Environmental, Social, and Governance (ESG) investing has gained immense popularity in recent times, and investors are now expecting more from organizations than ever before. In order to cater to these demands, transparent, accurate, and timely reporting have become essential. However, with a plethora of ESG reporting frameworks available, it can be overwhelming to decide where to begin. So, the question arises, which framework should a company choose to start with?
In this article, we will take a look at what an ESG reporting framework is before briefly diving into 6 of the most common ESG reporting frameworks including GRI, CDP, TCFD, SASB, ISSB, and CSRD. After reading, don’t forget to check out the latest FigBytes webinar, Become an MVP of ESG, now on-demand!
What Are ESG Reporting Frameworks and Standards?
An ESG framework is a set of guidelines for preparing ESG reports and disclosures. An ESG standard is a prescribed methodology for preparing ESG reports and disclosures. The difference is a framework allows for some flexibility in defining the direction of the report, whereas a standard contains specific and detailed criteria or metrics that should be included in any report or disclosure.
ESG reporting frameworks and disclosure standards play a vital role in standardizing ESG reporting. In the absence of such frameworks, corporations might cherry-pick the metrics that paint them in a favorable light. Consequently, investors may find it challenging to pinpoint organizations that are genuinely committed to achieving their sustainability objectives while minimizing their adverse impact on the environment and society.
GRI (Global Reporting Initiative)
The Global Reporting Initiative or GRI is an independent, international non-profit body that helps businesses, governments, and other organizations report their sustainability impacts. GRI is considered to be the most widely adopted global standard for sustainability reporting, with 73% of the world’s 250 largest companies preparing their reports using this framework.
The GRI Sustainability Reporting Standards are grouped into three categories:
- Universal: These are standards that apply to all reporting companies. They include general disclosures on organizational details, the entities included in reporting, the reporting period, frequency and contact point, and external assurances.
- Sector Specific: There are four sectors for which GRI has developed standards to support material disclosures. These include basic materials and needs; industrial; transportation, infrastructure & tourism; and other services and light standards.
- Topic Specific: The topic-specific standards dive deeper into economic, environmental, and social impacts. Reporting companies will make disclosures on anti-corruption and marketing presence, materials and energy, human rights, and diversity, among others.
The GRI standards are public, freely available, and can be downloaded and used by any public or private organization for sustainability reporting. This set of standards is designed to be a global yardstick for organizations to understand and communicate their impacts. They cover various topics across economic, environmental, and social domains, including climate change, human rights, occupational health and safety, anti-corruption, and others.
CDP (Formerly Carbon Disclosure Project)
Founded in 2002, the CDP, formerly known as the Carbon Disclosure Project, is an international non-profit organization that runs a global environmental disclosure system for investors, companies, cities, states, and regions. The CDP disclosure system enables organizations to report under three main focus areas:
- Climate Change
- Water Security
CDP provides a variety of support materials to help organizations disclose through the CDP platform, such as questionnaires, reporting guidance, and scoring materials. By completing CDP’s questionnaires on the focus areas above, companies can identify ways to manage their own environmental risks and opportunities and provide vital information back to their stakeholders.
CDP also developed its widely known, quality-reviewed GHG-modelled emissions data set in 2015, which helps assess carbon risk for companies and investor portfolios. Apart from a system for disclosure, the CDP also provides a rating or scoring mechanism. The CDP score is based on the depth of disclosure and level of company action. Their annual A-List recognizes organizations leading the way on transparency and sustainability efforts.
TCFD (Task Force on Climate-Related Financial Disclosures)
The TCFD or Task Force on Climate-Related Financial Disclosures was established by the Financial Stability Board (FSB) in 2015. It is an industry-led organization set up to develop climate-related financial disclosures. The TCFD aims to help investors identify climate change risks companies face so that they can make well-informed investment decisions.
