What it is?

A whopping great 550 page document (and they’re not finished adding stuff yet), it’s a classification system that offers a clear definition and common language to describe what counts as ‘sustainable’. It’s basically a list of environmentally sustainable economic activities.

Why it matters?

It’s handy because one long standing issue with ESG is that the same words mean different things to different people; ‘you say potato, I say potahto’ type thing. That’s what the EU taxonomy hopes to stop. A common framework should help protect investors from greenwashing, allowing them to channel their money more effectively into sustainable investments. It’s an important part of the European Green Deal and how the EU reaches it’s net zero target.

Sustainable Finance Disclosure Regulation (SFDR)

What it is?

It’s designed to get rid of the fluff – to remove the ESG ‘puffery’ as Bloomberg puts it. It came into force in March 2021 and aims to provide greater transparency on quite how sustainable certain financial products are. It’s part, along with initiatives such as the EU Taxonomy, of the EU’s flurry of legislative efforts to help build a more sustainable Europe.