8.3 Need for Standardized Global Reporting

Institutional investors want to see robust governance on sustainability topics, including oversight by the board of directors, and are demanding more consistent, comparable, and reliable sustainability reporting. 

The following three priorities can be identified: 

• Investors want better-quality ESG data. On the one hand, they have concerns over whether companies really are as sustainable as they make out (“greenwashing”). On the other hand, there is a need to improve the analysis of sustainability data so that it can be properly presented in discussions with investors. This also includes addressing the relevant data collection methods and IT systems.

• The vast majority of investors miss a clear focus on the issues that are financially important (financial materiality). Long-winded reports with no clear focus can often obscure important information. The key factor here is the link to a company’s core business; however, investors note a lack of alignment between ESG reporting and financial reporting.

• Investors want a standardized global reporting framework as well as mandatory ESG reporting requirements, including independent assurance, in order to ensure the consistency and comparability of the disclosed information.

At present, the frameworks provided by the International Business Council of the World Economic Forum (WEF IBC) and the IFRS Foundation/International Sustainability Standards Board (ISSB) cover investors’ needs, as they focus on sustainability through the lens of financial performance. By consolidating TCFD, SASB, and Integrated Reporting, the IFRS Foundation has taken a big step toward creating a globally consistent basis for sustainability reporting. The first standards (IFRS S1 and S2) were published in mid-2023. More than 20 countries, representing half of the global GDP, have already committed to adopting the IFRS sustainability standards. 

In addition to this, it is also recommended that companies report on their external impact. In this regard, the GRI standards are most commonly used as a framework for sustainability reporting. At least in Europe, the adoption of the Corporate Sustainability Reporting Directive (CSRD) will, in the medium term, establish the double materiality approach, which explicitly considers both the impacts on a company and the external impacts of that company. Furthermore, the EU Taxonomy promises a uniform classification system for investors that determines which business activities – and thus companies – can be rated as sustainable.

Even though a Swiss company should not be directly affected by corresponding EU regulations, these may well be relevant, either because investors have to report under the EU Sustainable Finance Disclosure Regulation (SFDR) and need information about the underlying instruments, for example, or because clients and business associates may request certain information. Global capital markets are not constrained by national borders, and issuers should carefully monitor these international regulatory developments.

Ultimately, investors want transparency and balanced reporting on a company’s performance, rather than mere lip service and glossy brochures. With regard to the level of credibility required, investors also take into account governance aspects, such as ESG components in senior management remuneration systems, external independent audits of sustainability performance, or whether the sustainability team reports directly to the executive management and how the board of directors is involved. Subpar ESG performance can lead to shareholder activism aimed at influencing the management and improving a company’s performance. If this is unsuccessful, investors might even consider selling their shares and bonds.