Navigating Fragmented ESG Reporting: Governance Challenges and the Path to Effective ESG Implementation

I. Introduction

The term ESG was coined in a 2004 report titled “Who Cares Wins”, published by the UN Global Compact. It explained how integrating Environmental, Social and Governance (ESG) factors helped build stronger business value and aligned with investors' fiduciary duty. To understand its importance in corporate decision-making, it is first essential to know what each of these three dimensions entails. “Environmental” factor refers to whether the organisation is operating as a steward of the environment and covers environmental issues like climate change and greenhouse gas emissions. “Social” factor refers to the impact the organisation has on people and whether it is preserving their inclusivity and human rights, and the “Governance” factor refers to how the organisation is directed and looks at corporate governance factors.

Over the years, ESG reporting has moved beyond its voluntary nature and has become a major component of companies' accountability and investment decisions.

The practice is meant to provide transparency regarding data that assist investors in understanding how the business deals with its environmental impact, treatment of its employees, and business activities in terms of ethics.

Unfortunately, this trend has not been accompanied by a single, worldwide mandatory approach to corporate reporting.

On the contrary, businesses use a complicated network of international guidelines, national laws, and industry performance indicators for that purpose. Nevertheless, the issue of fragmentation is not a mere question of management and administrative problems. It also involves fundamental questions regarding the credibility of corporate reporting, boardroom monitoring, and stakeholder capacity to make corporations responsible for their sustainability claims.

Against this background, this blog examines the fragmented nature of the ESG reporting landscape, its principal governance implications and effects on the implementation of ESG, the regulatory initiatives for convergence, and the possible actions which could be taken to mitigate these risks.

II. The Fragmented Framework Landscape: Governance Consequences and Challenges in ESG Implementation

Contemporary global ESG reporting is characterised by a variety of frameworks, each developed and designed independently, with slightly different focus and regional scope. Global Reporting Initiative (GRI), the most widely used global standard for ESG reporting, measures a broad range of an organisation’s environmental and societal impacts. In contrast, the Sustainability Accounting Standards Board (SASB), adopts an investor-oriented approach, focusing on ESG factors relevant to industry-specific standards. Carbon Disclosure Project (CDP) platform is oriented primarily toward environmental data collection and benchmarking. The United Nations Sustainable Development Goals (SDGs) also serve as an internationally accepted framework for ESG reporting by ensuring that organisations can map their ESG impacts to 17 international goals and targets. It is also recommended by both the GRI and the UN Global Compact to include the SDGs in reporting.

More recently, efforts to reduce the effects of fragmentation have been made by introducing voluntary ESG frameworks such as the International Sustainability Standards Board (ISSB), and mandatory laws such as the Corporate Sustainability Reporting Directive (CSRD) in Europe and Business Responsibility and Sustainability Reporting (BRSR) in India.

Companies across jurisdictions use different frameworks, whose differences lead to several regulatory and governance consequences:

• Regulatory complexity: Companies across jurisdictions have to comply with different ESG disclosure rules across countries and governing bodies, which renders compliance a challenging and resource-intensive undertaking.
• Differing methods of collecting ESG information and Stakeholder Confusion: A major governance challenge of fragmented ESG frameworks is the inconsistent methods used to collect and report ESG information. For example, frameworks and standards may use different methods to calculate carbon emissions, measure employee safety, or assess gender diversity. Because data, indicators, and weightings differ, ESG ratings vary. Accordingly, companies report ESG performance using different frameworks that do not measure information with a common metric. This poses a challenge to stakeholders in comparing and assessing the relative ESG performance of companies that report ESG using different frameworks, and they might make decisions based on incomplete or unreliable information. Inconsistent data therefore reduces the usefulness of ESG disclosures for informed decision-making.
• Greenwashing risk: There is a risk associated with the lack of a standardised ESG disclosure system because it leaves room for companies to potentially embellish their sustainable practices. There are questions of what benchmarking criteria need to be used to measure the environmental and social practices of businesses. If companies provide one-sided favourable information and use different measurement techniques, it becomes difficult for stakeholders to verify their claims. This makes it more likely that there will be greenwashing and increases the risk of harm to companies through reputational harm, regulation, and criticism by shareholders and possibly even punishment. In order to mitigate this risk, it is essential that businesses keep enough documentation to support their statements about ESG and use a clear methodology to show the material indicators and make sure that their sustainability claims can be independently verified.
• A Barrier to Strategic ESG Implementation: Fragmentation makes it difficult for businesses to develop an integrated sustainability strategy. When various jurisdictions, investors, and accounting frameworks require different indicators, businesses focus more on meeting the disclosure requirements than on tackling the environmental, social, and governance issues at hand. Fragmentation of the accounting frameworks could lead to duplication of work, inconsistency of data, and additional costs to businesses that operate in different jurisdictions. ESG may, therefore, be reduced to nothing more than just another reporting function, rather than being an integral part of business decision-making. This creates a weakened link between sustainability goals and corporate strategy, investment decisions, risk management, allocation of resources and functional planning.
• A barrier to achieving ESG goals: Fragmentation can also undermine the effective achievement of ESG goals. If the company applies a different methodology over time, it will be hard to discern if the observed improvement is actually real or a product of the changed way of measurement. Poor comparability and fragmented ESG data can negatively impact the accuracy of investors’ judgments and lead to ineffective allocation of capital. It can also impact the credibility of sustainability-related rewards, evaluations of executives' performance, and internal performance control. Reliable and comparable data is therefore not only necessary for reporting but also for performance monitoring and accountability.

