2024 Trends, Themes, and Predictions: Standardizing Standards: The Move Toward Consolidating ESG Frameworks

Angela Centeno, CPA

Director, Research

Angela Centeno has more than 25 years of experience in financial services. Prior to joining Cutter in 2015, Angela worked for The Northern Trust Company in multiple roles including sourcing and procuring enterprise market data, investment operations outsourcing, and vendor and custodian relationships. She previously held senior positions in operations management, project management, data management, and solutions implementation. Angela earned a bachelor of science in accounting and a bachelor of science in business administration from the University of Kansas, as well as an MBA in finance from DePaul University. She is a registered CPA.

Recent research assignments and publications include the following:

AI Use Cases in Investment Management: Infinite Possibilities
Alternative Investments
Client Reporting Systems
Cutter Benchmarking: Alternative Investments
Cutter Benchmarking: Derivatives and Collateral Management
Cutter Benchmarking: Firmwide ESG Capabilities
Derivatives and Collateral Management Solutions
ESG Data Management
ESG: It’s a Jungle Out There ─ A Look at the Data Provider Landscape
ESG Investing: One Vision, Many Lenses
Market Data Administration
Private Debt

Rein van Rooyen

APAC Practice Lead, Consulting Principal – Performance and Risk

Rein van Rooyen is a results-driven finance and investment industry leader with international experience spearheading teams and achieving outcomes within highly competitive environments. Rein is well versed in leading change agendas, including building capabilities, integrating functions, culture journeys, structure realignment, and operational transformations. Rein comfortably navigates ambiguity, drives forward change, and develops innovative commercial solutions with a sustained commitment for stakeholder centricity and broader organizational impacts. A global thought leader and champion of innovation and transformation, he has extensive experience across superannuation, investment management, banking, risk, and insurance. He has a deep understanding of investment management system use and design.

Prior to Cutter, Rein spent five years at QSuper, where he led the middle and back office for the AUD 100 billion fund, including overseeing investment data, investment performance & analytics, investment risk & compliance, trade support, cash & treasury, collateral management & optimization, valuations & alternatives, investment implementation and deal team, as well as fund operations. He also worked for PwC in the United Kingdom and the Netherlands, where he led a variety of client engagements.

Jan 31, 2024

The following blog post is one in a series of Cutter 2024 Trends, Themes, and Predictions that provides insights into industry challenges and considerations for firms in 2024 and beyond.

“In August 2022, the International Sustainability Standards Board (ISSB) assumed responsibility for the SASB Standards when the Value Reporting Foundation (VRF), the global nonprofit that previously maintained these Standards, consolidated into the International Financial Reporting Standards (IFRS) Foundation.” Source: IFRS

Did you get all that?

Neither did we the first time we read it. But it perfectly exemplifies the chaos that reigns over the ESG landscape of standards, frameworks, and the regulations that asset managers and asset owners face. When it comes to ESG, firms are managing common challenges as they try to advance their data, investment, and operational practices. And according to Cutter’s inaugural Firmwide ESG Capabilities Benchmarking survey released in September 2023, firms listed as a top challenge remaining compliant with ESG regulatory requirements and emerging standards and frameworks ─ all of which are evolving, often rolled out in phases and vary by jurisdiction. International standards are not, well, standard at all.

And, boy, are there lots of them. The table identifies a lengthy list of frameworks and standards that respondents to our survey are supporting, with the PRI/SDG, SFDR, and TCFD named as the most widely required frameworks/standards in our study. Two additional frameworks/standards ─ the Bank of England's Climate Biennial Exploratory Scenario (CBES) and S&P Global’s Corporate Sustainability Assessment (CSA) ─ were noted as “Other,” but there are many more.

Source: Cutter Firmwide ESG Capabilities Benchmarking survey, September 2023

Where Are We Headed?

Not only do numerous standards and frameworks ─ some voluntary, some regulatory ─ exist, but approaches to ESG also continue to differ across the globe. The United States has politicized ESG to the point where some states are enacting anti-ESG legislation. Meanwhile, the European Union, which has long led the charge for ESG regulations, is set to finalize its Corporate Sustainability Reporting Directive (CSRD) in 2024. Countries like Australia, Canada, and Singapore seem open to introducing ESG standards. For some Asian countries, the idea of ESG remains theoretical, but many others in APAC are jumping on the ESG bandwagon. Overall, we are seeing a global trend toward standardizing ESG standards.

To that end (and back to the confusing language at the beginning of this piece), we see a concerted effort by leading industry participants to push forward globally recognized directives. The IFRS announced the formation of the ISSB in 2021 at COP26 in Glasgow, Scotland, to develop standards that result in comprehensive global sustainability disclosures. In June 2023, the ISSB issued the following first two disclosure standards:

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information
IFRS S2 Climate-related Disclosures

IFRS S1 requires firms “to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect a firm’s cash flows and its access to finance or cost of capital over the short-, medium-, or long-term.” Likewise, IFRS S2 requires firms “to disclose information about climate-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows and its access to finance or cost of capital over the short-, medium-, or long-term.”

Although these two standards are voluntary, industry participants anticipate that they will become the global standard for reporting financial and sustainability together, especially since the ISSB is taking over the responsibility of climate-related disclosures from TCFD beginning in July 2024.

The message is that different jurisdictions will continue to take different approaches to ESG for a long time to come. But while asset managers and asset owners continue maturing their ESG processes, you can be assured that organizations will continue their work in standardizing this complex framework landscape, which all of us should welcome with great optimism.

To learn more about this topic, or speak with a research analyst or consultant, contact us at [email protected].