Sustainability reporting and standards – a Belgian and international perspective on ESG disclosure

How are the needs of investors and capital markets changing in terms of ESG disclosures?

Jean-Paul Servais: “I think that the starting point of the ESG disclosure journey is the man in the street. That is in fact rather amazing, as you would expect from a supervisor or regulator that they start their work for instance in the aftermath of a crisis. But there is no financial crisis as such when we speak about ESG. There is of course a tremendous challenge relating to climate change. But for other aspects of sustainability, the starting point is the fascinating demand-driven exercise. The man in the street has many expectations. He is keen to invest in shares, bonds, investment funds etc. but wants to check whether a particular investment complies with his own ESG expectation. Also for me as a Belgian supervisor involved in many international activities, it’s something rather unique that the first step is to try and manage the expectation. And that's the reason why we have to take into account materiality and proportionality. People do not want to read about and work with many different standards, as there are too many already. They need one single comprehensive global baseline and that's what we are doing for the time being at the international level.”

I suppose that regulators will then play a very important role in this journey.

Jean-Paul Servais: “I fully agree. I belong to the school of regulators who believe that self-regulation as such is not a problem. However, if it doesn't work, or if it doesn't work anymore, then we need to switch to a new world. And that’s what we are doing, in order to avoid any greenwashing. Once more starting from the expectations of the man in the street, many of these new non-sophisticated real retail investors are considering various investment options. They invest in a fund, share or bond because they believe it to be compliant with their ESG expectations. If the opposite appears to be true later on, it will create a kind of boomerang effect as the trust will disappear. To avoid that from happening, we need to avoid greenwashing. And that is why the regulators must be there.”

But if companies are embarking on this ESG journey, they need to take into account the interests of many different stakeholders, such as capital markets, regulators and investors. What’s your advice to companies and CFOs getting started on this ESG journey?

Jean-Paul Servais: “The most important aspect of the journey is to be ready in time. Are you ready for this? That is the question I ask all CEOs of banks, insurance companies, listed companies, brokers etc. that I am supervising in Belgium in my capacity as FSMA chair. Do not underestimate the rather technical aspect of this ESG journey. The momentum is now as there is unanimity on the Belgian, European and international levels about the need to avoid further climate change. With the launch of a new body called the International System Standard Board located in Frankfurt with a link with ISSB, we’ve seen an impressive fast-track international start. So, the capacity to build on the success story of the implementation of the well-known accounting standard produced by ISSB implemented in more than 140 jurisdictions, is an impressive journey. But they did not have to start from scratch as they were able to build on many previous accounting standards in the US, the UK, and continental Europe. Here we are starting from scratch which makes the effort very impressive. Not only the CFO, CEO and audit committee, but also the board of directors, the compliance officer and the institutional investment manager must be able to explain what ESG means in order to avoid any misunderstanding. They are managing many expectations and if they are giving wrong messages to some stakeholders, they will suffer from a boomerang effect. The trust won't be there. Because everybody is supportive until the day that you have to implement it at the company level. If you are not ready in time, that could be a real challenge. The first standards have been released by the ISSB, being the two exposure drafts about the general requirements and about the climate disclosure. But these need to be fine-tuned. And that challenge will now be at the level of the company.”