Cross-Border Challenges for Multinational Enterprises: In respect of multinational enterprises, this is made more challenging as subsidiaries in different regions have to work within different frameworks of reporting, such as CSRD in Europe or BRSR in India, and have to be compliant with the specific ESG standards of the country where they are located, which don’t necessarily fit into the global reporting system of the parent company.

Investor Challenges from ESG Fragmentation: The repercussions impact governance at the board level as well. According to a survey, more than 60% of institutional investors consider ESG inconsistency as a significant governance risk, demonstrating the fact that sustainability governance has become an essential factor for board effectiveness.

Fragmentation within ESG Rating Agencies: Fragmentation can be seen not only in reporting frameworks but also in rating agencies developed based on these reporting frameworks. The current state of the ESG ratings market is highly fragmented, with various methodologies and data used. The rating firms vary in the relative weight given to ESG factors, and the situation is made even more complex due to the reliance on proxy or estimated data that is used instead of proven performance indicators.

This fragmented system makes ESG reporting reactive, instead of being a proactive process, making its implementation challenging.

Case Study: TotalEnergies and ESG Fragmentation

The TotalEnergies greenwashing case is a practical example of framework fragmentation and greenwashing as a challenge posed by it. In 2020, TotalEnergies announced its goal of attaining carbon neutrality by 2050 and its investment in renewable energy. After five years, in October 2025, the Paris Judicial Court ruled that the statements made by TotalEnergies on its contribution to the energy transition and its goal to achieve carbon neutrality in 2050 were deceptive, taking into consideration its expansion in fossil fuels.

While the fragmented ESG frameworks were not the primary cause of greenwashing, they created a regulatory grey area that allowed the company to make exaggerated climate claims in the first place. It was noted that the lack of a standardised framework that would necessitate that such climate claims be considered in light of the corporation’s general fossil fuel strategy allowed TotalEnergies to emphasize its transition ambition and overshadow its continued expansion of oil and gas operations.

Ultimately, although the legal action was brought based on consumer protection laws and not ESG compliance laws, it was the lack of integration within ESG frameworks that enabled the company to sell its inconsistent transition policy as an environmental success story.

III. The Regulatory Response and Its Limits

Various regional, national and international measures have been introduced to address the fragmentation of ESG reporting.

The European Union’s Corporate Sustainability Reporting Directive (CSRD) is a binding regional framework, which has widened the previous non-financial reporting rules of the EU and obliges the companies covered by it to communicate information regarding sustainability risks, opportunities, and impacts using the European Sustainability Reporting Standards (ESRS). The key characteristic aspect of the CSRD is the approach based on double materiality, whereby companies are supposed to provide information about how sustainability issues impact their financial condition as well as how they affect society and the environment. However, the CSRD was subsequently amended through the Omnibus I reforms, which significantly narrows the scope of its application, making reporting mandatory only for undertakings with a number of employees exceeding 1,000 and annual net turnover more than €450 million. As regards third-country undertakings, the reporting obligation arises when turnover of these companies in the EU exceeds €450 million during the last two financial years, and it has an EU subsidiary or branch that produces annual turnover of more than €200 million.

The ISSB (International Sustainability Standards Board) was created by the IFRS Foundation to deal with differences in disclosure of financial information about sustainability. IFRS S1 (General sustainability-related financial information) and IFRS S2 (Climate-related disclosures) were developed by the ISSB on 26 June 2023. They provide a common baseline for the world regarding sustainability-related risks and opportunities, including governance, strategy, risk management, metrics and targets from an investor perspective. Nevertheless, the ISSB does not have a legal obligation, and each jurisdiction decides whether to use its standards or not. Hence, the ISSB promotes unifying the sustainability reporting process but does not form a universal mandatory reporting system.

India’s Business Responsibility and Sustainability Report (BRSR) represents another important effort to standardise ESG disclosures within a national regulatory framework and acts as one standard for all ESG-related disclosures in India. However, this framework also requires only the top 1,000 listed entities ranked by market capitalisation to make sustainability disclosures using this framework and all other companies are not bound to use this framework for their ESG disclosure. Again, it does not eliminate global fragmentation because Indian companies operating internationally may still need to report under other frameworks recognized globally.

In addition to the CSRD, ISSB and BRSR, several other jurisdictions worldwide have implemented mandatory frameworks such as Australia’s Australian Sustainability Reporting Standards (ASRS), which establishes a national framework for climate and sustainability disclosures for entities under the Corporations Act 2001, the UK’s Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022, which make climate-related reporting mandatory for large companies and limited liability partnerships (LLPs). Singapore has a phased mandatory climate and sustainability reporting framework overseen by the Accounting and Corporate Regulatory Authority (ACRA) and the Singapore Exchange (SGX), which have collaborated to set and advance corporate and sustainability reporting standards.

