GLEIF
“The Legal Entity Identifier (LEI), and its digital counterpart, the verifiable Legal Entity Identifier (vLEI) are emerging as critical enablers of sustainable and resilient GVCs”
“The LEI and vLEI provide a foundation for standardization, interoperability, and trust, helping businesses navigate the complexities of today’s global challenges”
In an increasingly interconnected and dynamic global economy, the significance of global value chains (GVCs) cannot be overstated. They drive innovation, foster international trade, and enable businesses to deliver goods and services efficiently across borders. However, the complexity of GVCs also exposes them to significant risks and challenges, particularly in sustainability, accountability, and resilience.
Climate change, regulatory pressures, and growing demands for transparency are reshaping how businesses operate. GVCs are now under scrutiny for their environmental, social, and governance (ESG) impacts, with stakeholders—ranging from regulators to consumers—demanding greater accountability. Additionally, fragmented standards and taxonomies hinder collaboration and consistency across value chains, creating inefficiencies that slow progress toward global sustainability goals.
In this context, entity identification is the core standard that enables interoperability, discovery and verifiability across platforms, marketplaces and physical borders. The Legal Entity Identifier (LEI), and its digital counterpart, the verifiable Legal Entity Identifier (vLEI) are emerging as critical enablers of sustainable and resilient GVCs. The LEI and vLEI provide a foundation for standardization, interoperability, and trust, helping businesses navigate the complexities of today’s global challenges.
The Role of LEI and vLEI
The LEI is a 20-character, alpha-numeric code based on the ISO 17442 standard. It provides a unique identifier for legal entities engaged in financial and commercial transactions across the globe. It ensures transparency by linking entities to their ownership and key reference data, enabling clear identification through networks, sectors and jurisdictions.
The vLEI builds on this foundation, offering digitally verifiable credentials that enhance security, trust, and efficiency. With the capability of leveraging blockchain technology, the vLEI allows real-time verification of entity identity and data, making it a powerful tool for addressing sustainability and compliance challenges.
As highlighted in recent reports by the World Alliance of International Financial Centers (WAIFC), and at the recent B20 Summit in Brazil, theLEI and vLEI are increasingly recognized as foundational standards for sustainability and financial reporting:
The WAIFC[1] underscores the importance of LEI and vLEI as enablers of trusted, interoperable digital financial ecosystems. It highlights their role in enhancing the accuracy and security of sustainability disclosures, particularly through verifiable digital reporting frameworks.
The B20 report [2]on Funding Sustainability Efforts identifies LEI as a critical tool for harmonizing global regulatory frameworks and taxonomies under its recommended action, “Use Case 3: Interoperability of Regulatory Frameworks and Taxonomies.” By providing a standardized identifier, LEI facilitates cross-border compliance and enhances collaboration among stakeholders.
Another recent use of the LEI in the ESG space is the Spatial Finance Initiative, led by the UK Centre for Greening Finance and Investment (CGFI). CGFI has developed a open asset databases for industries with significant environmental impact, including petrochemicals, pulp & paper, steel, and more, are a major step toward increased transparency in sustainable finance. CGFI is using the LEIs to connect the physical location of assets with ownership information, enabling financial institutions to better assess and manage sustainability-related risks, impacts, and opportunities. This initiative, spearheaded by CGFI, supports the integration of geospatial data with financial portfolios—helping research, financial institutions, and sustainability professionals link asset and company data in a transparent way.
Finally, already in 2022, the Financial Stability Board (FSB) recommended adding the LEI of financial institutions’ counterparties in data reporting templates to help increase the reliability of climate-related data used and reported by financial institutions.
These endorsements underscore the pivotal role of LEI and vLEI in addressing the fragmentation and inefficiencies plaguing GVCs. By fostering standardization and interoperability, these tools empower businesses to meet sustainability goals, navigate regulatory complexities, and build more resilient value chains.
How can the LEI and the vLEI help driving Sustainability and Innovation?
The adoption of the Legal Entity Identifier (LEI) and the verifiable Legal Entity Identifier (vLEI) has far-reaching implications for fostering sustainability, resilience, and innovation in global value chains (GVCs). By addressing specific challenges in ESG reporting, emissions management, trade finance, and regulatory compliance, these tools also catalyze broader systemic changes across industries and geographies.
1. Managing Scope 3 Emissions Across Supply Chains
Scope 3 emissions, which include indirect emissions from upstream and downstream activities, are among the most significant and challenging to manage. The complexity of GVCs often obscures the origins of these emissions and the entity responsible for these emissions, making tracking and accountability difficult.
- LEI for Mapping Emissions: The LEI provides a standardized framework for identifying and linking entities within supply chains, enabling companies to map their value chains and assess their environmental impact comprehensively. LEI can also link the ownership structure, financial products, locations and assets within the value chain.
- vLEI for Data Verification: The vLEI’s ability to provide verifiable digital credentials ensures that emissions data shared by suppliers and partners is authentic and tamper-proof.
By integrating LEIs and vLEIs into their emissions disclosure processes, businesses can enhance transparency, prevent greenwashing, and align with climate action targets. For instance, a multinational company could use LEIs to identify its Tier 1 and Tier 2 suppliers and vLEIs to verify their emissions disclosures, creating a robust and reliable framework for managing Scope 3 emissions. Many large corporations involved in global value chains already possess LEIs due to compliance with other regulatory regimes. Extending the use of LEIs to Scope 3 emissions management is a smart and efficient way to maximize the benefits of this established standard.
2. Enhancing ESG Reporting
The demand for robust ESG reporting has never been greater. Investors, regulators, and consumers expect companies to provide clear, consistent, and credible disclosures of their environmental and social impacts.
