Corporate environmental, social, and governance (ESG) reporting has risen in prevalence, but its relative youth presents regulatory challenges that VMware’s ESG VP Nicola Acutt likened to the lawlessness of the old Wild West. 

“Think back to the journey of accounting standards for public companies. There’s a whole history to that,” Acutt said in an interview with SDxCentral. “And we're now at that point with ESG.”

ESG frameworks differ from ESG standards, though the two are complementary. Frameworks provide broader guidance on how information is prepared, how it’s structured, and what topics are included in reporting. ESG standards make frameworks actionable by providing more detailed requirements and metrics within each topic.

Various ESG frameworks and accompanying standards exist from the Sustainability Accounting Standards Board (SASB), the Carbon Disclosure Project (CDP), and the Global Reporting Initiative (GRI), among others. However, it’s challenging to compare companies’ ESG progress because they’re using an assortment of different frameworks and standards. 

From a regulation perspective, the crux of this issue is creating “guidelines and baselines of compatibility” across ESG reporting, Acutt explained, adding that she expects a coalescence of key standards and frameworks within the next 18 months. 

An ideal ESG framework would be applicable to companies across different industries with a sharper focus on “defining what's material to different sectors,” Acutt said. 

Materiality refers to the significance of a certain metric within an organization's overall ESG analysis. For example, what might be material to an oil company isn’t the same as what’s material for a software company, Acutt explained.

Despite regulatory hurdles, the importance of corporate ESG has ballooned in the minds of executives, stakeholders, and consumers alike — partly due to the coronavirus pandemic. 

“I think the pandemic has shone a light ... on the urgency [of climate change]” and the connections between community health, the environment, and supply chains, Acutt said. In the past, those issues resided outside of the scope of business responsibility, but that mindset “radically changed” during the pandemic, Acutt added. 

However, mass skepticism still pervades corporate ESG commitments. Research from GlobalData found that only 17% of business respondents believe the majority of companies are sincerely committed to sustainability, and almost 60% of GlobalData’s sample held a somewhat cynical view on sustainability commitments, believing them to be a ‘greenwashing’ marketing exercise in some or most cases. 

But Acutt believes a bit of “healthy skepticism” is needed to hold companies accountable to their ESG commitments.

“There is no time for greenwashing and insincerity anymore,” Acutt said. “And companies that play that game will get called out in the world [in which] we're operating. You can't hide anymore.”

As more companies begin to consider ESG, they should be able to progress at a quicker rate because of the groundwork done in the past. “It's a new day,” Acutt said. “I don't think it needs to take [others] 10 years to get to where VMware is.”

“We need every company," Acutt added. “This is not about one company saving the world, because that's not feasible. It's everybody doing that part.”