Environmental, social and governance (ESG) investing and reporting is facing existential questions associated with a lack of standardisation, regulation and common purpose.

The Emerging Sustainability Information Ecosystem, a new report by the EY and Oxford Analytica sees these barriers also being further raised by rising inflation and the war in Ukraine.

According to the report, growing allegations of greenwashing have become one of the major challenges to ESG credibility and success. Addressing these challenges and building trust in the system is the responsibility of the many players who shape the sustainability ecosystem if ESG is to be seen by stakeholders as on a par with the more established ecosystem of financial reporting.

Steve Varley, EY global vice chair – sustainability, said: “The extraordinary growth of the ESG movement is threatened by a lack of alignment and agreement on foundational concepts and, in worst cases, growing claims of greenwashing. Right now, ESG is facing a make-or-break moment and requires a whole system approach to addressing these issues.”

The report highlights the need for greater understanding of ESG ratings, materiality – including the varying uses of sustainability information, and the conditions needed to enable assurance. While there are increasing connections between ESG and financial reporting, the report identifies the additional voices and perspectives that shape the ESG ecosystem, including civil society and people in employment. It calls for greater engagement among these groups to develop reporting and disclosure standards, sustainable finance taxonomies and ESG ratings that serve investors including those focused on financial risk and social impact.

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