The 2020 edition of Carrots & Sticks (C&S) assesses the regulatory landscape of non-financial and sustainability reporting. It tracks global trends in what is required of reporters. Since the last edition of C&S the non-financial disclosure policy domain has expanded and deepened in terms of the type of information required to be reported. Our analysis for this edition includes over 600 reporting provisions, a substantial step up from 383 analyzed in 2016. We also interviewed policymakers to gather their views on
disclosure provisions, possible market saturation, and ways to progressively develop better policies.
The Sustainable Development Goals (SDGs) have gained prominence, yet explicit reference to SDGs in disclosure requirements remains limited. Our interviews suggest that the SDGs have become a global framework, which no doubt influences policy development, despite foregoing explicit references in policy documents. The headline themes of SDG 12 on responsible production and consumption, SDG 16 on inclusive societies and accountable institutions, as well as SDG 8 on decent work and economic growth stand out as most often addressed in reporting provisions. Few provisions provide for business disclosure on SDGs 3-4, linked to health and education, although the COVID-19 pandemic may change this.
Governments and financial regulators remain the most active in issuing reporting requirements and guidance (reporting provisions), followed by stock exchanges and industry bodies. New regulatory requirements have been issued, both voluntary and mandatory, with sharpened focus on human rights, work and climate change. Voluntary codes and guidance continue to drive innovation. In parallel, there has been a push for stricter requirements for mandatory reporting to advance reliable and comparable disclosure in more developed markets.
Europe still dominates the sustainability disclosure agenda while Asia is an active up-and-comer. The biggest discrepancy in voluntary versus mandatory approaches can be seen between North and South America, where North America has the highest proportion of mandatory reporting requirements. Meanwhile, hybrid or ‘comply or explain’ approaches are seen worldwide.
Large and listed companies are still the main targets of reporting provisions. Sector specific approaches are becoming more common, with financial services and heavy industries the most targeted.
The ESG&E (environmental, social, governance, & economic and general) agenda continues to provide an evolving set of potentially material topics. Climate change, human rights, labor and anti-corruption are dominant themes among disclosure requirements. In the category of economic &
general, the themes of trade, business models and supply chains receive high interest. Indirect economic impact, including themes such as infrastructure and economic development, have received less attention.
The interest in progressing the implementation of sustainability commitments is confirmed by greater demand for relevant data, including disclosure of verified statements. This is supported by interest from data collectors, aggregators and investment analysts. Disclosure types and reporting formats, meanwhile, remain diverse.
Designing policy that ensures the disclosure of high-quality and decision useful information in coming years will be crucial in providing decision makers and stakeholders of reporting organizations with relevant information. Ensuring the disclosure of this information through established reporting frameworks and ensuring the harmonization of the reporting landscape proves to be an opportunity for policy makers and regulators alike.
Source: van der Lugt, C., van de Wijs, P. P., & Petrovics, D. (2020). Carrots & Sticks: Sustainability Reporting Policy: Global trends in disclosure as the ESG agenda goes mainstream. Global Reporting Initiative (GRI) and the University of Stellenbosch Business School (USB).