ESG reporting has gained significant importance due to demand from consumers, shareholders, and employees, alongside an increasing awareness among investors and financial institutions that sustainability risk is investment risk. The ESG reporting sector has the potential to undergo a transformation due to the increasing importance of ESG performance. For a long time, this sector has been afflicted by a patchwork of conflicting reporting rules and guidelines. The future of environmental, social, and governance (ESG) reporting can be viewed from at least three distinct lenses. The changes that fall under this category include regulatory shifts, industry consolidation around specific frameworks, and consolidation between frameworks.  

Political Turbulence 

At this point, the most recent political atmosphere is an excellent place to begin. Over the past few years, the ESG label has become a lightning rod in certain places. There was a time when major asset managers were very vocal about their attempts to invest properly, but since then, they have toned down their ESG discourse. Some of it may be ideological blowback. The notion that “green always outperforms” is undermined by the fact that renewable energy companies have not had a fantastic run over the past couple of years. Another factor is pure performance.  

On the other hand, it is interesting to note that many businesses continue to take into account social and environmental hazards, but under various names. It could be a response to market forces, it could be a risk mitigation strategy, or it could be a long-term planning strategy. It is possible that the label “ESG” is experiencing a decline in popularity in certain places; yet, worries over carbon footprints, brand reputations, and legal obligations continue to exist. 

Regulatory measures 

There has been a wide range of progress made in terms of regulatory modifications across a variety of national and supranational authorities. The plan that was announced by the United States Securities and Exchange Commission in March 2022 will align a range of corporations with a disclosure that is modelled after TCFD. The government of the United Kingdom is pursuing regulations that are comparable to these. Similarly, the European Union’s sustainable finance package, which comprises the CSRD, the EU Taxonomy, and the SFDR, will demand additional disclosures from businesses that are tied to environmental, social, and governance issues. 

Consolidation of frameworks is also taking place, which is leading to a reporting landscape in which frameworks are concentrating more on their respective niche-specific areas. In addition to the ones that have been listed above, there are a number of other examples of similar agreements. The most recent example is the agreement between the International Financial Reporting Standards (IFRS) and the Global Reporting Initiative (GRI) to coordinate on the standard-setting process. Although it is possible that this will not result in the formal consolidation of multiple ESG frameworks into a single framework, it may be a step toward allowing frameworks to concentrate on diverse aspects of ESG impact.