Sharing DateNovember 28, 2023
The concept of sustainability, originally embraced as a set of life principles without a formal name in the past, has evolved into a newly defined framework over the last half-century, shaped by practical necessities. With the deepening of negative environmental and social impacts, this concept has become popular and been widely accepted. As a result of the rapid developments in sustainability issues, various reporting standards and indices have been established to monitor the commitment of organizations to sustainability values. However, the standards, indices, and institutions aiming to assess this complex and wide-ranging issue have not been able to address all aspects of sustainability at the same time, but instead have evaluated sustainability by dividing it into different focal points, which has led to the emergence of different entities for each missing issue.
The wide scope of sustainability makes difficult to standardize and unify the work in this field. The sheer number of institutions and standards emerged to “do better” and the fact that they are often called by acronyms have together led to a kind of “acronym confusion” denominated as “ESG Alphabet Soup”. Alphabet soup may arise from various reasons. Examples include the confusion caused by the similarity of the letters in the acronyms of Socially Responsible Investing (SRI), related to investments made within the scope of social sustainability, and Global Reporting Initiative (GRI), enabling companies to measure, manage, and report their sustainability values. At the same time, the fact that similar issues might be analyzed under different headings can also lead to alphabet soup. For example, the acronyms of the Task Force on Climate-related Financial Disclosures (TCFD), which promotes climate-related financial transparency, and the Task Force on Nature-related Financial Disclosures (TNFD), which promotes nature-related financial transparency, are very similar.
Even when only the acronyms for sustainability reporting are considered, there are at least 10 widely known standards and organizations. When this situation is approached on a country basis, it is seen that the number of institutions, and therefore the acronyms, increases even more. The main reason for the diversity in standards is the efforts to make non-financial reporting and integrated reporting logic as comprehensive and explanatory as financial reports. For this purpose, sustainability issues need to be monitored at a certain level by organizations and made reportable. Therefore, it has become necessary to establish relevant organizations and standards in order to encourage institutions to report and to increase the collocutors. However, the needs of organizations may vary considerably, and therefore an organization may have to evaluate multiple standards when reporting. While an organization that reports in compliance with the Non-Financial Reporting Directive (NFRD) may need to review its efforts to report in compliance with the European Sustainability Reporting Standards (ESRS), which came into force within the framework of the Corporate Sustainability Reporting Directive (CSRD) created by developing the scope of the NFRD, another organization may find it appropriate to examine various topics such as Global Reporting Initiative (GRI) studies, EU Taxonomy classification system, United Nations Global Compact (UNGC) commitments and Sustainability Accounting Standards Board (SASB) recommendations in order to find the appropriate reporting for its needs. For example, Microsoft conducts sustainability reporting in light of the GRI standard, publishes the TCFD report, which demonstrates full compliance with the TCFD on climate-related issues, and reports to the Carbon Disclosure Project (CDP) on an annual basis. For the organizations that have recently initiated sustainability studies, this can be intimidating and discouraging to implement standards and follow improvements, while it may also end up with the perception that rapid changes in standards will lead to a reduction in business value.
In parallel with the development of the sectors, it is expected that these structures will be transformed into a more open, comprehensive, and internationally recognized format. It is aimed to prevent this confusion by combining similar standards or creating new standards in due course. Various efforts are being made to end alphabet soup; one of these is the International Financial Reporting Standards (IFRS) S1 and S2 standards published by the International Sustainability Standards Board (ISSB). It has been reported that the scope of IFRS will be expanded over time. With the updates, IFRS is expected to be recognized as the most valid reporting standard internationally. At the national level, the Turkish Sustainability Reporting Standard (TSRS) published by the Public Oversight Authority aims to prepare the Turkish business world for this transition in parallel with IFRS standards. These efforts will help to reduce the alphabet soup in international sources in the future and enable the assessment of sustainability values with comparable, clear, and scientifically based scales worldwide.
