ESG is an umbrella term that encompasses environmental, social, and governance issues. ESG frameworks are sets of guidelines and principles that help companies measure and report on their sustainability practices. In recent years, ESG has become a critical aspect of corporate sustainability, as investors and stakeholders look to understand how companies are managing their impact on the environment, society, and governance.
How many ESG frameworks are there?
There are 13 commonly referred to ESG reporting frameworks:
|SDG||Sustainable Development Goals|
|GRI||Global Reporting Initiative|
|SASB||Sustainability Accounting Standards Board|
|TCFD||Task Force on Climate-related Financial Disclosures|
|CDP||Carbon Disclosure Project|
|SBTi||Science Based Targets|
|GRESB||Global Real Estate Sustainability Benchmark|
|CDSB||Climate Disclosure Standards Board|
|ESRS||European Sustainability Reporting Standards|
|UNPRI||Principles for Responsible Investment|
|IIRC||International Integrated Reporting Council|
|S&P Global CPA (formerly SAM CSA)||S&P Global Corporate Sustainability Assessment|
|WEF SCM||WEF Stakeholder Capitalism Metrics|
In this post, we’ll look at the first five of these ESG frameworks as they are the most widely adopted amongst businesses. We will look at their requirements, deadlines, geographic jurisdictions, whether they are mandatory or not, and best practices.
Is ESG reporting mandatory?
The mandatory nature of ESG frameworks may vary depending on the country. In certain countries, regulatory bodies such as the Securities and Exchange Commission (SEC) and the Corporate Sustainability Reporting Directive (CSRD) mandate ESG reporting for certain companies, rendering it legally binding in those contexts.
Companies should aim to report on their ESG performance on an annual basis, and to set sustainability targets that are in line with their ESG performance.
Sustainability versus ESG
While sustainability and ESG are often used interchangeably, they are not quite the same thing. Understanding the difference is crucial to developing effective strategies for addressing sustainability challenges.
These issues are associated with a business’s operations, and their importance will differ depending on the nature of the company’s activities, where it is located, and where it operates.
To effectively address ESG issues, companies must first determine which issues are most material to them. Materiality refers to the significance of an issue to a business and its stakeholders. Companies need to identify the ESG issues that matter most to their operations, their stakeholders, and the environment.
Material issues are defined as:
- Issues that are important to stakeholders and can influence stakeholder decisions that directly affect the company.
- Issues that can impact operational and financial performance depending on how the company manages them.
- Issues that can affect society and the environment depending on how the company manages them.
By identifying and reporting on material ESG issues, companies can provide stakeholders with valuable insights into their sustainability practices. These insights can help stakeholders make informed decisions and hold companies accountable for their environmental and social impact.
The most common ESG frameworks and standards
Sustainable Development Goals (SDG)
Businesses should align their goals and strategies with the Sustainable Development Goals (SDGs) and contribute to their achievement. This includes making changes to impractical and unsustainable consumption and production patterns, investing in sustainable solutions, and finding ways to reduce negative impacts on the environment and society. By contributing to the SDGs, businesses can also improve their reputations, attract investors, and create new markets for sustainable products and services.
Global Reporting Initiative (GRI)
The GRI is the world’s most widely used ESG reporting framework. It provides a comprehensive set of sustainability indicators and guidelines for companies to report on their sustainability practices. GRI is a voluntary framework, with no set reporting deadlines. Companies can choose to report using GRI standards on an annual or biennial basis.
Sustainability Accounting Standards Board (SASB)
SASB is a non-profit organisation that provides sustainability accounting standards for publicly listed companies. It provides a set of industry-specific standards that companies can use to report on their ESG performance. SASB standards are mandatory for publicly traded companies in the United States, but they are also used by companies globally.
During the summer of 2022, the Value Reporting Foundation, which encompasses the Integrated Thinking Principles, Integrated Reporting Framework, and SASB Standards, merged with the IFRS Foundation. As a result, the IFRS Foundation created a new organisation called the International Sustainability Standards Board (ISSB).
Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD is an international organisation that provides guidelines for companies to report on their climate-related financial risks and opportunities. The TCFD framework provides a comprehensive set of indicators and recommendations for companies to use in their ESG reporting. The TCFD framework is voluntary, but its use is encouraged by regulators and investors worldwide.
Carbon Disclosure Project (CDP)
The CDP is a non-profit organisation that provides a framework for companies to report on their carbon emissions and climate change strategies. The CDP framework provides a set of indicators for companies to use in their ESG reporting, and it also provides a platform for investors and stakeholders to engage with companies on their climate change practices. The CDP framework is voluntary, but its use is encouraged by regulators and investors globally.
Jurisdiction, requirements, and best practices for ESG framework compliance
Globally, companies rely on ESG frameworks that apply across jurisdictions. To offer a complete picture of their sustainability practices, companies should use a mix of ESG frameworks in their reporting. Additionally, they should ensure that their ESG reporting is consistent with their broader sustainability strategies and that their sustainability goals are aligned with their ESG performance.
Effective ESG practices require a holistic approach that encompasses all aspects of the organisation, from its operations to its governance structure. Some of the best practices for ESG include setting measurable and achievable sustainability goals, engaging with stakeholders to understand their expectations and concerns, integrating ESG considerations into decision-making processes, establishing strong governance structures to oversee ESG performance, regularly reporting on ESG performance, and ensuring transparency and accountability throughout the organisation. Additionally, companies should strive to continually improve their ESG practices and engage in ongoing dialogue with stakeholders to ensure that they are meeting expectations and contributing to a sustainable future.
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