The disclosures ultimately enable businesses to communicate how climate-related risks and opportunities are impacting and will affect future financial performance. The disclosure recommendations are structured around four thematic areas:
- Risk Management
- Metrics and Targets
In July 2023, following the publishing of the ISSB Standards, which are consistent with the four core recommendations and eleven recommended disclosures published by the TCFD, the Financial Stability Board announced that the TCFD had completed its work and the IFRS Foundation would take over the monitoring of the progress on companies’ climate-related disclosures from the TCFD. Although the work of the TCFD is completed, the TCFD recommendations remain available for companies to use.
SASB (Sustainability Accounting Standards Board)
The Sustainability Accounting Standards Board (SASB) is a non-profit organization that provides global standards for disclosing financially material sustainability information to investors. The sustainability accounting standards connect businesses and investors on the financial impacts caused by sustainability issues.
The organization offers a set of industry-specific standards covering 77 industries across 11 categories.
It has identified 30 issues that impact an organization’s financial performance under five major sustainability themes:
- Social Capital
- Human Capital
- Business Model and Innovation
- Leadership and Governance
The standard also provides a Materiality Map that helps companies determine the most relevant disclosure topics based on their industry. In February 2023, ownership of the SASB standards transitioned to the ISSB, International Sustainability Standards Board, at the IFRS Foundation.
ISSB (International Sustainability Standards Board)
The International Sustainability Standards Board or ISSB is run by the IFRS Foundation, a leader in global accounting disclosure frameworks. The introduction of the ISSB and a new partnership with GRI will help harmonize ESG reporting with already accepted standards for financial reporting, giving investors the confidence to make informed risk-based decisions based on clearly reported sustainability data.
ISSB takes the myriad of frameworks and articulates a unified reporting standard. As a leading framework across corporations, industries, and geographies, ISSB provides sustainability leaders with clear direction and requirements.
On June 26, 2023, the ISSB published its global sustainability and climate disclosure standards. These finalized standards include the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and the IFRS S2 Climate-related Disclosures. These standards form a comprehensive global baseline of sustainability-related disclosures designed to meet the information needs of investors in assessing enterprise value.
CSRD (Corporate Sustainability Reporting Directive)
The EU’s Corporate Sustainability Reporting Directive (CSRD) is the next evolution in ESG reporting for EU businesses. While the CSRD is the directive that sets the groundwork for reporting, companies will be required to follow the European Sustainability Reporting Standards (ESRS) in terms of the disclosures to be provided. These are sector-agnostic standards, meaning they apply to all eligible companies regardless of industry.
These standards include disclosures in the following areas:
- General disclosures
- Environmental disclosures
- Governance disclosures
- Sustainability disclosures
While there are individual documents for each standard and set of disclosures, it’s important that they also be viewed as a whole program. Reporting organizations need to familiarize themselves with the entire program and understand its interconnectedness before beginning data gathering. For many organizations, their first CSRD report is not due for quite some time. Despite this, the time to start compiling information for reporting is now, especially for those organizations not previously captured by the NFRD and new to ESG programs.
How to Get Started with Reporting Frameworks
The best time to start implementing an ESG reporting program is now, while the requirements for many industries are still voluntary. Your organization can take time figuring out how to compile the necessary information, complete the quantifications, and accurately report your data in a way that’s meaningful and verifiable to corporate leadership, shareholders, investors, and the community.
But staying on top of the changing framework landscape can be a full-time job on its own. Knowing which frameworks apply to your industry, what to do when your framework consolidates with others, and how to use different methodologies to accurately report on the progress of your ESG program is certainly time-consuming.
Starting off on the right foot means finding partners who can streamline your data collection and use verified methodologies to quantify emissions and document your progress in real-time. FigBytes is the premier software to manage ESG and sustainability data, reporting, strategy, and stakeholder engagement for all your purpose-driven goals.
Choosing a partner like FigBytes means you’ll set up your reporting program right the first time, and the platform will do the work to stay ahead of evolving frameworks and make sure your program is up to date.
To learn more about how technology can help you streamline your sustainability reporting program, check out our latest webinar, Become an MVP of ESG: Leveraging Tech for More Comprehensive Sustainability today.