EY has identified five critical issues that must be addressed within ESG reporting if markets are to maintain their confidence in this information.
In what EY termed as a "make-or-break" moment for ESG, the firm identified six concerns that ESG investing must overcome.
The analysis by EY stated that ESG ratings need to be more transparent, stressing the present significant discrepancy and lack of linkage across ESG rating providers.
According to the paper, the current lack of linkage "reduces confidence in the larger sustainability information ecosystem."
The research also recommends that the industry expand its comprehension of the many applications of sustainability information, elucidating financial risk and social impact, which were found to be readily confounded.
Marie-Laure Delarue, EY global vice chair (assurance) explained: “There is a lack of a common language for sustainability reporting – the “alphabet soup” that has long defined the environment is a jumble that satisfies no one.”
EY has advocated for the establishment of comparable and interoperable taxonomies in order to promote transparency and comparability across regional markets, while taking into account the diverse legal architectures and economic structures of these markets.
In order for market players in emerging economies to benefit from private capital pursuing sustainable initiatives, the paper recommended lowering market entry restrictions.
In addition, it suggested establishing the criteria for assurance, anticipating a growth in need for robust, independent external assurance in the future.
Mandatory assurance requirements for sustainability disclosures are presently being considered in Europe and the United States, which might increase this trend.
By fLEXI tEAM