Corporate sustainability, social and climate change are all fast becoming regulated, which means businesses must account for these aspects of their operations and practises. These are complex issues that require businesses to show they are compliant with regulations and their activities have a positive impact on the globe.
The problem is that reporting for these issues has become more complex, and there’s no single solution. Instead, there is a broad range of reporting frameworks to choose from, and it can be challenging to choose the right one.
Choosing the proper framework varies for each company. In this article, we’d like to explain ESG and compare the different frameworks available. We also share some tips on how to choose your reporting framework.
What is ESG Reporting?
ESG reporting is the process of a company disclosing information on its operations in regard to the environment, social, and corporate governance. The report provides an overview of the company’s impact in these three areas, which can be used by investors, customers, and stakeholders.
The reports are valued as they provide data a company can use to study their impact on sustainability issues. The data also allows them to be transparent about their risks and opportunities regarding sustainability.
ESG reporting is becoming more critical as more investors and other stakeholders want to understand a company’s sustainability, environmental, social, and governance strategies. The reports include both qualitative disclosures of topics and quantitative metrics used to measure a company’s ESG risks, opportunities, and more.
The reports are an effective method for companies to answer these and other questions in one document. In addition, the document is able to cover a wide variety of questions that stakeholders may ask.
While ESG reports are valuable for a company, they are also challenging, with multiple rigorous requirements to meet reporting methodology and more.
When it comes to frameworks, you may already know there are many to choose from. And there’s a confusing mix of acronyms, too. In this section, we’ve created a table to help you know the name of each ESG framework and their focus.
|Framework Name||Topic-specific Disclosures or Multi-topic||Industry-specific or Industry-agnostic?||Standard or Framework/Guidelines||Primary Audience|
|Sustainability Standards Board (SASB)||Multiple disclosures across economic, environmental, and social||Selected industries||Standard||Regulators|
|Principles of Responsible Investment (UNPRI)||Topic-specific questions within the questionnaire relating to investment impacts such as climate-related impacts||Financial sector||Framework||Investors|
|Dow Jones Sustainability (DJSI)||Multiple indicators across economic, environmental, and social||Industry-agnostic||Standard (indices)||Investors|
|Task Force on Climate-Related Financial Disclosures (TCFD)||Climate change specific||Selected industries||Framework||Investors, lenders & insurers|
|CDP||Specific coverage of climate change, supply chain, water, and forests||Selected industries||Framework||Investors & customers|
|GRESB||Multiple indicators across economic, environmental & society||Real estate sector||Standard (indices)||Investors|
|Global Reporting Initiative (GRI)||Multiple standards across economic, environmental & social||Industry-agnostic||Standard||Multiple stakeholder groups|
|International Standards Organisation (ISO)||Topic-specific standards such as GHG, energy management, or social procurement||Industry-specific agnostic||Standard||Multiple stakeholder groups|
|Integrated Reporting||Framework which covers all financial and non-financial issues||Industry-agnostic||Framework||Investors & multiple stakeholder groups|
|Sustainable Development Goals (SDGs)||The global goals cover all issues||Industry-agnostic||Guidelines||Multiple stakeholder groups|
|FTSE4Good||Multiple indicators across economic, environmental & social||Industry-agonistic||Standard (indices)||investors|
Tips for Choosing a Framework
Here, we share our top tips for choosing your framework.
1. Understand Why Your Company Needs to Report
There may be one or more reasons for reporting; however, one of the main reasons is compliance reporting. In addition, regulations are constantly changing, with requirements for disclosure increasingly more demanding.
In addition, disclosures are becoming increasingly required by investors, lenders, and insurers. The reason for this is the awareness that non-financial risks carry an impact on the financial stability and viability of investments.
Reporting is also crucial for organisations disclosing their value creation stories and creating statements on how non-financial risks and opportunities are managed. Then there are frameworks, such as the King Code (in South Africa), that guide businesses to reflect on their business model and value creation strategy to include non-financial issues into their normal business practises.
These frameworks are also helpful in providing information to multiple stakeholder groups. They also increase a company’s reputation and brand building, making these methods transparent.
2. Identify Who is Requesting Disclosures
ESG reporting also provides a business with information on who is requesting non-financial disclosures, the particular disclosures they require, and what they are using these reports for.
What’s more, disclosures and reporting are time-consuming and heavy on resources. So, it’s crucial to understand what the report is and ensure the data is relevant and provided in an effective manner.
3. Know What Information is Needed & Which Framework to Choose
Each type of framework targets a different stakeholder group. What’s more, some frameworks focus on specific topics while others take a broader perspective.
When investors and customers want to learn more about your company’s risks and impacts on climate change, as well as your mitigation strategy, then the CDP is the proper framework to choose.
On the other hand, if multiple stakeholders require disclosures from a broad range of material ESG issues, then GRI might be the best choice.
What’s the Future of ESG Reporting?
ESG frameworks are beginning to converge; the process is made easier by the Corporate Reporting Dialogue, which has been created to manage the choice and alignment of frameworks. The alignment will not infringe on each framework’s specific purpose and audience. Instead, the association of frameworks makes it easier for users of this information.
In addition, there’s a movement toward ESG reporting becoming aligned with financial reporting. As a result, some frameworks are creating standards that mirror those used in financial reporting.
In the long-term, we expect this alignment between financial and ESG reporting to grow as the demand for verification and disclosures continues to grow.
And if you need guidance on choosing the right ESG reporting framework for your business, reach out to a sustainability consultant. They have the expertise and knowledge to help your business manage the reporting process.