Sustainable Finance: BlackRock pushes for global ESG standards

Larry Fink, chief executive officer of BlackRock. Photo / Getty Images

BlackRock, the world's largest asset manager, has called for the "alphabet soup" of standards used by companies to showcase their sustainability efforts to be replaced by a globally recognised framework, warning an overhaul was vital for investors to understand the risks companies face.

Demand from asset managers for environmental, social and governance information has soared in recent years on the back of strong client interest in sustainable investing — an area of fund management that is growing rapidly.

In response, a wide array of private sector reporting frameworks and standards around sustainability have sprung up.

But the $7.8 trillion asset manager said these needed to be replaced with a single global framework, warning that the current "proliferation of disclosure initiatives, many of which are overlapping, has led to duplicative efforts by reporters and a lack of consistent and comparable data".

"Investors and other stakeholders need a clearer picture of how companies are managing sustainability today and planning for the future," said BlackRock, which earlier this year unveiled a big push into sustainable investing.

"We believe that this could be resolved by aligning and converging to establish a globally recognised sustainability reporting framework and set of standards."

Asset managers have been criticised for not providing clients with sufficient reporting on issues such as climate risks.

Big investors, however, argue that the data that exist on sustainability issues are often of bad quality or inconsistent, making comparisons between companies difficult.

There are at present several competing initiatives that aim to create a global framework for sustainability standards.

Last month, the International Financial Reporting Standards Foundation, a non-profit organisation that sets accountancy rules, issued a consultation paper which proposed that it establish a sustainability standards board and work with the existing initiatives.

Five sustainability organisations — the Sustainability Accounting Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council, the CDP (formerly the Carbon Disclosure Project) and the Carbon Disclosure Standards Board — said last month that they planned to work together to develop a global reporting system.

The Big Four accountancy firms have recently unveiled their own ESG reporting framework.

In a paper, BlackRock lent its backing to work being done by the IFRS Foundation.

This is move that will boost the initiative because of the asset manager's position as a large shareholder in most companies around the world.

"We see the approach proposed by the IFRS Foundation as the most practicable and likely to succeed," BlackRock said.

"We believe a combination of the best ideas would minimise the reporting burden on companies and achieve the optimal results for users of company reporting on sustainability."

It added that creating a global framework may take "some time", but that it expected companies to continue to disclose information on sustainability issues using SASB and the Taskforce for Climate-related Financial Disclosures until an international standard was established. Larry Fink, BlackRock's chief executive, had already told companies to use these frameworks earlier this year.