Sustainability reporting: whose rules are you playing by?

As pressure for firms to contribute to social and environmental goals increases, measurement of that contribution has become more pressing to ensure that everyone is ‘playing by the same rules’. Sustainability reporting standards, conventions and benchmarks are becoming a growth industry.

As Figure 1 shows, however, the range of available standards, of varying scope and detail, can be confusing and interconnected, making it difficult for real estate decision makers to decide which standards they should use both for their own decision-making and brand positioning.

Figure 1: Influences between global, European and UK sustainability reporting

Source: CBRE Research

Standards may be voluntary or mandatory to follow; they may focus on reporting ‘enterprise value’ (to the firm doing the reporting) or reporting the firm’s contribution to society, or both. They may focus only on climate change; or only on environmental sustainability; or encompass all environmental, social and governance issues.

There is clear evidence, however, of convergence and collaboration in the existing patchwork of global and European standards. The longstanding non-profit bodies who have developed many of the existing voluntary sustainability reporting standards have recognised the need to work together – we suspect increasingly under the influence of IFRS, the major global accounting standards body.

Meanwhile, political groupings like the G20 and EU have been developing their own approaches to reporting and definitions through initiatives like the G20’s Task Force on Climate-Related Financial Disclosures (TCFD) and the EU Taxonomy respectively. Because of their political origins, these initiatives are likely to lead the debate on mandatory reporting requirements.  The EU Taxonomy, for example, actively aims to provide a way of discriminating between economic activities which contribute to sustainability and those which do not. This provides a clear dividing line for investors and consumers to use in deciding where to allocate money.

Mandatory reporting is not new. However, the scope and depth of mandatory reporting is very likely to increase, to reflect recommendations like those of the TCFD. Certain G20 nations – most notably the UK – have already said that they will make the TCFD requirements (which were originally voluntary) mandatory. Many (but not all) of the other existing global voluntary standards seem likely to form the basis for mandatory standards in due course.

By 2030, CBRE expects that TCFD will be the leading framework for reporting climate change impacts. However, we suggest that TCFD-style reporting will increasingly rely on IFRS standards rather than the existing voluntary global standards, of which we think there will be fewer – or at least, they will be much better coordinated. In Europe, we expect that the EU Taxonomy will act as a leading vehicle for describing (albeit in rather crude binary terms) what counts as a ‘green’ economic activity.

CBRE thinks that the UK will act as a leading regulator and influencer on these issues. The UK’s decision to back the TCFD’s recommendations; the UK’s decision to introduce its own Green Taxonomy (based, at least technically, on the EU Taxonomy); the UK’s prominence in global financial services; and the fact that the IFRS is headquartered in London, all suggest that the debate on sustainability standards in the UK will likely foreshadow the global debate.