Different kinds of ESG reporting frameworks
When it comes to financial reporting, companies the world over follow a systematic process. The manner in which information is to be presented, the exact data that is to be published and the guidelines that are to be followed are all clearly defined.
However, when it comes to non-financial reporting, there are a lot of dissimilarities between the frameworks that exist. With no uniform set of guidelines to follow, companies end up reporting information that may or may not be relevant to their industry, making it nearly impossible for stakeholders to rank and trust them.
Meaning of the ESG Framework
A framework is a set of regulations that companies can follow to administer their Environment Social Governance (ESG) engagements. They are created by renowned institutions after taking into account the views of various industry experts and regulators.
As per an Ernst & Young estimate, currently, there are over 600 ESG frameworks and standards around the world. While some of them apply to specific countries and others to specific industries, there is no one common ground that companies can use for their ESG disclosures.
ESG Frameworks help companies decide what matter to report, how to measure it and what goals to set. While frameworks serve as directions and guidance notes, ESG standards on the other hand are ESG benchmarks that companies should strive to achieve.
Efforts are being made to consolidate the existing frameworks for ease of sustainable reporting. Further, up until now, companies were adopting ESG frameworks voluntarily, but in September 2021, the US president announced that substantial steps are being undertaken to mandate ESG reporting so that adverse business effects are disclosed and can be properly analysed.
Widely used ESG frameworks
Out of all the frameworks that exist, there are a few well-established frameworks that have been adopted on a larger scale than others. Also, some of the reporting organisations are combining their frameworks and strategically developing one framework to harmonize reportable data.
1. Global Reporting Initiative (GRI) — The most popular of all the ESG standards, as per a 2020 KPMG Global Sustainability Survey, the GRI is used by 190 out of the 250 largest companies. Within the GRI, there are 3 sets of standards;
· Universal — These standards apply to all companies and cover the basics of the company’s operational activities.
· Topic-specific — These standards are split into 3 series based on materiality — 200 economic topics, 300 environmental topics and 400 social topics.
· Sector standards — These consist of four priority groups that are a sector’s most significant impact areas. Priority group 1 is made up of basic materials and needs, priority group 2 includes the industrial aspect, priority group 3 comprises transport, infrastructure and tourism and priority group 4 looks into light manufacturing and other services.
2. International Sustainability Standards Board (ISSB) — The ISSB was formed by the consolidation of the Value Reporting Foundation and the Climate Disclosure Standards Board. Supervised by the International Financial Reporting Standards (IFRS), the ISSB has also formed a new partnership with the GRI and is expected to set new standards for sustainability giving investors the confidence to make informed decisions.
3. Carbon Disclosure Project (CDP) — This is a global non-profit organisation that runs disclosure systems for investors, companies, cities and states. CDP’s primary area of focus is on areas of environmental sustainability, climate change, forests and water security. They also launched a quality-reviewed GHG-modelled emissions data set in 2015, which has been widely used for investment decision-making and assessment of carbon risk.
4. Science-based targets (SBTi) — Concentrated on reducing carbon emissions, SBTi is a private-sector player that helps companies quantify their carbon emissions and provides science-based methods for reducing emissions and reaching net zero targets by 2050.
5. Global Real Estate Sustainability Benchmark (GRESB) — An investor-led organisation, the GRESB seeks to provide validated ESG data to organisations all around. They collect, validate, score and benchmark ESG data from individual entities to present it to business communities. Focused on the real estate sector, the GRESB also reports annual benchmarks in real estate development, infrastructure funds and infrastructure assets.
6. Task Force on Climate-Related Financial Disclosures (TCFD) — Established by the Financial Stability Board (FSB), back in 2015, the TCFD is an industry-led organisation that develops financial disclosure related to climate. It recommends disclosure recommendations around four key areas — governance, strategy, risk management and targets. It also lays down the best reporting practices.
Companies that are looking at building long-term value should align their objectives with stakeholder values and communicate the same impactfully. An ESG report that can effectively convey the organisation’s ESG strategy in a visually appealing manner requires a definite level of prowess. This is where specialised business design agencies can help organisations elevate their brand story, communicate their strategy and gather stakeholder attention.
Report Yak is an agency focused on reporting and consists of expert content and design teams that can guide companies to produce the results they want. Feel free to check out our work here or get in touch with us to discuss your next report!
Tags: ESG Reporting, ESG investing, Environmental Reporting, Social Reporting, Governance Reporting