As Alder points out, coming up with the right ESG data is no easy task, but those working on the ESG measurement and disclosure challenge are converging on a principle they call “materiality”. For until companies have figured out which social and environmental factors really matter to their business, they cannot accurately assess their ESG or sustainability performance.

Companies also need to be able to evaluate the “circularity between impact and dependencies”, says Veronica Poole, Deloitte’s lead expert on IFRS accounting rules. This means assessing how their footprint affects not only the broader society but also the company. An example might be a drinks company whose water consumption reduces the supply for both local communities and the business itself.

“Understanding that circularity is critical, and you can’t just look at the next 12 months,” says Poole. “You need to look to the longer term and across the entirety of your value chain — that’s a different way of approaching materiality from the current financial materiality thinking when it comes to financial statements.”

Measuring what matters is also something with which investors struggle when constructing sustainable investment portfolios. In SustainAbility’s Rate the Raters survey, greater focus on materiality ranked second — after improvements in disclosure methodologies — among the changes to ESG ratings investors said they would most like to see in the next five years.

An added complication is that what is material to one business may be less relevant to another. While fuel efficiency, for instance, is a significant factor in an airline’s financial and sustainability performance, the same would not be true for a legal services firm. And while a global clothing manufacturer’s performance on labour rights would influence its ESG rating, it would be less important for a US-based biotech firm.

This is something SASB has recognised. In 2018 it devised a set of sustainability accounting standards for corporate disclosures covering material issues for 77 industries. The standards, says SASB, “identify the minimal set of financially material sustainability topics and their associated metrics for the typical company in an industry”. Some groups, however, have taken a single-sector approach. One is GRESB, or the Global Real Estate Sustainability Benchmark, an investor-led organisation that evaluates the sustainability performance of property companies, real estate investment trusts, funds and developers.

The universal-versus-specific debate shows how opinions are divided. Among respondents to the FT Moral Money questionnaire, a clear majority wanted to see internationally agreed ESG measurement standards, but there was equal support for sector-specific rankings over a one-size-fits-all approach.

A further complication is the pressure to report on “double materiality” — the effect sustainability issues have not only on companies’ financial performance and long-term value but also on society and the environment. Lenders and investors are interested in the former, while employees, customers, civil society organisations and a range of regulators want data on the latter. “So when you talk about sustainability disclosure, it’s important to be clear on the target audience,” says SASB’s Guillot.

Jenkinson of Calstrs sees a regional divide emerging. “You have this bifurcation where Europe, the GRI and other standard setters are pointing to the impact that business has on society, whereas in the US, where it will be really challenging to shift the emphasis, it’s going to be the risk to an investor from a company’s ESG factors,” she says. “That’s perhaps adding to the confusion on sustainability standards.”

Moreover, what matters to companies can change rapidly. Take the #MeToo movement. In 2017, with accusations of sexual assault being levelled at US film producer Harvey Weinstein, a tweet by actress Alyssa Milano calling on harassment survivors to tweet about their experiences on the #MeToo hashtag went viral.

As the movement achieved scale globally, companies started reviewing their gender equity policies while capital flows into “gender lens” investments swelled to $2.4bn in assets under management by 2018.

The #MeToo movement provides a powerful illustration of why companies and investors need to be able to measure ESG not only by looking backwards to past performance, but also by anticipating what social or environmental factors are likely to matter to their business in the future.

If there are similarities between the development of international accounting standards and current progress on ESG measurement and disclosure, one big difference is proving an advantage: the sense of urgency.

“The pandemic has concentrated minds,” says Alder. “What were seen to be remote existential risks may not be all that remote.” This, of course, includes climate change and a growing sense that action is needed now to avert a planetary crisis. “On the climate side, we don’t have much time,” he says. “We don’t have the luxury of 10 to 15 years to produce a standard.”

What the IFRS Foundation and Iosco do have, however, is infrastructure — something developed two decades ago for the international accounting standards. “We have IFRS, we have the governance model,” says Erik Thedéen, director-general of Finansinspektionen, Sweden’s financial regulator, and chair of Iosco’s sustainable finance task force. “So what we’re doing is building a parallel governance structure inspired by the financial part of it — that, of course, makes it easier.”

A new spirit of collaboration among standards setters will help. As well plans for the big five to streamline their reporting standards, two other standards-based organisations, B Lab and the Global Impact Investing Network (GIIN), are working to align their impact measurement tools. And in March, the World Economic Forum’s International Business Council, which had its own ESG reporting framework in the works with the Big Four accounting firms, announced that it would back the SSB.

And while the plethora of standards has been a source of frustration, it has allowed the IFRS Foundation and Iosco to move faster than they might otherwise have done. “We already have the basis for standards with TCFD and with the other private standard setters merging and working together now,” says Thedéen. “So we don’t need to find a new system — it’s more like refining the metrics and the definitions we already have.”