- LEI for Standardization: The LEI ties ESG reports to identifiable entities, reducing confusion and improving data comparability across industries and regions.
- vLEI for Real-Time Disclosures: With the vLEI, companies can securely share verified ESG metrics with stakeholders in real time, improving transparency and trust.
Integrating LEIs into frameworks like the Global Reporting Initiative (GRI) taxonomy boosts their value for ESG reporting. This alignment helps businesses meet regulatory requirements while reinforcing their commitment to sustainability. Since many companies already have an LEI, expanding its use to ESG reporting avoids the need for additional identifiers, minimizing extra costs and effort for businesses. Regulators could further encourage LEI adoption as a practical and proportional solution
3. Promoting Sustainable Trade Finance
Sustainable trade finance is critical for fostering green and inclusive growth. Financial institutions are increasingly linking trade finance products to ESG criteria, necessitating greater transparency and accountability from businesses.
- LEI for Transparency: The LEI identifies all parties involved in trade transactions, ensuring clarity and reducing risks such as fraud.
- vLEI for ESG Validation: The vLEI allows entities to present verifiable ESG credentials, enabling banks to assess the sustainability of their activities accurately.
By integrating LEI and vLEI into trade finance processes, financial institutions can encourage sustainable practices while mitigating risks. This alignment supports the broader agenda of driving responsible commerce and innovation across industries.
4. Streamlining Regulatory Compliance
Regulatory requirements are increasingly emphasizing sustainability and transparency, with frameworks like the EU’s Corporate Sustainability Reporting Directive (CSRD) and the SEC’s proposed climate disclosure rules. Both Navigating this complex landscape demands tools that ensure consistency and reliability. The LEI, as a global standard, simplifies compliance by providing a universal identifier that aligns with regulatory expectations. Integrating LEI into their basic reference data allow businesses to adapt to evolving regulatory demands while maintaining operational efficiency.
Currently, the LEI is already included in sustainability linked regulation in Europe (EU Corporate Sustainability Reporting Directive) and in China (the Authority in Shenzhen in which the LEI is being required for organizations when financial institutions reporting environmental information). In addition, the US Securities and Exchange Commission’s proposes the LEI on Enhanced disclosures about ESG’s Investment Practices.
Broader Implications of LEI and vLEI Adoption
- Improving Supply Chain Resilience
The LEI and vLEI enhance supply chain visibility by enabling businesses to map their networks comprehensively and authenticate data in real time. This capability allows companies to identify vulnerabilities and respond proactively to disruptions, improving resilience in the face of global challenges like pandemics, geopolitical conflicts, and climate risks.
- Fostering Collaboration and Trust
Trust and collaboration are essential for addressing complex sustainability challenges. By providing verifiable digital credentials, the vLEI fosters trust among stakeholders, including suppliers, investors, regulators, and consumers. This trust lays the foundation for stronger partnerships and collective action on critical issues like climate change and social equity.
- Driving Innovation and Efficiency
The adoption of LEIs and vLEIs facilitates digital transformation by enabling the integration of advanced technologies such as blockchain, IoT, and AI. These technologies enhance operational efficiency, support real-time decision-making, and unlock new opportunities for innovation. For instance, businesses can use blockchain-enabled platforms linked with LEIs and vLEIs to track the provenance of raw materials or monitor compliance with sustainability standards.
- Aligning with Global Standards
The incorporation of LEIs into frameworks such as the GRI taxonomy and the B20 recommendations underscores their alignment with international standards. This alignment ensures that businesses adopting LEIs and vLEIs are well-positioned to meet global sustainability and regulatory expectations.
Conclusion
The LEI and vLEI are transformative tools for building sustainable and resilient global value chains. These identifiers provide the transparency, interoperability, and trust needed to address today’s complex sustainability challenges.
By facilitating effective ESG reporting, managing Scope 3 emissions, promoting sustainable trade finance, and ensuring regulatory compliance, LEIs and vLEIs empower businesses to lead the transition to a sustainable future. Their adoption is not just a regulatory necessity but a strategic investment in long-term success and resilience.
As global efforts to combat climate change and promote sustainability intensify, the LEI and vLEI stand out as critical enablers for businesses committed to making a meaningful impact.
About the author:
Nuria Vegas Sala is Business Relations Manager at the Global Legal Entity Identifier Foundation (GLEIF)
About the Global Legal Entity Identifier Foundation (GLEIF):
Established by the Financial Stability Board in June 2014, the Global Legal Entity Identifier Foundation (GLEIF) is a not-for-profit organization created to support the implementation and use of the Legal Entity Identifier (LEI) and its digital counterpart the verifiable LEI (vLEI). GLEIF is headquartered in Basel, Switzerland.
GLEIF’s mission is to manage a network of global partners to provide trusted services and open, reliable data for unique legal entity identification worldwide. GLEIF makes available the technical infrastructure to provide, via an open data license, online access to the full global LEI database free of charge to users. GLEIF is overseen by the Regulatory Oversight Committee, which is made up of representatives of public authorities from across the globe.
Diversity and inclusion underpin GLEIF’s values. This is reflected in its workforce of approximately 60 staff from over 20 nations, its operational excellence, and its commitment to open, global participation in the Global LEI System.
For more information, visit the GLEIF website at https://www.gleif.org/en.
[1] Source: https://downloads.waifc.finance/publications/WAIFC%20Crafting%20the%20Future%20of%20Digital%20Sustainability%20Reporting%20Ecosystems.pdf
2 Source: https://b20brasil.org/documents
[1] Source: https://downloads.waifc.finance/publications/WAIFC%20Crafting%20the%20Future%20of%20Digital%20Sustainability%20Reporting%20Ecosystems.pdf
[2] Source: https://b20brasil.org/documents