In recent years, Environmental, Social, and Governance (ESG) criteria have become crucial for businesses aiming to demonstrate responsibility and sustainability. However, the proliferation of ESG standards and frameworks has created a complex landscape, often referred to as the “ESG alphabet soup.” This article explores the challenges posed by the multitude of global, regional and local ESG standards and provides practical strategies for businesses to effectively navigate and utilize these standards. 

Understanding the ESG Standards Landscape 

The “alphabet soup” of ESG standards includes numerous frameworks and guidelines developed by various organizations, each with its own focus, metrics, and reporting requirements. Some of the prominent standards and frameworks include: 

• GRI (Global Reporting Initiative): Focuses on sustainability reporting and is widely used globally and is more stakeholder oriented. 
• SASB (Sustainability Accounting Standards Board): Provides industry-specific standards that help businesses disclose financially material sustainability information to investors. Its standards also act as the starting point for the adoption of ISSB standards. 
• ISSB (International Sustainability Standards Board): Aims to create a comprehensive and globally accepted set of sustainability reporting standards that can be integrated with financial reporting and is more investor oriented. 
• TCFD (Task Force on Climate-related Financial Disclosures): Offers recommendations for climate-related financial risk disclosures. 
• CDP (formerly the Carbon Disclosure Project): Runs a global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. 
• ISO 14001: Part of the ISO 14000 family of standards related to environmental management that helps organizations improve their environmental performance. 

Regional Focus: Singapore and Hong Kong

In addition to these global standards, businesses operating in specific regions such as Singapore and Hong Kong must also consider local ESG reporting standards and guidelines: 

• Singapore: The Singapore Exchange (SGX) mandates sustainability reporting on a “comply or explain” basis for listed companies. This includes a requirement to describe the company’s sustainability practices with reference to five primary components: material ESG factors, policies, practices, targets, and performance¹. The Monetary Authority of Singapore (MAS) also provides guidelines encouraging good environmental risk practices among financial institutions and has recently ramped up in streamlining ESG reporting data by publishing a Code of Conduct for Providers of ESG Rating and Data Products². 
• Hong Kong: The Hong Kong Stock Exchange (HKEX) has enhanced its ESG reporting framework and requires listed companies to disclose their ESG policies and performance in annual reports. On 19 April 2024, the HKEX affirmed its commitment to climate disclosure by publishing its conclusions on the new climate requirements under the HKEX Listing Rules, which will become effective 1 January 2025 as the ESG Reporting Code³. Additionally, the Securities and Futures Commission (SFC) had introduced amendments to the Fund Manager Code of Conduct in 2021, which was implemented in 2022, emphasizing the need for fund managers to consider climate-related risks in their investment and risk management processes and to make appropriate disclosures.

These standards, among others, are intended to guide companies in reporting and improving their ESG performance. However, the diversity and sometimes overlapping nature of these frameworks can lead to confusion and increased complexity for businesses attempting to comply or align with them. 

Challenges of the ESG Alphabet Soup 

1. Understanding the differences and commonalities: Given the proliferation of ESG standards, the first challenge is to adequately understand the differences and commonalities between various frameworks. This includes recognizing areas of overlap and how different standards can complement each other. Such an understanding is essential for effectively integrating and implementing these standards within business practices.
2. Complexity and Confusion: Determining the most relevant standards from a global and regional perspective can be daunting. Companies often struggle to determine which are most relevant to their specific needs and stakeholders.

3. Resource Intensive: Implementing and maintaining compliance with multiple ESG standards, including local mandates, can be costly and time-consuming, particularly for smaller businesses or businesses that are just beginning to consider ESG reporting and applicable frameworks. 

4. Inconsistency in Reporting: Different standards may require different metrics or disclosure practices, leading to inconsistent information that can confuse stakeholders.

5. Dynamic Nature: ESG criteria and standards are continually evolving, requiring businesses to stay updated and adapt to new expectations and requirements.

Strategies for Businesses 

1. Identify Relevant Standards

Prioritize frameworks that align with your business values, operational regions, regulatory requirements and stakeholder expectations. For example, companies listed in Singapore or Hong Kong would need to align their reporting with SGX and HKEX requirements respectively, while considering the applicability and overlay of global standards such as the GRI or ISSB (which may in some aspects also already be integrated into local mandatory reporting requirements). For example, a company whose stakeholders are concerned with the company’s impact on the environment and society may choose to devote time to reporting under GRI standards given the impact materiality focus of that framework. 

2. Focus on Materiality

Consider ESG materiality within regulatory frameworks and utilize standards such as ISSB and GRI to ensure compliance and strategic alignment. It is important to acknowledge that within the same industry, the impact of ESG factors can differ significantly between smaller players and larger corporations, as well as between purely domestic firms and those operating internationally. Concentrate on the ESG aspects most likely to impact financial performance, operational efficiency, and stakeholder interests, tailoring strategies to address the specific challenges and opportunities of your organizational scale and geographic footprint.  

3. Leverage Technology

Use technology and software solutions that can simplify the process of data collection, monitoring, and reporting according to various ESG standards. Many platforms now offer integrated solutions that can align inputs with multiple frameworks simultaneously. 

4. Engage Stakeholders

Regular engagement with global and local stakeholders including investors, customers, and employees can provide insights into which ESG aspects are most crucial and how to address them effectively. This engagement also helps tailor ESG reporting to meet stakeholder expectations, identify material topics and enhance transparency. 

5. Continuous Education and Training

Keep abreast of the latest developments in ESG standards and ensure that your team understands the nuances and requirements of each applicable framework. This might involve regular training sessions and subscribing to updates from standard-setting bodies. 

6. Seek External Expertise

Partner with consultants or firms that can support your business in ESG reporting and compliance. They can provide valuable expertise in navigating the complex landscape of standards, improving the efficiency and accuracy of your ESG initiatives. 

Conclusion 

Navigating the ESG standards landscape requires a strategic approach that accommodates both global frameworks and local regulations. By focusing on relevant standards, prioritizing material issues, and engaging with stakeholders, businesses can manage the complexities of ESG reporting effectively. As regulations evolve, particularly in jurisdictions like Singapore and Hong Kong, staying agile and informed will be crucial for maintaining compliance and advancing corporate sustainability goals. 

How can HM help? 

HM offers comprehensive expertise to help you navigate ESG complexities and tailor strategies to meet diverse regulatory and business demands. Our deep understanding of stakeholder expectations and regulatory landscapes enhances stakeholder engagement and ensures that communications are both transparent and impactful. HM provides ongoing advisory services, updates on legislative changes, and strategic insights that help businesses adapt swiftly and efficiently. Our proactive approach not only helps in maintaining compliance but also in advancing corporate sustainability goals and positioning companies as leaders in sustainability practices.  

Please contact HM for more information on how we can help. 

About the Author 

Cora Ang is a Partner at HM, based in Hong Kong. She provides support to businesses on ESG consulting, regulatory guidance and outsourced legal advisory. Contact Cora at [email protected] 

Disclaimer: The material in this post represents general information only and should not be relied upon as legal advice. Holland & Marie Pte. Ltd. is not a law firm and may not act as an advocate or solicitor for purposes of the Singapore Legal Profession Act. 

¹ See “Sustainability Reporting“. SGX. 

² See “MAS Publishes Code of Conduct for Providers of Environmental, Social, and Governance (“ESG”) Rating and Data Products“. MAS. December 6, 2023. 

³ See “Exchange Publishes Conclusions on Climate Disclosure Requirements“. HKEX. April 19, 2024.