Technology could also play a role, with machine learning and artificial intelligence able to tap into everything from traditional corporate reporting to alternative data ranging from satellite imagery, social media, news and analysis to remote sensing. “It enables the democratisation of ESG data and more tailored solutions,” says Georg Kell, chair of Arabesque, a quantitative asset manager which uses AI and big data to assess the ESG performance of globally listed companies. “The costs of doing so have come down and the ability to create bespoke solutions is improving enormously — that’s the next wave on the investment side.”

Noises from governments also favour the streamlining of ESG measurement and reporting. In the US, Joe Biden’s administration has put the task of combating climate change back on the agenda, adding fresh impetus to ESG disclosure efforts

John Coates, acting director of the SEC’s division of corporation finance, said in March that the agency should “help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost effective manner.”

Policymakers elsewhere are also becoming more active, with Jacinda Ardern’s government announcing that New Zealand plans to become the world’s first country to make climate risk reporting mandatory, using the TCFD framework. Guillot sounds a note of caution, however. “A topic like greenhouse gas emissions, where there’s been a global greenhouse gas protocol to develop global consensus around measurement, is significantly more advanced than, let’s say, a topic like diversity,” she says. “Even with the concept of standards, there’s still significant complexity in measurement because of the nature of the issues.”

The journey towards more rigorous ESG measurement and disclosure began in the late 1990s. In 1997, the Global Reporting Initiative (GRI) launched as a non-profit organisation offering sustainability-focused reporting guidance. At the time, when a PR-heavy “corporate social responsibility” report was the principal corporate vehicle for disclosing sustainability information, few imagined how many frameworks, ratings systems and standard setting organisations would emerge from the sensible desire to find a more rigorous way of measuring companies’ social and environmental impact.

GRI has since become part of a “big five” group of global standard setters along with CDP (formerly the Carbon Disclosure Project), the Climate Disclosure Standards Board (CDSB), the International Integrated Reporting Council (IIRC) and SASB.

Rather than develop standards, the Task Force on Climate-related Financial Disclosures (TCFD) has meanwhile provided a framework on which others can build. Created by the Financial Stability Board, the rulemaking body set up after the financial crisis, its focus is climate change.

But Mary Schapiro, head of the TCFD secretariat and former chair of the US Securities and Exchange Commission, argues that its work could be applied more broadly. “When we created the TCFD framework, we based it on a foundation that would be familiar to companies that have to report on these kinds of risks,” she says. “So we have four pillars of disclosure: governance, strategy, risk management and targets and metrics. And those four pillars work for any ESG issue.”

So far, more than 2,000 organisations have expressed their support for the TCFD’s recommendations, including companies with a collective market capitalisation of almost $20tn and financial institutions responsible for $175tn worth of assets.

Nevertheless, companies and investors can be forgiven for still feeling confused. “There has been a lot of noise in the system,” says Alder of Iosco, “which is not surprising given that the demand from investors is high while the ability of issuers — asset managers and others — to provide the information is genuinely technically difficult.”

Given the forces lining up in support of sustainability accounting standards, levels of optimism are high. “Two years ago, when Iosco started looking into this and sending questionnaires to stakeholders, it was very premature to talk about where we are right now,” says Thedéen. “So we are all positively surprised.”

And because the SSB is focused on reporting, Alder believes governments will be open to adopting its set of standards. “We’re not taking a policy stance,” he says. “This is more to do with the standards around which reporting should happen so that asset owners and asset managers can make better capital-allocation decisions. From that perspective it’s eminently adoptable.”

This does not mean the work on ESG measurement and disclosure is over — far from it. While respondents to the FT Moral Money questionnaire were unanimous in agreeing that companies should measure their social and environmental effect, a large majority said that neither companies nor investors were sufficiently focused on this. Only last month, for example, it emerged that fewer than 50 UK public companies were reporting on climate risks comprehensively and setting targets in line with TCFD recommendations.

However, ESG measurement and reporting are increasingly recognised as being essential for shifting capital in the right direction. “Markets are very powerful forces, and if they are equipped with the information and transparency they need about risk, they can price that risk more effectively — and that will smooth the transition to a low-carbon economy,” says Schapiro. “So embracing disclosure is going to lead to more durable change than anything decreed by policy.”

As this idea gains momentum, what was once part of an arcane, jargon-heavy debate confined to small groups of passionate experts is now seen as a necessary tool in shifting capitalism towards a more sustainable model. As Eccles puts it, “if you put ESG information on par with financial information — with the same quality of control systems, the same quality of assurance, the same rigour and enforcement — that’s a game changer.”