As the world gathers for COP26, here’s how leaders can dispel ESG confusion

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: John Colas, Partner; Vice-Chairman, Financial Services, Americas, Oliver Wyman Group (MMC)


  • The true litmus test of net-zero proposals at COP26 will be the degree to which the public and private sectors commit to agree on priorities and determine how to work together.
  • Confusion and fragmentation have grown on how to evaluate ESG policies, how to compare them and even what constitutes a sustainable investment in the first place.
  • It is key that gaps in tracking progress/comparing performance, increased transparency, and the shift from agenda to action are bridged to maximise the potential of ESG policies.

As COP26 approaches, both industry and government will seek to best prepare their proposals to address the climate crisis. Much will be analysed in the weeks to come, but the true litmus test will be the degree to which the public and private sectors commit to agree on priorities and subsequently determine how to work together.

Have you read?The world clearly wants to move toward sustainability in climate and other areas. At the same time, confusion and fragmentation have grown on how to evaluate environmental, social and governance (ESG) policies, how to compare them and even what constitutes a sustainable investment in the first place.

This topic has gained significant attention from investors, policymakers and society more widely in recent months amid concerns over greenwashing and the ability to meet the ambitions of the Paris climate accords.

Beyond that, making different solutions transparent with a fair choice for consumers and investors – and avoiding misallocation of capital – would create business opportunities and competitive advantage for industries, while reducing financial sector risk.

Governments have a key role to play in standardising the methodologies that businesses use to set targets. Working with the private sector, it is key that the following gaps be bridged to truly maximise the potential of ESG policies. Areas of focus include:

Tracking progress, comparing performance. It would be beneficial to have a simple and easy way of tracking progress and comparing performance across businesses, banks and all sectors of the economy, with examples including the Sustainable Accounting Standards Board (SASB, now maintained by the Value Reporting Foundation) or the EU Sustainable Taxonomy. Insufficient ESG data and the lack of common standards is a gap holding back innovation and scaling up of solutions.

In parallel to financial accounting standards, we need reliable ESG reporting standards. For their part, governments could specify common standards on how companies and banks should measure, report and set targets for their carbon emissions in line with best practice guidance of the Task Force on Climate-Related Financial Disclosures.

Increased transparency. To secure all the benefits that ESG policies bring to the economy, environment and society, we need greater transparency and enhanced disclosures. Efforts on disclosure, transparency and partnership would allow the financial sector to provide better clarity to clients, shareholders, rating agencies and regulators. It would allow investors to meet their goals of achieving robust returns while delivering positive outcomes related to ESG. This would assist banks in designing sustainable solutions that meet client preferences and businesses would have more clarity as they transition toward less carbon-intensive operations.

Additionally, such measures would allow investors to better quantify sustainability-related risks and returns, and regulators to better assess them. Moreover, it would ensure the financial industry is held to a clear global standard of what is expected, allowing society to measure its progress in addressing climate change and other ESG priorities.

Governments should remain realistic and consider the availability and quality of data while working with industry and the financial sector to avoid multiple systems that are likely to cause confusion in implementation and usage.

From agenda to action. ESG disclosure has been high on the agenda of global regulators. The EU has been a first mover, rolling out module-by-module, based on the general action plan released in 2018 with examples so far including climate benchmarks and Sustainable Finance Disclosure Regulation (SFDR) Level 1.

Other jurisdictions are following suit. The issue is receiving increased focus from US regulators, with climate policy a top priority under the Biden Administration. Still, it is key to move from agenda to action through, for example, stricter emissions standards or acceptance of ESG approaches.

This focus is beginning to lead to greater global alignment, with SASB aligning with the Global Reporting Initiative on the reporting side and global standards emerging for climate transition. Still there is more work to do, and hopefully COP26 will lead to more concrete actions.

Looking ahead of COP26

We welcome further coordination and consolidation in this field, and would be supportive of globally aligned disclosure standards being established. As we continue to encourage such a development, we must align ourselves with the emerging frameworks while playing our part in preventing any further fragmentation.

Partnerships will be critical and the financial sector has a responsibility to embrace collaboration. For example, Credit Suisse is a member of the Sustainable Markets Initiative’s Financial Services Taskforce, a collaboration of a dozen global banks convened by HRH the Prince of Wales to accelerate the financial industry’s transition to net zero with key focus areas ahead of COP26.

In January, Credit Suisse was one of over 50 companies across sectors that committed to the provision of the Stakeholder Capitalism Metrics released by the World Economic Forum’s International Business Council.

We also joined the Science Based Targets Initiative (along with around 100 banks) and the Net Zero Banking Alliance, a group of around 60 banks that are working closely together in the run-up to COP26.

Both of these groups are working towards a common set of standards on how to measure, report and set targets for carbon reduction. This allows for the sharing of methodologies, and will ultimately ensure that we have a common basis by which to compare the climate mitigation performance across different banks and financial institutions.

Progress may seem incremental at times. Still, business and financial leaders must dig in to shape the way forward, realizing that, at this stage, there is no single rulebook and no established roadmap in developing these standards and solving these problems.

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.


The scale of the challenge and the scale of the ambition that we are striving to achieve is immense. The dangers from inaction are real: from climate change and social risks to economic fallout for industries and economies that lag behind.

Coupled with the timeframe in which we are trying to deliver change and the immaturity of the frameworks and nascent underlying regulatory regimes and rules, this creates fertile ground for great collaboration.

I am hopeful that COP26 will be an important milestone in this critical effort.


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