• A Road Map to ESG

Measurement and Testing

A Road Map to ESG

Nov 01 2023

Corporate reporting of environmental, social, and governance metrics will be easier to grasp thanks to an ASTM standard guide currently in the works.
BY: JACK MAXWELL

An investor examining the performance of a firm she’s thinking about buying stock in. A government procurement officer who must confirm the hiring and diversity bona fides of a potential contractor. A philanthropist looking for not-for-profit advocacy groups that place a high priority on sustainability.
These are just some examples of individuals seeking a deeper, more nuanced understanding of an organization’s values and strategic positioning than can be afforded by simply examining balance sheets and price-to-earning ratios. But where does one go to find such information? One key source is what are known as ESG disclosures.

ESG stands for environmental, social, and corporate governance (ESG). The term encompasses three specific measures of an organization’s performance that may fall outside the parameters of traditional financial reporting but nonetheless could have a profound effect on its image, attractiveness to investors, and bottom-line results.

Those who “consume” ESG information as part of their decision-making process are not the only stakeholders in this scenario, however. Those who produce the information - regulated entities that are required to disclose it (or that choose to do so voluntarily), municipalities and local governments, nonprofits - also need guidance on how best to present it.
Fortunately for both those who must compile and disclose ESG information and those who rely on that information, ASTM International is on the case. Through the efforts of the committee on environmental assessment, risk management, and corrective action (E50), with help from the committee on sustainability (E60), a new standard guide is about to be finalized that will help stakeholders on both sides navigate the complex ESG landscape.

What Is ESG?

The acronym is spelled out above, but what exactly do “environmental,” “social,” and “governance” mean in this context?
According to the Corporate Finance Institute (CFI) website, “environmental factors refer to an organization’s environmental impact and risk-management practices. These include direct and indirect greenhouse gas emissions, management’s stewardship over natural resources, and the firm’s overall resiliency against physical climate risks (like climate change, flooding, and fires).”
CFI defines “social” in terms of an organization’s relationship with stakeholders, including employees and the communities in which it operates. Specific elements of this component of ESG include fair wages, worker safety, employee engagement, and how an entity impacts its neighbors.
“Governance,” the third leg of the ESG triad, refers to an organization’s management culture and oversight by its board of directors. According to CFI, one measure is the way shareholder rights are honored and expectations met. Another is whether internal controls that promote transparency and ensure accountability on the part of leadership are in place.

Parallel Task Groups

“The Guide for Environmental, Social, and Governance (ESG) Disclosure Related to Climate and Community” (WK77095) is the first product of a task group established within the relatively new subcommittee on climate and community (E50.07). Helen Waldorf, an ASTM member for nearly 30 years and the 2021 recipient of ASTM’s Award of Merit for her contributions to E50, was the driving force behind the creation of this subcommittee in May 2020 and continues to serve as its chair.

Waldorf also spearheaded the creation of two task groups within E50.07 related to ESG. Therein lies an interesting example of how ASTM members work together to sort out priorities along the road to consensus.
Shortly after the formation of E50.07, one task group began work on a terminology guide, the other on ESG and climate disclosures. Eileen Snyder and Pam Lacey served as co-leads of the latter group. Snyder describes how this dual-track approach ran into headwinds and why a decision was made to put a temporary hold on the terminology guide.
“It [the terminology guide] was a confusing prospect for some people because no standards had yet been published in E50.07,” says Snyder, regional technical coordinator at Alpha Analytical. “So some folks thought that’s putting the cart before the horse, whereas others thought we need to get some basic terminology laid out so that we can develop guides using the terms.”
The new ESG guide will give investors a deeper, more nuanced understanding of an organization’s values

Even gaining consensus on some of those basic terms proved a challenge. Waldorf notes that disagreement over such seemingly straightforward terms as greenhouse gas led to gridlock within the terminology task group. “Greenhouse gases actually include water vapor in addition to carbon dioxide. So we’d get these constant comments asking why we didn’t mention water vapor. Well, in the case of ESG, we didn’t mention it because it’s not required to be disclosed when you are reporting on your ESG footprint. So we were kind of stuck, and as the subcommittee chair, I agreed to freeze the terminology task group and said let’s go with ESG disclosure. That’s got the strongest interest right now.”
As for greenhouse gases, the draft of the standard guide - in the final revision stage at press time - defines them in terms of current and potential reporting mandates. That is, it states that the U.S. Environmental Protection Agency (EPA) currently requires reporting of greenhouse gas (GHG) emissions, and the task group anticipates that other agencies, such as the U.S. Securities and Exchange Commission (SEC), will soon require additional disclosures of GHGs. Water vapor is not among them.

A Deliberate Process

The process of getting the guide to the finish line began with the formation of E50.07 and the subsequent creation of ESG-related task groups.
According to Snyder, as development of the ESG disclosures standard guide moved forward, more and more committee members got involved. The input received from these newer participants - complementing the task group’s diverse cross section of over 50 professionals, including regulators, consultants, academics, and trade association representatives - ultimately made for a more robust end product. But it also affected the timeline.
“Some of the folks who are joining us now have only been participating for two months, three months, six months,” Snyder continues. “Since the subcommittee is new and people are curious about what’s going on, you’re going to find a lot of folks wanting to comment on anything that’s produced by that subcommittee. This particular task group was the first to produce a draft and go to ballot. That heightens interest even more.”
Snyder points out that the E50 committee is a large one, with hundreds of voters eligible to review draft standards (or a standard guide, in this case) generated by any of its subcommittees. With many of these individuals finding out about the guide for the first time, there were a lot of comments to respond to.