Together, these initiatives represent significant progress towards increased consistency in ESG reporting, but they also reveal the persistent lack of a uniform framework.

IV. Recommended Governance Responses to the Existing Challenges

In the absence of a mandatory unified global ESG Framework at the present time, several practical steps can help the boards and governance functions manage the risks and challenges arising from fragmented ESG frameworks.

1. Cross-Walking: Addressing Regulatory Complexity and Comparability

Cross-walking or mapping is a process that connects similar indicators and disclosure requirements under different frameworks. Thus, the company is able to determine the similarities and identify any deficiencies in data before it is audited. The activity of cross-walking or mapping can be made easier by the use of centralised data hubs. It is a digital platform that integrates all fragmented ESG metrics into a single data source. This helps automate the process of collecting data, helps map multiple international standards and provides transparency in audit processes.

This method can directly address the regulatory complexity posed by the simultaneous existence of several ESG frameworks. Mapping of requirements in different frameworks will enable companies to determine the information requirements that are common among them and avoid unnecessary duplication of data collection and reporting.

Cross-walking/mapping can also help stakeholders in the comparison process. In cases where different frameworks employ different terminologies or indicators in relation to similar sustainability matters, the requirements relating to each may be cross-walked, thereby making the connection between the information disclosed clearer. This will not necessarily mean that the frameworks are equivalent, but rather that the difference between them becomes understandable.

It is relevant even in the context of the strategic implementation of ESGs. When multiple frameworks need to be addressed separately, ESG reporting may turn into an exercise in compliance that entails repetitive collection of information. Greater interoperability could minimise this, making ESG-related data easier to incorporate into internal decision-making and sustainability processes.

2. Collaborative Investor Initiatives: Addressing ESG Data Inconsistency, Comparability and Strategic Implementation

Another approach that shares the same principle is that of being involved in collaborative investor projects like the ESG Data Convergence Initiative, where private equity/investment firms collaborate in order to arrive at an agreed-upon list of ESG metrics. Despite the limited scope and voluntariness of the collaborative initiative, it can address the issue of regulatory complexity by decreasing the volume of essentially the same but structurally different information demands on corporations.

It also enhances comparability because when companies report based on a set of standard measures, the data becomes easier to compare across companies and portfolios. The collaborative efforts could further help mitigate the ESG implementation obstacle identified earlier. When corporations invest considerable effort in gathering, computing, and presenting ESG information in various formats for various investors, the role of ESG may become mainly about an external reporting function. Through this, a more structured and consistent approach to monitoring ESG performance can be achieved.

3. Strategic Assurance: Reducing greenwashing

Strategic assurance in ESG reporting reduces the risk of greenwashing through validation of the information in the report prior to its publication. Evidence-based testing is conducted wherein independent auditors check the authenticity of the information provided through a careful inspection of the data trail behind the claims to determine whether it is accurate and authentic, and to test whether a company reports selectively or uses clear, standard measuring rules, making it harder for businesses to make false or misleading statements.

A practical example of this is the International Standard on Sustainability Assurance (ISSA) 5000, in which professionals analyse and evaluate an organisation's sustainability and ESG information to verify its accuracy and reliability and ensure that the company does not pick only the positives for its environmental and social performance while ignoring any negatives. The framework necessitates that companies prove their quantifiable claims, such as carbon accounting, and the qualitative ones through audits, observations, and calculations.

Such independent evaluation will make it harder for false and misleading sustainability statements to be used as credible ESG performance, reducing the risk of greenwashing.

4. Reducing fragmentation in ESG rating agencies

The issue of fragmentation among rating agencies can be tackled by global regulatory frameworks such as the International Organization of Securities Commissions (IOSCO). IOSCO guidelines promote transparency and uniformity in terms of the methodologies of rating providers and encourage them to develop transparent, well-defined methodologies and disclose the information concerning sources of the data and estimates for the ratings. In this way, it could be identified how various ESG issues are measured and assigned weights and whether ratings depend on estimates or proxies, making it easier to identify discrepancies and differences between the ratings and increasing their comparability.

V. Conclusion

The current ESG reporting landscape demonstrates that mere disclosure cannot assure transparency, comparability and accountability. With different frameworks having different goals, definitions, reporting boundaries and measuring methods, sustainability data may become difficult to understand and unreliable in making decisions.

The introduction of the ISSB, CSRD, ESRS, and BRSR demonstrates critical attempts to achieve harmonisation in sustainability reporting; while cross-walking frameworks, integrating data systems, and third-party validation can assist organisations in addressing the issue of duplication, improving the quality of information, as well as handling conflicting regulations efficiently.

However, the coexistence of these introduced frameworks itself proves that convergence is yet to be fully achieved. The effectiveness of ESG reporting in the long run will be contingent upon creating a globally recognised and legally binding baseline. A harmonised framework will lead to harmonised definitions and approaches to calculating various measures, minimise costs, and make comparisons between companies’ sustainability practices easier, thereby making ESG implementation more efficient.