Timing issues notwithstanding, there is tremendous value in this back-and-forth process. Snyder cites inclusion in the guide of sections addressing human trafficking (as it relates to forced labor, for example) and how U.S. and international laws are applied to the governance structures of Indigenous peoples as examples of topics that were included in the guide thanks to input from committee members.
Sustainability and Materiality
Comments, suggestions, and even criticism from fellow ASTM members are natural byproducts of the collaborative process. Awareness of relevant work by other ASTM committees, as well as what’s being done by standards developers around the U.S. and the world, is another element of that process.


“Sustainability” is a good example. Snyder says the first thing the ESG task group did when addressing this term was to look at how it’s defined in other published ASTM guides and standards. “We had to decide if we wanted to adopt those terms, as defined in those guides, or did we want to create a different definition for this guide,” she says. “So you make that decision as a task group. You move forward with the balloting, and then you engage with other task groups, or other main committees such as E60 that have their own ideas on how ‘sustainability’ should be defined.”
The ESG disclosure side has its own vocabulary as well. Take “materiality” - as in, what is material to a business? And who decides? “The definition of that term is different in a financial, securities and exchange, legal world versus in general interest, and it’s also different in the U.S. versus internationally,” Snyder explains. “We decided not to define it in the terminology section of the guide but rather to create a whole section to explain the landscape of materiality - the legal definition, the financial definition, the European definition - so that we’re all on the same page when we’re talking about materiality in the context of something like European Union requirements versus U.S. and SEC-registered companies.”
Speaking of the SEC, work being done in the ESG space by this and other U.S. regulatory agencies, as well as efforts by the United Nations, is acknowledged and referenced in the guide. According to Lacey, the task group “will track developments and update descriptions in the standard guide once the SEC, EPA, and other federal agencies publish their final rules. We will also note any court challenges that could result in judicial decisions vacating the rules or requiring agencies to revise the rules.”
Snyder adds that information on the U.N. Environmental Principles for Responsible Investing (EPRI) is also included in the guide because, even though they are voluntary, they can be used as one type of disclosure framework.

Dissecting the Triad

One of the challenges of producing a standard guide to ESG disclosure frameworks is the fact that while reporting of environmental data has a fairly long history, information on the other two legs of the ESG triad is less available.
“Environmental is probably the most mature,” says Snyder “If you take a look at the description of environmental in the draft guide, and at the appendix, which lays out some of the resources for disclosers, it’s pretty robust. That is a very mature sector that’s used to collecting data and complying with regulations, and a lot of this information is available publicly.”
The other two sectors of the triad, social and governance, are less well defined. Snyder notes that the guide presents certain concepts that can be embodied in those two elements, and then points the user to an appendix where that person can take a look at frameworks for disclosing that information.
“At the current moment, there is no standardization for any company to define these three elements in any way, or to disclose any particular information regarding them,” Snyder points out. “That’s what is laid out in the guide: ‘Here’s the regulatory landscape, here’s what’s coming down the pike, heads up everyone. And here are some frameworks that you can use, a kind of lens through which you would look at the disclosure process.’ What information should I collect and how should I represent that as part of my disclosure to the interested party?”

A Guide, Not a Standard

The explosion of interest in ESG disclosure has helped draw back the curtain, at least to some extent, on what exactly corporations and other entities are doing to mitigate their environmental impact and improve their performance in areas like diversity and inclusion. However, the lack of standardized reporting frameworks noted earlier has resulted in a confusing patchwork of different disclosure metrics and formats.
“The Guide for Environmental, Social, and Governance (ESG) Disclosure Related to Climate and Community” will not provide that framework.
“It is very important to understand that the new standard guide is not an ASTM technical ‘standard’ of practice or a method,” says Lacey. “It will not tell anyone what to do or how to do it. The goal of the guide is to provide an overview of ESG and climate-related disclosure frameworks, both voluntary and regulatory. It’s like a travel guide to the land of ESG and climate disclosures.”
Lacey, who recently retired as chief regulatory counsel, environment, for the American Gas Association, concedes that having one simple, standardized ESG reporting format would be the ideal situation. “But that is not possible at this juncture, and perhaps not ever,” she explains. “There are too many differences in what is most relevant for different industries and economic activities. Plus, this is an area fraught with strong opposing policy opinions among a very wide range of stakeholders that will have to be arbitrated in the political and judicial realm. There is no sweet spot for consensus, at least for now.”

Given these constraints, Lacey, Snyder, and their colleagues in the ESG task group will continue to focus on providing a useful overview guide with a set of resources, rather than attempting to craft a technical standard or practice.  “Our aim is to provide a tool to understand the basics and web links to help the reader learn more, if they need to do a deeper dive,” Lacey says.
“In this particular guide,” Snyder continues, “what we’re trying to do is enlighten the users as to the range of terminology out there, and the context in which those terms may be used. Our goal here is not to define every possible term or every possible disclosure framework. It’s to provide a context and reference points for individuals that really want to know their responsibilities as far as disclosure or, from a consumer standpoint, where they can go to find this information, and what the entity should be disclosing, what should they even know to ask for.”

Jack Maxwell is a freelance writer based in Westmont, N.J.


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